Monday, April 20, 2009

Monday Morning Musings

The market is getting whacked in early trading on the heels of profit taking in the banking sector, after Bank of America (BAC) reported higher than expected loss provisions. Also, given that the market has now rallied for six consecutive weeks, this profit taking should not be surprising. It's just that this morning it looks like everyone is trying to sell at the same time.

The bank index is down the most so far, with the BKX -8% after BAC's loan loss provision climbed $5 billion since last quarter. This item is overshadowing the company's $19 billion in pretax income, and bringing into question some of the stabilization that investor's felt after hearing from companies like Goldman Sachs (GS) and Wells Fargo (WFC).

Credit card companies are also lower after presidential economic adviser Larry Summers said in an interview this weekend that the White House will focus on credit card abuses. This may weigh on the profits of those companies, but even the average investor would applaud this move as the credit card companies simply abuse their privileges, imo. I see my interest rates change constantly, and I think sometimes they try to delay posting payments simply to implement those egregious late fees.

In other news, Oracle (ORCL) has stepped in and said it will buy Sun Mirco (JAVA) for $9.50 after talks with IBM faltered. The news has JAVA spiking more than +30% again. Also, both Pepsi (PEP) and Eli Lilly (LLY) reported better than expected earnings this morning. Let's hope they set the tone for the bevy of earnings reports still to come this week.

Asian markets were mostly higher overnight, while European bourses are lower this morning; the dollar is making a one-month high vs. the Euro, while lower vs. the Yen; oil prices are plunging today, while gold prices are higher; the 10-year yield is lower, down to 2.85%; and the VIX is spiking +12.7% to 38.25, after a multi-week slide to new lows for the year.

Trading comment: I am glad I did that profit taking on Friday, at least for the moment. This choppy environment lends itself to active trading. I still believe that many managers are underinvested here, so I doubt this pullback will be all that deep, but anything can happen. Lately, pullbacks have been one and two-day affairs. As such, I may start buying back positions if the market is down today and again tomorrow. But it's still early, so let's see how the day shapes up.

long WFC


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