S&P 500 Soars 10% This Week
US Markets recorded their best week since November, riding four consecutive days of gains, making traders question whether we have found the bottom or if this is merely a bear bounce.
Tim Seymour saw today’s market moves as a “digestion day,” where stocks didn’t give up their gains, but this may be a result of short covering and not many traders going long. He points out that the dollar was weak, setting things up for riskier trading. Seymour doesn’t necessarily see the market taking off after today’s gains.
But the other traders have a different perspective. Joe Terranova sees the held gains as encouraging, with any good bull market consolidating and holding its upswings. He says that if you were a buyer last week, this week at least makes you feel like you’re in a bull market, and sees room to move to the upside.
Zachary Karabell is a little more pragmatic about the situation, saying that it doesn’t matter whether we’re in a bull market or bear market, as we’re still way off the highs of last fall. Instead, he suggests focusing on what has been working on a fundamental level. Whether it’s the commodities, healthcare or tech, you need to pay attention to trades with fundamental realities.
Pete Najarian reminds you to look at what works. Regardless of whether it’s a bull market or a bear market, right now we’re in a trader’s market. He points to the Financial SPDR , in that we’ve expected financials to lead the way to recovery, and the sector is up over 33% this week alone. Following suit are sectors like the industrials and the YRC Worldwide , which is up over 80% this week.
Volatility Showing Seeds of Recovery?
Watching the Volatility Index has been a key tool for traders in this market, but is it starting to show seeds of recovery? Compared to levels several months ago, Tim Seymour sees this relatively lower level as an indication that some people simply are not in the market. He doesn’t think the market is looking to test down lower, but it has certainly set a bottom. He also sees some enormous events for the market this weekend, including the OPEC meeting and Bernanke’s upcoming interview on 60 minutes.
Pete Najarian points out the channel that the .VIX has lived in, between 40 and 50, bouncing between these levels repeatedly. He cautions that volatility still remains high, you still need to use it for protection but can still use it in terms of buy rights to use it to your advantage.
Joe Terranova is encouraged by technical numbers, focusing on the fact that the markets closed above the November lows, as this may be a sign of a greater upswing to come.
Banks Up 36% This WeekThe group that led the way upward this week, as several bank CEOs came out with statements regarding their companies and their profitability. Would you believe it? According to the CEOs, the country’s major banks - Citi , Bank of America and JPMorgan - all came out to say their companies have been profitable for the first two months of 2009, with expectations to be profitable for the rest of the year.
But are the problems over for the financials?
Tim Seymour thinks the numbers are still going to be poor in the first quarter, as a result of mark to market.
Joe Terranova sees two ways to play financials, with Morgan Stanley and Goldman Sachs in the capital markets play, and JPMorgan as the “best of breed” as far as it comes to banks.
Zachary Karabell thinks its more important to look through the speculation of whether accounting rules will be changed, and more of whether banks will begin to use their capital for productive use, such as loans. An important part of the recovery will be the freeing up of big-bank capital.
Will this continue to be a catalyst for the financials? Pete Najarian is emphatic that the buzz concerning mark-to-market accounting will continue to push bank stocks.
He thinks it will add to the bottom line of the banks, which will be able to value illiquid assets in a positive way, instead of them pulling down on the bank’s capital structure, which has been the problem all along. As for Mark-to-market and the uptick rule, Najarian sees these as stumbling blocks to the profitability of the financials.
Zachary Karabell looks at financial stocks as either trading opportunities or speculative plays. Based on the momentum of the market at any given point, it would be just as easy to make big gains as it would be to absorb huge losses. He reminds that it’s hard to be overly confident on basic financials, and it’s hard to play the whole sector, but he reminds that there are some solidly run firms.
Tim Seymour suggests looking into emerging market banks, like the Brazilian banks for example who have dropping rates. He points out BBD or ITU , who have different exposure than US banks. Karabell reminds that emerging banks are not simply an undifferentiated pile, as banks in Eastern Europe appear to be less attractive.General Electric Surges Ahead of Capital UpdateThe parent company of NBC Universal and CNBC surged 36% this week ahead of an update from GE’s capital division.
Joe Terranova points out that even though GE lost its AAA rating, so did Berkshire Hathaway , and there are very few companies who have maintained their AAA ratings. He thinks GE simply needs time to restructure, which may already have been priced in, and if it gets above $10 it could be an attractive trade.
Tim Seymour looks at the ratings cut as a seal of approval, which by definition suggests that GE will be stable for at least the next 6 months to 2 years.Topping the Tape: BioPharmaWith a flurry of activity in the sector, including a Merck deal to buy Schering-Plough and Roche moving forward with its purchase of Genentech , the Pharmaceuticals sector have had some monster deals and a productive year.
Pete Najarian sees it being a great week for Pharma, noting an upgrade to Merck, but urges caution with the stock, as the Schering-Plough deal is not finalized as Johnson & Johnson may still be in the picture. He also points out the IBB and still sees a good amount of upside to the Pharma sector.
Oil Up Ahead of OPEC MeetingInvestors may have moved out of oil futures from time to time but they have never lost their appetite for energy, says Joe Terranova. Exxon Mobil , ConocoPhillips and Chevron all outperformed oil futures in the early part of this year, demonstrating a shifting dynamic, as oil futures have come back to outperform equities. His trade is back out of oil futures and into the energy company names, as energy is still a good place to be.
Bear Bounce or Bull Market?
The real question is whether this is a Bear market bounce or a real sign of recovery. Check out the Word on the Street video to get the perspective of Jeffrey Saut, Raymond James Chief Investment Strategist, who gives you his take on where the market is headed.
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