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MV Weather Report: Wells Fargo Blows Sunshine Up the Market's...


Rain or shine, we review the day's biggest stock stories.

The story of the day was fun with accounting, brought to you by Wells Fargo's (WFC). Before the bell this morning, the company said it expects first-quarter earnings of $3 billion, or $0.55 per share on about $20 billion in revenue, well above Wall Street estimates.

The market loved the news: Futures immediately gapped up 15 handles. The banks -- Citigroup (C), Bank of America (BAC), and JP Morgan (JPM) -- followed, led of course by Wells Fargo.

The Wells announcement was the perfect fuel for the fire, possibly setting up a misdirection Thursday. (I received a few questions about misdirection Thursday. I didn't coin it; it's Professor Jeff Cooper's term. According to him, the Thursday before options expiration typically goes the opposite way of the market during options-expiration week).

This fits my thesis: Stocks have run too far in front of earnings season, which kicks into full gear next week. In other words, I think stocks are expensive on a PE basis. We're also extremely overbought. I have a strong feeling we're setting up for a down week.

Here's what Professor Cooper said on today's Buzz and Banter:

"There is a possible significant square out at 859 S&P.

"859 is 90 degrees up from the key 830 level which was the high prior to a back and fill phase.

"859 is opposition or an harmonic the date of the March 9th low.

"859 conjuncts or is an harmonic off mid September where the crash phase began in earnest (and as mentioned by definition vibrates off March 9th and we know how the market responded to that square out)."

Today the S&P 500 closed at 856, which was the high for the day. Setting up the potential square out which Professor Cooper mentions.

For some very interesting statistics on the S&P 500 and holiday rallies, check out this buzz today, by Professor Jason Goepfert.

"There were 6 times the S&P gained more than +2.5% the day before a holiday. Over the next week, it showed positive returns only once (and that one gave back all of its gains during the next week). The overall average return was -2.1%, with the average drawdown (-3.6%) more than tripling the average maximum gain (+1.3%).

"If we drop the parameter a bit and look for pre-holiday gains of +2% or more, then we get 11 occurrences. The next week showed positive returns only 3 times, with an average of -1.2%. The last 7 of them, dating back to 1999, were all negative over the next week.

"The closer we get to 860ish, the more inclined I am to have short exposure."

I'm not trying to be an uber-bear; I'm just pointing out that risk lies ahead.

All right, Minyans; a much-needed 3-day weekend is here. Have a great holiday, and I'll see you back here on Monday!
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No positions in stocks mentioned.

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