{"id":9660,"date":"2011-02-03T08:39:56","date_gmt":"2011-02-03T13:39:56","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=9660"},"modified":"2011-02-03T08:39:56","modified_gmt":"2011-02-03T13:39:56","slug":"morning-thoughts-2311","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/morning-thoughts-2311","title":{"rendered":"Morning thoughts 2\/3\/11"},"content":{"rendered":"<p>Good morning traders,<\/p>\n<ul>\n<li>From my morning note for Waverly Advisors on US Equities:<\/li>\n<li>\n<blockquote><p><em>We have been surprised at the strength in equities over the past week; the word \u201cresilience\u201d shows up in our writing and our thinking time and again.\u00a0 Yesterday\u2019s consolidation above significant resistance is consistent with a market that wants to go higher.\u00a0 This brings us to an interesting risk management challenge.\u00a0 On one hand, everything we have written in the past weeks is still true.\u00a0 This market is overextended, potentially overdue for a pullback, and we do not see strong buying conviction on the tape.\u00a0 Couple this with a sense of complacency, and we have a recipe for a market that could melt into an oversized pullback at the slightest provocation.\u00a0 However, we cannot deny reality and the reality is that every dip is bought and any selloff finds demand.\u00a0 In plain English, this market acts like a market that really wants to go up.<\/em><\/p>\n<p><em>Clients following our recommendations should be holding significant broad equity exposure from late September 2010, but should have been stopped out of some exposure on the January selloff.\u00a0 An effective plan has to consider three factors at this point:\u00a0 holding some exposure in case the market simply heads higher, protecting the downside in the event of a selloff, and planning to buy into that selloff, adding long exposure at lower levels.\u00a0 This is a tall order, but the only clear mistake we could see would be to initiate significant exposure at this point in the market structure.<\/em><\/p>\n<p><em> As of yesterday\u2019s close, we are no longer considering the possibility of a short trade in broad indexes.\u00a0 Though there is truth in the old saying that shorting finally works at precisely the point it becomes embarrassing, we are only interested in being involved in trades in which we see the potential for trapped buyers to hit the bids <\/em><em>en masse.\u00a0 What we see here is more indicative of a strong market in consolidation and we do not see potential for a high probability trade to the downside.\u00a0 The market may well go down, but it will do so without us.<\/em><\/p><\/blockquote>\n<\/li>\n<li>A very mixed bag in world equities this morning.\u00a0 Asia ex Japan is up slightly (Japan -0.4%).\u00a0 Europe is off fairly strongly, and pressing on the lows of the session as I write this with Spain leading the charge lower.\u00a0 The story you probably will not read anywhere else is how does the Australian market respond to the multiple stresses on it this week?\u00a0 By trading to new 52 week highs overnight.\u00a0 Always important to know this.\u00a0 (For reference, Russia broad indexes (such as they are.\u00a0 This market is more a collection of a few important stocks than an actual, developed stock market) and the Dow Jones Industrial Average traded to new 52 week highs as well.<\/li>\n<li>In currencies, the main theme is AUD strength (see AUDCHF, AUDJPY, etc).\u00a0 A little Euro weakness, but the net impact on the US Dollar index is slightly positive.<\/li>\n<li>Precious metals are a little weak.\u00a0 Crude and Products are strong across the board, with more early strength in the crack.\u00a0 (Technical note:\u00a0 I mentioned the Brent\/WTI spread in yesterday&#8217;s note.\u00a0 If you do not track this but just punched it up on your platform be aware that there may be a synchronicity issue.\u00a0 Some platforms will show the historical spread using London&#8217;s close vs New York close, which occurred at two different times and represents a price that could not have been executed.\u00a0 If you have no interest in this spread or no idea what I&#8217;m talking about, ignore this comment, but if you are interested in the spread, consider this carefully.)<\/li>\n<li>Cotton and Coffee are ripping again this morning, while Sugar is down slightly.\u00a0 (A long position in Coffee futures is one of my themes for 1H 2011 in the Waverly portfolio.)\u00a0 Early CBOT sessions in grains are mixed.<\/li>\n<li>In practical terms, the stock market is consolidation above resistance, which means many tight-range, low volume days.\u00a0 If you are trading a truly in play stock (fresh earnings are always a good and obvious candidate) you may be able to negate this issue, but do not focus attention on index products until this pattern breaks.\u00a0 We continue to see good strength in Energy and Industrials (see DJIA\/SPY spread for instance), so there could well be more productive sector plays there if we rally.\u00a0 If the market is weak, be aware that there has been serious weakness in Consumer stocks, but, at this point,\u00a0 there are also a lot of oversold names in that sector.\u00a0 Financials probably should continue to be your go-to if we are weak, but do not anticipate this scenario.\u00a0 The Bulls are in control of this market and deserve our respect until the pattern changes.<\/li>\n<\/ul>\n<p><a href=\"http:\/\/www.twitter.com\/AdamG_SMB\"><img decoding=\"async\" src=\"http:\/\/twitter-badges.s3.amazonaws.com\/follow_me-c.png\" alt=\"Follow AdamG_SMB on Twitter\" \/><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Good morning traders, From my morning note for Waverly Advisors on US Equities: We have been surprised at the strength in equities over the past week; the word \u201cresilience\u201d shows up in our writing and our thinking time and again.\u00a0 Yesterday\u2019s consolidation above significant resistance is consistent with a market that wants to go higher.\u00a0 This brings us to an &#8230; <a href=\"https:\/\/www.smbtraining.com\/blog\/morning-thoughts-2311\" class=\"more-link\">Read More<\/a><\/p>\n","protected":false},"author":388,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[943],"tags":[],"class_list":["post-9660","post","type-post","status-publish","format-standard","hentry","category-adam-grimess-blogs","no-post-thumbnail"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.1.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Morning thoughts 2\/3\/11 | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/morning-thoughts-2311\" \/>\n<meta property=\"og:locale\" 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