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Downside Pressure Rules the Market Trend

Earnings data, economic reports, the FOMC policy statement and the State of the Union speech gave the Bears opportunity to stay on the playing field as the investment community voted “no confidence” in the last week’s events.

 

With 76% percent of SPX reporting positive numbers, beating expectation the  market has decided the data was disappointing overall.  AAPL, MSFT, MMM, AMZN,T beat expectations while CAT, JNJ,  QCOM and CVX missed.  Reports were mixed leaning positive yet the positive did not help the Bulls find any footing.

 

The FOMC maintained interest rates at 0 - .25 and suggested an improving economy is underway yet continued to qualify statements with tight credit and labor concerns. 

 

The State of the Union speech inspired no confidence as President Obama reiterated a tax on Banks with more regulation and continued to push health care reform.  On a positive note, he did state that jobs will take priority and commented that the private sector and small business needed a boost, so they’ll use 30 billion of the TARP funds to infuse into Small business in addition to some tax credits.  Mostly though, the jobs he’s looking to create will be government jobs with a High Speed Rail project expected to take decades to complete and billions (likely trillions)of dollars.

 

Earnings Reports:

 

Wed – CSCO, marks the end of this earnings season.

 

Last Week: 

 

1)      Existing home sales – worse than expected

2)      New home sales – worse than expected

3)      Consumer confidence – better than expected

4)      FOMC Policy Statement – positive based on interest and statement.

5)      Durable goods – worse than expected

6)      GDP – 5.7%

Next Week Economic events: 

1)      ISM  data

2)      Pending home sales

3)      Labor data – major event

Points of Recovery:  Still suspect.

1)      Financials –  Tight credit markets still exist and banks continue to fail.

2)      Housing –  numbers question the bottom, but remember that one month’s data does not a trend make.

3)      Consumer Confidence –  continues to see some uptick

4)      Labor – weakness continuing and rising State to State.

Other concerns:

1)      The dollar –

2)      Deficit/debt – Congress wants to raise the debt limit, taking the overall debt to over 14 trillion.

Fundamentals: 

Sentimental:   Put/call ratio week average is .92 – cautious (the ratio was at 1.00 on Friday). 

VIX  - 25.41.

Technical's: 

 Summary:  The trend continues bearish with sentiment reluctantly following.  This in the face of positive earnings reports and economic data as indicated above.  The market is looking for reason to sell.  Protective strategies should be part of your portfolio.

Strategies:

Protective strategies – long puts, bear puts on specific assets that you’re trading.  May include long puts on the indexes, ie., Q’s or SPX, playing a long call on the VIX.

 

Trade of the Week:  QQQQ’s  since most of what I trade are in the Nasdaq and this ETF trades, ones the NASDAQ 100, it can be used effectively as a protective strategy in a bear market .

Sentiment – bearish as per Put/Call raios

Technical's – bearish

 

Stategy:  Protective Put

Initiate an April  42 long put as a market order.

PE – is to close and capture premium when a bottom is found.

SE – if bullish to convert to a bull put, stagnant a calendar.



Disclosure: Bearish on the QQQQ's