There was a mixed bag on Wall St. today as the S&P500, the Dow, and the Midcap 400 all traded higher while the NASDAQ and Russell 2000 finished with slight losses. All indexes not being able to rally in unison two days in a row had to be disheartening for the bulls, not to mention the lack of such a rally did little to change the current technical back drop. With banks being marred in red all day and the dollar still in a firm uptrend, we have no choice but to be suspicious of this rally.
You have lots of people asking, “Why have stocks rallied?” Instead of citing this new supposed solution being drafted in Europe, or the “better than expected” conference board consumer confidence data out today, just keep it simple; stocks have rallied because they sold off so heavily the last two weeks. Nothing goes straight up nor straight down and if you let every little bounce or sell off change your thinking about the market you’ll never be able to develop a good plan to succeed.
One plan that is working for us is our recommendation from yesterday morning to have shorted JPM on any rallies. After trading up as much as 5% yesterday, JPM has since given up ALL of its gains and is now down 5% since hitting $30.07 yesterday. In fact, all of the bank stocks that rallied yesterday at the open finished lower today, substantially so in BAC & GS’s case. This lends credence to our belief that banks continue to be a sector to avoid. While the short trade here may appear crowded, it is that same fear that encourages us to keep shorting. The bottom line is that shorting bank stocks has continued to lead to profits so until that formula changes we’re going to stick with it.
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