Stocks End Month Flat

Thursday, April 30, 2009

Stocks closed near flat today giving up gains earlier in the day. The S&P gained over 9% for the month now trading 27.7% off the March 9th bear market lows. The Nasdaq continues to be the best performing market now registering an 8.9% gain year-to-date far exceeding the negative returns of the Dow and S&P. The financial sector has been a drag on the market since the October 2007 highs. While financials have rallied a whopping 73.6% off the March 9th lows, the sector is still in the red 14.3% year-to-date. The technology sector, with its heavy weighting in the Nasdaq, has been a bull leader up 11.9% since the start of 2009.

Today finally offered a brief short giving up the gap up and falling negative mid-day. The S&P resistance at 880 proved formidable today as stocks could not hold the morning gap and failed through lunchtime closing back below the level. Yet, the short was not very profitable and leaders still saw significant buying. Goldman Sachs fell negative but only gave a quick, calculated $2 fall before snapping and rallying back into positive territory into the close. A massive breakout in First Solar after its earnings release shows a marked transition by investors to more speculative plays. FSLR closed up 23.5% on the day after reporting earnings per share of $1.99 handily beating expectations of $1.50.

Energy showed notable weakness today as the sector followed Exxon Mobil lower falling 1.7% for the day. XOM's earnings release disappointed the Street with shares dropping 2.6%. XOM continues to be hurt by poor comparison numbers given last year's record oil prices. XOM saw a 58% drop in earnings per share as its average price per barrel sold was $36.41, far below a year ago's $91.36 per barrel.

Chrysler's expected bankruptcy was confirmed today keeping the Obama administration busy as it hands out another $8 billion to the struggling company. Chrysler will go through a quick, surgical bankruptcy hopefully shedding its lagging divisions and burdensome obligations emerging a leaner, more efficient company that will create the cars of tomorrow, or so Obama believes. Swine flu headlines swirl but do not seem to have investors too concerned. Monday and Tuesday saw gap downs as some worry hit the markets but these gaps were easily filled as stocks rallied positive both days.

I was looking for a pull-in through the last two weeks of April and never saw that pattern come to fruition. A move through 880 will invalidate my idea but we have yet to see a strong close through as the S&P continues to struggle with the resistance level. On the other hand, the short has not been offered in the least bit. I was able to capitalize on the 100-point fall today as the markets went negative but there was an evident lack of selling momentum. In fact, if I had not covered my GS short, I would have seen a gain turned into a loss into the close.

I still see a profitable short occurring off this level but I am willing to be flexible. The tape is strong and shorts are difficult and costly if you are stubborn. I have an overall macro long view with an expected short-term short side trade. The strength of the tape though has convinced me that the short can only be traded flexibly with light size. The long will likely be much easier and more profitable eventually.


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