Marketview: There are Cliches for Markets Like This

QE3, Blah, blah.

I’m as sick of the coverage as the rest of you.

Unfortunately, there was one event that defined this week.  The Fed announced their plan for further quantitative easing in the form of additional MBS purchases.  The markets were definitely surprised by the scope and the open-ended nature of the action.  I’m sorry for bringing it up again.

I wrote last week that I expected materials, energy, and financials to lead the market as we transition to a more mature phase of the rally.  We saw broad follow thru in these sectors, and this should continue until it breaks.  This is important because the leadership is coming from sectors that are very oversold relative to the broad index.  In other words, these sectors have a long way to run even though the S&P itself might seem overbought.  Therefore, if these sectors continue to work, I do not expect a meaningful pullback.  This is standard, almost cliched, bull market activity.  I will be focused on $BAC as a bellwether for the next couple weeks.  Watch the glide path of $BAC as it tries to make a yearly high.  The degree to which it struggles or stalls will offer some clues as to the staying power of the market.

Next week features one of the most misunderstood and mythologized market events: option expiration and a quad-witching.  Traders and investors are constantly asking themselves where the edge is and how they can game such a massive structural event.  I am very fortunate to have a quantitative data engine that chugs through the data and cuts out all the heuristic BS to give very clear signals that lead to quality idea generation.  In the coming months you may have a chance to play around with it as I open it to more users.

Winners: $BAC, $MS, $C, $HAL, $APC, $SLB, $CAT, $FCX

Losers: $MRK, $PFE, $BMY, $EMR, $SO, $KFT, $MO, $CL


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