Dow Drops 998.5 Points Before Bouncing

I'm sitting here at 4:18 still sick and reeling from this afternoon's events. If we didn't realize it before, now we do: computerized markets are FAST! Add together an overbought market ripe for a pull-in with contagion fears in Europe and a tape 70% dominated by algorithms and you have a recipe for a rapid decline. What many are calling a "fat finger" trade in shares of Procter & Gamble (PG) helped to completely collapse the market this afternoon. Rumors are that a trader at Citigroup entered his trade for a "billion" shares to sell rather than a "million" in shares of PG. Yet, Citigroup says there is no evidence of that occurring. Either way, the Dow was in a complete free fall the likes of which I haven't seen since October 2008.

Major fears in Europe have the euro in an incredibly steep decline. The future of the Eurozone's monetary union is in question. Monetary unions have not worked in the past and this being the first real test of the euro, it is clear many are betting it will not hold up.

Yet, today's decline was far more than worries about the eurozone. It seems to me that some firm on the Street completely lost their shirts today in PG and caused a complete market crash. I stepped into the market far too early and was completely decimated. My only saving grace was my relatively large position in GLD that mitigated what could have been a disaster of a day. I sold a good portion into the equity market close helping to bring down my realized losses for the day. I capitulated in NKE and sold out. I bought IMAX yesterday and was able to hold that through today's pain. I live to fight another day but I'll need a few beers tonight, I can tell you that much.

Fed's Interest Rate Policy Unchanged, S&P Downgrades Spain

Earnings season rolls on in the US but the sovereign debts of struggling European countries stole the headlines for another day. Early selling hit the market after Standard & Poor's followed up yesterday's downgrades of Greece and Portugal with a cut of Spain's debt rating by one step to AA. Yet another blow to the Eurozone. On the other side of the pond the Federal Reserve released its April FOMC policy statement today leaving rates unchanged and keeping the "exceptionally low levels of the federal funds rate for an extended period" language. The Fed is still concerned about deflationary pressures with "substantial resource slack continuing to restrain cost pressures".

Baidu (NASDAQ:BIDU) soared after hours with the release of its Q1 earnings report beating expectations with EPS of $2.10 handily outpacing the $1.50 estimate. BIDU is trading nearly 90 points higher clearing $700 per share and now up 72.8% year-to-date. Google's (NASDAQ:GOOG) exit from China is clearly seen as a boon to the company with Baidu's shares now trading 94 times earnings. The Bank of New York announced that it will change the ADR ratio from 1:1 to 10:1 which will bring the US dollar price down the $70 range.

Gold, that I trade through NYSE:GLD, was uneventful today just consolidating the recent move into the 1,170 resistance level. I'll look to add with a move through the highs of yesterday and today. Agnico-Eagle Mines (NYSE:AEM) broke out today through the $62 level gaining over 4% on the day. I bought a decent position this morning and sold most of it before today's close. I shorted some shares of Prudential Financial (NYSE:PRU) this morning based on the technical weakness yesterday. My stop is at $64 on the upside. Shares of Nike (NYSE:NKE) have had a couple days of weakness and I'm considering picking up some extra shares around the $76 area.


Disclosure: Long NKE, AEM, GLD. Short PRU.

Optimism Continues Around the World, CAT Guides Up

Asian markets and European markets generally traded higher overnight across the board. Positive results from a US bellweather, Caterpillar (CAT) are boosting futures this morning in New York. CAT reported EPS of $0.50 (ex a charge for the healthcare plan) versus expectations of $0.39. Revenues were lighter than expected but upside guidance impressed the Street with CAT forecasting FY10 EPS of $2.50-3.25 versus $2.69 consensus. It's a big week of fundamental concerns. Goldman CEO, Lloyd Blankfein, will spend his morning tomorrow testifying before the Senate Permanent Subcommittee on Investigations about GS's conduct during the subprime boom. I doubt he'll have too many friends on his side throughout the grilling. The FOMC releases its interest rate decision Wednesday, once again the focus is likely to fall on the language Bernanke and his cohorts adopt in the statement.

On a side note, really Joe Biden? Our highly successful prognosticating Vice President was quoted as saying: "Even some in the White House said 'Hey, don't get ahead of yourself.' Well I'm here to tell you some time in the next couple of months we're going to be creating between 250,000 jobs a month and 500,000 jobs a month." (CNBC) I refer you to my post in December entitled "Our Ugly Jobs Picture" where I highlighted our month-to-month employment situation. In the last 10 years, should you look at just the months of gains in jobs you come out with 178,900 job additions on average. These months of gains were at the height of the tech boom and throughout the leveraged real estate boom. I hope he is right but I do not see where these jobs will be created, especially in the next couple months.

I have a small position in GLD again after taking a break from it for a few months after it cracked in December. The world's favorite metal broke out of its consolidation pattern to the upside earlier this month and has since retested the top side of the channel. Friday's powerful move higher has confirmed my long bias and I will look to add shares of GLD through $114 for a swing back to highs and potentially higher.

I still have shares of Nike (NKE) long, looks great above $78.50. I have a small position in AEM, looking to add through $62. Picking up some shares of POT for a longer-term swing, more on that trade later this week and note earnings are on Thursday.


Disclosure: Long NKE, GLD, AEM.

Forget GS, Keep Rallying!

The market was helped today after March new home sales data showed the largest jump in 47 years, a 27% surge. The data release launched equities to new highs for the ongoing rally. Don't get too excited though, the sales numbers are bouncing off the record lows in February. The market left behind Microsoft (MSFT) and Amazon (AMZN) which lost 1.3% and 4.3%, respectively, after their disappointing earnings reports. Goldman Sachs (GS) was also weak losing 1% on day. It didn't matter though, the Dow gained 70 points for the day and closed at new highs. So much for GS marking the top! It's clearly being thought of as an isolated incident even though investors suffer from a complete lack of knowledge as to how deeply systemic the GS practices were and still are.

Definitely check out Barry Ritholtz's "Ten Things You Don’t Know (or were misinformed by the Media) About the GS Case" on The Big Picture. He argues that the case against GS is not weak, it is not a one-time incident, the SEC director is a "bad ass" and GS will lose or settle.

My chart of the six primary strategies of high frequency trading was published over on Zero Hedge, one of the largest market-related blogs out there. It's getting a good amount of attention and plenty of comments.

My buy on gold (GLD) yesterday turned out pretty well today. The $114 level will be my area to add into the position. I also picked up a small position in Agnico-Eagle Mines (AEM). The $62 level will serve as a nice technical buy trigger and with earnings on April 30th, AEM has the possibility of jumping into the report. Q3 2009 was a brutal report so we'll see if the fundamentals have improved next Friday. Nike (NKE) took the day off, just holding it.

Nike (NKE) Ready to Breakout?

Is Nike (NKE) ready to breakout? After a strong earnings report on March 17th, shares of NKE have been in a high-level consolidation for a full three weeks. NKE is basing at all-time highs absorbing the profit-taking and holding a base level around $73. I have been tracking the stock for a couple weeks now and it seemed that the price action was noticeably different today. After hours Market Intellisearch reported that 629 puts traded today versus 4,497 calls. It looks like the options market is betting on higher prices. Is it just excitement from Tiger Woods and The Masters or are shares ready to breakout? Traders should put this stock on their radar tomorrow with the $75 level likely to trigger a breakout to new all-time highs.

Disclosure: Long NKE.

Recent Swing Trades Begin Working

Today was a nice day for my swing trading ideas. Only Nike (NKE) failed to offer a trade remaining within its high-level consolidation base throughout the day. Las Vegas Sands (LVS) jumped nearly 10% today rocketing back through the $22 level and closing up nicely for the day at $23.34. I think there's still a good deal of room for LVS to run. The $30 level doesn't seem unreasonable as LVS is a great leveraged play on the economic rebound theme going into first quarter earnings season. I am following advice out of High Charts Patterns: "The best trading advice we could ever give is to trade around the base. The base is everything." I'll stay long but continually buy on pullbacks and sell on rallies. Sometimes I do this well, other times I cause myself a bunch of headaches. Either way, I've gotta do something while I'm sitting here all day, right?

I have the same "base" strategy in WFMI as that traded through the 52-week highs of $37 and tacked on another 70 cents for a solid 2% gain on the day. I've booked a lot of the trade but I still see more upside possible to $40. Last but not least, TLT broke down hard today falling 1.5% as the 30-year took out support. I never got the chance to add to this position but it seems like it has a good deal of room to the downside over time.

Disclosure: Long WFMI, NKE, LVS. Short TLT.

Last Day of the Quarter, Bulls Still Driving

Last day of the month, last day of the quarter. What a month for shares of Apple, up 12.6% in March alone. Apple is now the third-largest company in America eclipsing Wal-Mart yesterday. The indexes are fairing well this year with the Dow up 4% YTD, S&P 4.75% and the Nasdaq 5.8%. Chinese rockstar Baidu (BIDU) is up an astounding 44.7% YTD.

The Federal Reserve ends its mortgage-backed securities purchases today. The Fed bought $1.25 trillion in junk from Fannie Mae and Freddie Mac helping to keep interest rates low. What does this spell for bonds? 30-year Treasury futures are bouncing this morning after a poor jobs report from ADP but we'll see if there's a substantial impact in the coming weeks. I don't see Armageddon but removing a major buyer from the bid probably allows rates to drift higher. I am still short a small position in TLT to feel out the market. Bonds have yet to breakdown to trigger a full size trade.

I'm still sitting in my longs of WFMI, LVS and NKE. Wish I would have sold some WFMI pre-market yesterday when it was printing $37 but oh well. I'll give a small position down to $35 just to give it time to play out. LVS is acting a bit weak but I'm giving it some extra room based on how it trades, seems to act weak and then rip out of nowhere. I'll probably give my initial position to $20. NKE is holding up, still drifting along in its flag. The out on NKE is around $72.50. All these positions are just initial feelers and are not of make-or-break sizes. I just want to be early and feel out the stocks and learn how they trade before committing real capital through breakout levels. To review the breakout levels: WFMI, $37.00; LVS, $22.50; NKE, $75.00.


Disclosure: Short TLT, Long WFMI, NKE, LVS.

Holiday Week Begins Higher, Opened Longs in LVS, WFMI & NKE

• The Dow closed the day 45 points higher, more or less where it opened for the day. Volume was light with Passover today and the holiday week with the markets closed on Good Friday. Citigroup (C) lost 3% after the Treasury announced it will begin selling its 7.7 billion share stake in the company throughout 2010 likely acting as a ceiling on the stock throughout the year.

• I picked up a couple longs today. After blowing a trade in LVS I re-entered today after the stock has consolidated for a few days and now offers another good risk-to-reward opportunity should it trade through $22.50. There is a lack of overhead resistance until the $30 area. I also bought WFMI through $36 and I will be looking for a breakout through $37. Shares look good on various timeframes and while the valuation may be high, the underlying fundamentals are very strong with solid growth rates fueling the momentum trade. I also picked up a small position in NKE and will look to be aggressive over $75 as shares have held the earnings gap and a move higher should kick up the momentum again.

• One of the smartest guys I know started up a blog today, Alata Zerka. He reposted a bunch of his older writings that are worth checking out. He has an excellent understanding of the macro economic picture with plenty of financial content intertwined. Definitely check it out!

• This week we'll be entering what has historically been the best month in the market averaging a 1.94% gain over the last 50 years. (Bespoke)

Great Swing Long Idea in NKE

MarketClub presented a great swing long idea in Nike (NKE) this week. The trade has yet to trigger but it is one I will take should $75 be taken out. All timeframes look great with stops to be placed at $73 if NKE trades higher this week.

Disclosure: No relevant position.