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Whole World Watching Financials


The selling pressure ultimately comes from participant nervousness that seems to be running at highs.


Good morning, Minyans.

Despite a strong close yesterday, it clearly looks as if Boo regrouped and is ready to take charge. The trust levels have not been high in this tape and despite yesterday's decent bounce into the bell, I am sure many aren't that surprised to see a dramatic reversal this morning. Taking credit is the continued dollar decline in addition to a massive loss at General Motors (GM).

The catalyst can be debated but the selling pressure ultimately is coming from participant nervousness that seems to be running at highs. The fact that we have no real clarity on the extent of the financial data at some of the nation's largest financial institutions has the whole world watching and more than a few itchy trigger fingers hitting the sell button.

The negative news flow is high and the mood is dire but I am trying very hard to focus on the tape and the tape only. It too is not painting such a pretty picture and my take away is choppy uncertainty. The S&P is clearly in a short term downtrend, but it has managed to hold its intermediate and longer term uptrends.

This tells me we could still go either way, despite the prevailing mood, but the trading rule book says that when the technicals are possibly changing and the short term trend is down, you rein in the capital and wait it out. Adopting patience is often very hard for a trader, especially when there remain some odd pockets of momentum under the surface and many underlying charts still look good.

The key is capital preservation and unless you are an open-ended mutual fund, you do not have to be invested at all times and can carry extreme levels of cash during time just like this. Rather than trade or focus on the chaotic tape, catch up on office work, read a good book or just take a long walk. If we repair the damage you will have ample time to participate but if we continue lower, you will be able to sleep at night knowing your are not involved in the carnage.

Yesterday the solar stocks took center stage on the heels of a large contract awarded to First Solar (FSLR). Other plays in the sector ran such as MEMC Electronic (WFR), Ascent Solar (ASTI), Sun Power (SPWR) and Suntech (STP). These moves were strong and insinuate that these stocks may be in play for some time. The question now is how do they handle a retracement?

If they consolidate on light volume and hold a majority of yesterday's gains, that is clearly a positive but if they give back these gains and high volume distribution sets in, that is clearly not good. Should the former take place, I will be watching them closely and building a watch list. If by some chance the market can pull it together, these stocks may offer up excellent trading opportunities after consolidation.

Less is more in this tape and there is absolutely no reason you have to do anything here. If you have stocks that get hit hard today consider lightening up a bit just to alleviate some of the anxiety. You can then re-evaluate at the day's end to see if throwing in more is prudent or if they are worthy of holding. We will definitely see what this market is made of today, which should set the tone for the coming weeks.
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