Financials Breath New Air in Rally

FASB meeting**PODCAST UPDATE- The subscription problem has been resolved and you are now able to subscribe to CMS Premium Podcast, Click Here to Subscribe.

Today, bulls answered the two day consecutive sell off with rather strong gains for the Dow, mostly lead by financials. At one point the Dow was up over 200 points, but ended with a rather strong pull back the last 45 minutes only closing up 87 points. There was no significant news in my mind that caused for the aggressive buying, which leads me to believe that, once again, investors are buying on speculation, not actual data.

The market was pulled up by the strong day in financials. Fundamentally, this is surprising, considering all of the bad media that the autos have been getting and the real possibility of bankruptcy for GM and Chrysler. However, as I discussed in Saturday's post, there are a lot of "influencing announcements" which are right around the corner that investors are obviously feeling that are going to have a positive impact on trading. However, this is a very risky game to play. If you want to play the "speculation" bumps, make sure to ride them before the announcement, because lately, the actual data released has usually been more of a downer than what investors had originally anticipated and can lead to a reverse in trading.

My guess for today's praises is the anticipation of the FASB meeting being held Thursday to discuss changes in the mark to market accounting, which I previously discussed here. It is hard to see FASB completely doing away with mark to market, as it would most likely cause more harm than good. However, many believe that there will be enough alteration that will give banks a lot more breathing room on their balance sheet. The only problem is that much of that was factored in today's trading and that anything less than a significant alteration in the practice would most likely lead to a very negative response from the market. This is why we saw SRS and FAZ get hammered today, as much of their success relies on the compounding debt plaguing the financial institutions. However, whatever the result, bank's problems are far from over, in my mind, and these speculation rallies set up good opportunities for short term shorting for quick profits.

BBY (Best Buy) is one that I have been eyeballing along with GS for opportunities to short here in the near future (I discuss it more in today's podcast). I think both are susceptible to significant downside risk as markets continue to become non-reliant and the economy worsens. When indeed deflation hits hard, I would expect BBY and other electronic depots to get hit pretty hard, especially since much of their inventory is purchased with debt. So I'll keep my eye on these two.

Currently, markets are down in after hours, and both FAZ and SRS are up rather strongly, especially for after hours trading. It is very common to see an even bigger sell off following days of strong "speculative trading", which I believe was what we saw today. However, with one more day left until the FASB meeting, enough noise about it on the news stations could still give some financials a bit more love, but I do feel they got most of their "pre-bounce" today.

So, Thursday will be the critical day to watch as all eyes will be on the FASB meeting. I still see oil and gold having some more downside risk before seeing buy opportunities of the two, however, agriculture has been looking very strong lately. Remember, E*Trade is running a great promotion right now where you Get 100 Commission Free Trades in an E*TRADE IRA. No-fee, no minimums. Definitely check it out as it is becoming a good time to setup up the IRA's, as more and more future tax risk is coming. Happy Trading, we'll see you tomorrow.


  1. sid Says:

    you're very even steven, cool hand luke with your posts. the right temperment to trade these stormy days. keep up the good work.

  2. Anonymous Says:

    I know this must be April Fools...

    This whole FASB thing about Mark to Market accounting being changed really seems like the Casino is favoring the players in this case. Seems too good to be true.

    Banks rallying and the whole market is behind it? I mean most everyone is saying that this will help the banks bottom line!?! How can you change the rules in the middle of the game?

    Actually, it's retro, so it will be changing the rules in the middle of the game that cause the first part of the game not to count!

    I think the casino is setting up to body slam their players...

    This will end bad. Usually, you don't get the information to trade like this ahead of time. More than likely, it's buy the rumor, sell the news... even if the news is good the market should sell off and if its bad, then it will sell off hard....

    After this what is left? Uptick Rule? And Earnings? Doesn't look good for the Bull Bus...

    With such light volume... the big players are waiting to stomp the little guy and his IRA once again.

    Does the Unemployment numbers mean anything in this market?

  3. Penny Stocks Says:

    That's awesome. I'm so glad you started blogging and that I can call you my friend. Keep posting and I'll keep reading.


    Interesting post on financials.

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