Rumors And News Leak Driving The Market?

While many important bank stocks weakened (JP Morgan (JPM) -8.14%, Wells Fargo (WFC) - 9.47%, US Bancorp (USB) - 12.4%) and never joined the party, the S&P 500 (^GSPC) (SPX + 2.38%) was bid up as shorts scrambled to cover positions amid rumors that mark- to- market rules would be relaxed. Changing those rules would spark a massive rally in the financial sector. So, why didn’t the banks rally? Maybe other traders asked themselves the same question, as they unloaded longs at 3:40pm driving the S&P down -2% in the final 20 minutes. Or maybe sellers got wind of the news that Moody’s would be downgrading JP Morgan debt minutes after the close? Do you think?

It’s always amazing to see how some market participants had the “foresight” to bury the sector just before the Moody’s downgrade was made public. Btw, after the close JPM traded down an additional -3%, and WFC was down another -4%.

Gold (GLD) sold off again yesterday (GLD - 0.96%) and, from the tape, looks to be heading for the 86-87 support area. We expect to add to core positions in that vicinity, consistent with our long-term bullish outlook for precious metals and our present strategy of buying weakness and selling strength.

Our target in gold remains significantly above current levels (maybe not Rob McEwen’s Gold=$$$$ within 18 months, but we’re long-term oriented bulls), so we are content to sell puts each time the metal pulls back -5% to -10%.

Crude oil put in a multi-week high Wednesday (United States Oil ETF (USO) + 9.1%) giving a big boost to oil stocks Schlumberger (SLB) (up +8.89%), Hess (HES) (up + 6.88%), and Occidental Petroleum (OXY) (up + 8.28%). We have been looking for a low in crude oil stocks for some time, and our strategy to acquire a stake by writing out of the money puts has allowed CTAB clients to profit on long positions during a period when the commodity and the Energy index declined by -40%. Think about that the next time some talking head shudders at the thought of recommending options, considering them much riskier than holding common stock, mutual or exchange traded funds. Oh really?

Success at trading requires discipline and patience, both of which are being harshly tested in the current market environment. Bullishly inclined traders needed a series of higher lows and highs on the hourly charts and the November low of 750 on the S&P recaptured. Although some individual stock patterns look a bit more constructive after today, more time and a possibly a retest is needed to provide a base with which to launch a rally, even on a very short-term basis. If the market sells off strongly here, however, we will be positioning ourselves for an ensuing rally that we believe could begin somewhere between now and the end of the month.

Let the market come to you, remembering Billy Ball, singles and doubles, is the way to accumulate real wealth.

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