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The major indices resumed their two-month advance this week, albeit modestly, with the bulk of gains coming on Wednesday — S&P 500 +1.3%, Dow +1.7%, Nasdaq +1.5%, Russell 2000 +1.7%. It was a choppy, volatile week of trade due to a myriad of catalysts, beginning with swine flu on Monday and ending with the announcement on Friday of a delay for the release of the government’s bank stress tests.
Ahead of the jobs report Friday, the market will get an early read on private-sector employment from ADP on Wednesday. On Monday, data on pending home sales for March will be released. On Tuesday, the Institute of Supply Management is due to report its April index for the service sector of the economy. And Federal Reserve Chairman Ben Bernanke is due to testify before Congress. The unemployment rate by the way is expected to hit 9% with the April report.
Chrysler went bankrupt and personally I don’t believe that it will ever re-emerge and I believe it will just dissolve into nothingness. It won’t happen tomorrow but I think it will happen. What a combo platter, Chrysler and Fiat, two drunks holding each other up and don’t forget the auto workers union which now owns 55% of the new deal. What a complete comedy of errors.
In my opinion it will be a big week for he financials, some will argue that whatever the outcome, the results are already baked in the cake. I disagree and I think we will get a much better feel of what is real and what is Memorex. The cover story of Barons this week is titled “The Other Shoe” , and guess what they are referring to? You got it, commercial real estate. As a guy that has made a bit of money and a reputation from being short this bear market I will be the first one to admit that I’ve been amazed at the huge move higher in the REIT’s. This has been the most advertised and talked about “sector crash” of anything I’ve seen, yet the group has moved off the bottom with everything else. I guess a rising tide does lift all boats, this boat however has thousands of pinhole leaks and obviously are not visible to the Pollyannas. I trade Simon Properties ( SPG ) often on the short side and SRS on the long side, I always have them close by, because when the first hedge fund blinks the party will be over. I compare the lack of capitulation in this group to the financials about a year ago, no one wanted to sell first, it was a ridiculously ” crowded ” trade, but when the first guy blinked the underpinnings just collapsed. Fear rushed out the door and prices imploded. I was amazed at the obviousness of the financial implosion a year ago, so now I’m just trying to remind myself of what could happen again, this time on the commercial side of things.
Even if the stress test results are favorable to the financials it may just set up an excuse for investors ( not really investors, most of this has been fast hedge fund money ) to sell the news. Sectors are overbought, the financials, tech, semis, home builders and some others, but that is what happens in bear market rallies, unless you believe this is the start of a new bull market. I don’t believe we are, I think we are rallying off lows and are recouping some of the forced selling that occurred with the hedge fund liquidations.
I have some names and observances below but I am reluctant to get too aggressive, and although I am seeing some beautiful short set-ups, I don’t want to publish them until I have confidence that trend has reversed. Remember, I like high percentage trades and I like to follow the trend and quality over quantity is the mantra, however, if the rally continues there will be longs aplenty.
Here is our calendar for the coming week and some names to watch. Don’t forget EOG and CREE which are looking great, they were posted Thursday evening.
