Market Report For Wednesday

The equity market of India dropped -7.25% today as the CEO of Satyam Computer Services, the country’s fourth largest outsourcing company, quit, announcing that his company profits were overstated. Reuters is reporting that the India economy and stock market is headed for tough times. Caveat emptor.

In other Asia-Pacific equity markets today, the losers were Shanghai (-0.68% to 1924.0) and Hong Kong (-3.8% to 14987.5), while Tokyo (+1.7% to 9239.2) and Australia (+1.06% to 3728.2) were higher. Shanghai had been very strong earlier this week, while after several very bullish days, Hong Kong started a bit of a retreat yesterday.

Earlier this morning (6:30am ET), the European bourses were soft: French CAC (^FCHI) -0.02%; German DAX (^GDAXI) -0.62%; and UK FTSE (^FTSE) -1.3%. Profit taking seems prevalent in banks and energy.

North American markets were stronger yesterday, particularly in Technology (XLK +2.3%) and Basic Materials (XLB +2.2%), while the losers were the defensive pair of Healthcare (XLV -1.6%) and Consumer Staple (XLP -1.5%).

At the close in NY, the DJIA (^DJI) (+62.21 +0.69 +9015.10), S&P 500 (^GSPC) (+7.25 +0.78% to 934.70) and NASDAQ Composite (^IXIC) (+24.35 +1.50% to 1652.38) were strong starting from the 90-minute mark.

Industries that led the way on impressive volume gains were: Computer Peripherals (+7.8%), Iron & Steel (+7.6%), Computer Storage (+7.4%), Hotels (+6.5%) and Consumer Finance (+6.2%). Retail Grocery (-3.6%) was a loser.

Among the Cara 100, the winners were Brunswick Corp (BC +13.9%), Electronic Arts (ERTS +11.1%) and Tenaris (TS +10.1%). GOL Airlines (GOL +13.6%) was strong, but is also being removed from the Cara 100. The losers were: Garmin (GRMN -4.1%), Bristol Myers (BMY -3.8%), Nucor steel ((-3.7%) and Netease (NTES -3.2%). Netease is also being removed from the Cara 100.

In the forex market yesterday, the US Dollar was up a bit +0.10% to 82.83, while the Euro was down -0.68% to 135.15. The Yen also dropped again (-0.42% to 106.75), but the Pound (+1.28% to 148.94) and Loonie (+0.56% to 84.46) were winners again.

Crude Oil futures ($WTIC), which had been gushing for four consecutive sessions, went flat (-$0.07/bbl).

This morning, the $USD is a tad stronger than a couple hours ago, but much lower that yesterday morning (in brackets): 83.20 (84.46), while the Euro is at 135.80 (133.93).

Crude Oil futures (compared to yesterday morning in brackets) are softer: 48.47 (49.75).

Yesterday morning in this space, I wrote, “The weak Euro/strong Dollar may fool some traders who are expecting weak precious metals to follow yesterday’s weakness. Do not be fooled.” It followed later that $GOLD reversed the prior day plunge with a gain of +$6.36/o to 864.16, so that was wise counsel.

Spot prices for gold, palladium, platinum and silver at 7:13am ET today (compared to yesterday morning in brackets) were: 864.45 (847.80), 199 (197), 992 (961), and 11.41 (11.17), respectively.

DJIA futures at 7:15am were -59 at 8891.
Volume is returning to the market, as expected. For the Cara 100 stocks, 25 of 100 had trading volume
Of +40% or more greater than the long-term average, while 13 of the 100 were over +75% average daily volume.

Trading commentary:

Another day, another nice move higher in equity prices. Many Cara 100 stocks are exploding higher during the first week of 2009, but now comes the difficult part; do we book profits now and await opportunities to repurchase these stocks at lower prices, or do we ride this big wave to the upside, holding out for a triple or home run?

Well as you may recall, CTAB plays Billy Ball, consistently hitting singles and doubles, and always looking to advance the runner into scoring position, doing whatever we can to put a run on the board. The past few months we have discussed buying weakness in S&P 850 area and then selling strength into the 950 region. The high on Tuesday was 943.85 — close enough for us to start booking profits. We rang the register in SNDK, WHR, TCK, USO, and OXPS, as the profits were too compelling to ignore; however, if these stocks do not pull back at this point, then long exposure is a just a mouse click away.

We sense an imminent large move in precious metals and are positioning ourselves to profit from the anticipated move. But, we do expect a few curve balls before the real move in gold and silver commences. Plan your trade and trade the plan so as not to get whipsawed or let your emotions get the best of you if trades are stopped out as losers. Begin to enjoy taking small losses as it means you are trading in a disciplined manner. Once the real move begins let your position ride, trail a stop, allowing it to advance until it does something wrong. If you listen closely, the stock action will tell you when to exit.

Since our Dec 30 market summary, the laggard USO (USO) has gained +23.34%, while oil sector leader XOM (XOM) has only gained 2.17%, while today, HES (HES) gapped to a high of 63.51 before reversing hard to finish the day lower at 57.98 on increased volume. Pay attention to sustained divergences between crude and the oil sector, remembering many oil stocks bottomed a full month before crude.

Best argument today for higher prices was the impressive action in semiconductors (SMH +4.7%), often a leader in sustained upside campaigns. The sector is long overdue to outperform on the upside and could be a good tell later this spring, a harbinger of better times to come.

This morning’s action will be influenced by the 13% employee layoffs announced by Alcoa (AA) and the discussion that IBM (IBM) may follow.

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