Monday, July 13, 2009

Monday Morning Musings

Good Monday morning. Hope everyone had a good weekend. There aren't any real market moving releases this morning, in terms of economic data or corporate earnings. In such a vacuum, a big analyst upgrade or downgrade can move the market.

Step in spotlight-loving bank analyst Meredith Whitney, who surprisingly upgraded Goldman Sachs (GS) this morning, and also made constructive comments on the bank sector as a whole. She thinks the bank stocks could see a relief rally in the near-term, before another dip after that.

GS is up +4% on the upgrade, topping $147. The bank index (XLF) is also the leading sector on this news, +3.2% right now. She said Goldman likely had a strong trading quarter, as well as benefitting from high volumes of debt underwriting. This is also one of her themes on why she is bullish going forward, as Goldman should be able to capitialize on all of the debt issuance she sees in the pipeline.

Commodity markets remain weak this morning, as the dollar trades higher and oil and gold trade lower. Oil is down again, trading near $58 today. This is weighing on the energy sector (XLE), which is the weakest sector today, down more than 1%.

Asian markets were weak overnight, although Europe is strong this morning; the 10-year yield is up slightly to 3.30%; and the VIX is plunging -6.4% right now all the way down to 27.15. The VIX was unable to stay above its 50-day last week, and now looks poised to test that 25 level again.

Trading comment: The S&P 500 finished its 4th consecutive week lower last week, and the markets are once again in oversold territory. I think that sets us up nicely for a relief rally in the near-term, although earnings seasons heats up this week, and one poor earnings report from a big company could change short-term sentiment in a hurry.

Speaking of sentiment, bearish sentiment has grown quite a bit in many of the indicators I follow. Some of them are back to levels that they hit near the market lows in March. This is another indicator that the market could rally in the near-term, as bearish sentiment seems to have risen too far, too fast, and as it unwinds it bit it could help push the market higher.


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