Friday, April 17, 2009

Late Day Fade Into Expiration, But Some Hidden Momentum Regardless

Just looking at the major indices, it looked like a very mild day for the market. There was some late-day selling that left us close to flat, but under the surface there was some very strong momentum.

Regional banks were the leaders, as there just doesn't seem to be anything perceived as bad news at all in that sector. Maybe expectations just got too low, but the optimism about a bottom for banks is dramatic. Maybe in part it's just shorts being run over, but there is no shortage of positive emotion for the banking group right now.

Other groups showed some strong positive emotions as well. Bulk shippers were extremely strong on news of a financing deal for DRYS. Oils came on late in the day, and homebuilders built on their recent breakout.

Even further under the surface, the hot-money boys are busy chasing select small-caps. There is a lot of junk seeing some chasing for the first time in a while. Some worry that such speculation is a sign of overconfidence, but this sort of trading action will often fool you with how long it will persist.

I know a lot of folks are looking for the market to take a breather. Even some of the bulls would like to see things pull back a bit and reset so that we can have some better entry points. Some people never want the market to go down, but it is inevitable, and when we are too overheated, the reversals can be quite vicious once they kick in.

Next week we have a lot more earnings reports. So far it has been mostly the banks that have been driving the reaction to earnings, but now we are going to see some other sectors as well, which may have a whole different set of expectations.

In more detail, the afternoon rally faded, as continued strength in the financial sector helped take the broader stock market markedly higher in afternoon trading, but momentum eventually slowed and stocks were left to finish with modest gains... Buying in the financial sector followed optimistic comments from regional bank BB&T, which essentially reassured investors that banks can still make money while building loss provisions. The comments helped regional bank stocks swing from an early loss to close the session with a 8.1% gain. BB&T also won favor for regional banks by reporting first quarter earnings of $0.48 per share, which bested the consensus estimate of $0.31 per share... With the help of regional banks, financials were able to reverse an early loss of nearly 2% to close with a gain of 1.3% after being up more than 3% at their session high. Still, financials were able to log a weekly gain of 4.1%, which was helped along by improved commentary from several widely held companies during the past week... Though it was a leader during the last several sessions, financial giant C was a laggard this session. The company reported a loss of $0.18 per share for the first quarter. Analysts had expected a loss of $0.34 per share. That initially provided support for Citi's stock, but buyers pushed back when the company indicated it expects second quarter charge offs to increase, and it doesn't see any reduction in credit costs from prior forecasts. Citi finished 9% lower, but still managed to gain almost 21% for the week... Industrial giant and economic bellwether GE saw its shares climb to their highest level in more than two months this session. The stock has been battling to restore investor confidence after speculation about the health of GE Capital, along with a dividend and ratings cut. GE took a step in the right direction this morning by reporting better-than-expected quarterly earnings of $0.26 per share. The consensus stood at $0.21 per share... Internet giant GOOG brought large-cap tech stocks back into focus by unveiling record high adjusted earnings. The company brought in $5.17 per share, which topped the consensus estimate of $4.93 per share. However, Google's results failed to inspire buying in other large-cap tech stocks, which caused the tech sector to lag the broader market and close with a 0.2% loss... Trading volume climbed to its highest level in nearly one month as almost 2 billion shares traded hands on the New York Stock Exchange. While volume is typically regarded as a sign of conviction, this session's volume was distorted by the expiration of stock options.

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