US markets opened at upside prices not seen since August 1, 2011, but were unable to hold onto those breakout levels despite finishing positive on the day. The Dow finished up 60 points, or 0.48%, while the tech-heavy Nasdaq was strongest, up 0.64%. We have now seen several gaps up in 2012, but so far none have been buyable.
Traders holding multiple positions overnight have been rewarded by this methodical up move, but the action has been much more stock-specific for intraday traders. At least correlation in the market has begun to move away from 1, making it possible to return to relative strength/weakness based stock picking strategies.
I do feel like I write the same closing note each time we gap up like this. The indices never really have upside after the open-- but stocks do give opportunity intraday for the market timer. As we extend higher it makes it harder to be in a tier 2 or 3 long, and managing positions is key.
Today was the first time in while I was “net short” intraday when it felt like we would get a sneaky mid-day pull-in. The macro trend since the December 20th Gap and Go still controls this market, and even further back the October 4th Reversal was really the “day to take notice”.
At this point it’s hard to be all-in long, but I have been leaning that way all year. The further we run, the more positions I will pare down and the more hedges I will put on to help with down opens.
Banks couldn’t really brush off the pressure like they did with JP Morgan (JPM) earnings. The Citigroup (C) numbers were atrocious, at least Wells Fargo (WFC) beat expectations and prevented a full-on disaster in the sector. WFC has become the clear-cut best in the group. JPM, the other bank that had shown strength recently, also broke Friday’s low, which is not a good sign. This will be an important area to watch over the next few days. Goldman Sachs (GS) and Bank of America (BAC) earnings will be very important.
Uptrends are very profitable to ride as long as they stay intact, BUT I do see a small ascending channel developing. Ascending channels typically resolve to the downside (and descending channels to the upside. A daily close below 1280-1285 would put some short term pressure on the market.
*DISCLOSURES: Scott Redler is long VXX, SPY, OIH, AAPL, RIMM, QCOM, NFLX, WYNN, POT, CSCO, and GOOG calls. Short DIA. (I also bought some VXX for the the first time in a month)
