Before I go into the setups I would just like to take a moment to touch on a few issues. I believe silver is in the process of breaking out as I type this. The last few days have been somewhat perplexing in that particular market as the flight to safety has been the USD and treasuries while silver has moved in conjunction with the markets. I put this down to ‘hot’ money fleeing silver as it did everything else these last few days. However I am still a firm believer in the inflation trade and the fact that silver will, in short order, punish all those who dared to bet against it severely. I’m sure the images of American made bombs raining down on Gaddafi’s forces in Libya as they scramble to destroy oil infrastructure before they are toppled will do wonders for the silver market, as will Iran supporting Shiite rebellions where ever they may occur. I expect to be proven correct in short order, and if I am not… well its only money and there are, after all, many more important things in life.
This market bounce we are seeing here will be, I believe, a 1-3 day respite before our next leg downwards. We are still below the Egypt lows on the S&P500 (the SPY is slightly above them) and todays price action was not at all what you would expect from bulls aggressively buying the dip and driving the market higher. I expect we could see a bounce to as high as 1300 before we begin our next leg downwards and also believe we have another 3-7% of downside left – depending on how bad the news gets. Again, I acknowledge I could easily be wrong, but I just don’t see the risk/reward in getting long a market that is overextended, correcting technically, and prone to selloff violently at the slightest peep (think EU officials making ‘obvious as fuck’ statements about the situation in Japan).
While we are on the topic of Japan I would like to highlight two distinct things. The first is that the fact that their infrastructure has been largely wiped out along the coast line is basically forgotten and discounted at this point (Kedzilla pointed that out to me). The second is, how can you justify to opt NOT to close your markets but instead just run your printing presses overtime, creating $360 billion USD in a matter of days. I expect this to get A LOT worse before it gets even marginally better.
For tomorrow I will be watching the following names, as they have all reported earnings (and trade on NYSE):
IHS: EPS 0.75 vs consensus 0.74; YoY rev growth 22.6%
LDK: EPS 1.09 vs consensus 0.92; YoY rev growth 36.3%
NKE: EPS 1.08 vs consensus 1.12; YoY rev growth 7.3%
NYW: EPS 0.24 vs consensus 0.17; YoY rev growth 1.7%
For additional longs I will seek out stocks with above average volume in the following sectors: Oil and gas (integrated, drilling.. etc), Farm & Construction machinery, Agricultural Chemicals, and Pollution & Treatment controls.
Shorts will be drawn from the following sectors: Airlines, Department stores, Apparel stores, Food wholesale and Meat products.
This is a list of the sectors that I believe have preformed the best/worst over the last week. As a caveat, on weakness I will also short solars as their run up is knee jerk, retarded, and detached from reality (although that last one could apply to many things in this market). I will post some charts in the morning if I find the time.