Friday opened slightly lower, but rose above breakeven after the first hour of trade. Support at this level is encouraging given the way yesterday gave up strong gains to finish flat. After Wednesday’s monster performance, it seems both bulls and bears are afraid to stick their neck out and the market is left struggling for direction as both sides are waiting for a sign one way or the other. As always, it hard to pick the path of least resistance, does the downtrend continue, or has it gotten oversold and we are ready for a bounce? Statistically speaking, a trend is more likely to continue than reverse simply because there are many continuation days and only one reversal. But as I shared in previous posts, pessimism is consuming a large number of market participants. When you get too many people thinking the same way, it skews the market and creates an imbalance that is bound to snap back at some point. Of course the thing to be careful of is imbalances often go further and longer and than any contrarian or cynic expects.
But as I have written this, the logjam broke to the upside, at least for the moment. We’ll see if this rally can last through the day or if it unravels like yesterday. The market has a propensity toward hurting and humiliating as many people as possible. Given the large number of bears, they are feeling the most heat, meaning we could continue a bit higher before they are fully demoralized. After which point the market will finally turn back down. The market has to first convince you you are wrong before finally proving you right.
Seems Greece has already fallen off the edge of the earth since it is hardly receiving a mention in the press as Spain has become the new favorite obsession. Here is a novel solution to the Euro problem, rather than kick Greece or any of the other battered PIIGS out of the Euro, why not turn the tables and boot Germany out? Germany is the lone roadblock pushing economic crushing austerity and monetary restraint while shooting down any mention of a joint Euro bond. Get rid of Germany and the tone of these Euro meetings would change dramatically. No doubt a Euro ex-Germany would be a weaker currency, but the devaluation would be a huge boon for exports and tourism for the bulk of the continent, and a diversified Euro bond would keep lending rates under control. The problem is most of the continent is falling into recession while Germany is booming, creating an economic dichotomy where the fiscal and monetary needs of each region are in direct conflict. Most of Europe needs easy money and stimulus to revive their ailing economies, while Germany needs tightening to keep its economy from overheating. The other benefit of removing Germany is there will be far fewer issues with bank runs as the new Deutschmark will be a coveted currency, not a shunned one like a new Drachma or Peseta. While there is virtually zero chance this will happen, it could be a far more tenable solution for the region than crushing and removing the weaker countries one by one.
FRAN is showing the risks associated with shorting a high flier as it is popping over 20% today on earnings. That’s gota hurt anyone shorting this name since it’s break under the 50 and 200 dma. On both the long and short side, it is best to get in early, get out early, and leave someone else holding the bag. Don’t be late and don’t get greedy. Take your worthwhile profits and move on.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.