Markets continue to hold near the highs

What, if anything, does the downgrade to Bank of America mean to the stock and/or the sector? The move to downgrade BAC was on valuation. It wasn’t a sell, but a neutral or hold rating. Thus, not much would be my answer, and it alsoĀ presentsĀ an opportunity to add the stock to the financial allocation in our portfolio. Prior to getting stopped out of our position it was valued holding in our portfolio. I would like to own the stock again with a 12-24 month time horizon. I have added it to the watch list on the Sector Rotation Model.

The banks continue to offer upside, and as we start earnings in the sector on Friday with Wells Fargo, we will get an even clearer picture of what is expected going forward. KBE, SPDR Bank ETF move lower on the downgrade, but held near the high. Most of the large cap banks and brokerage firms will announce earnings as well starting next week. Look for the opportunity longer term and not just the short term trade.

Oil remains near the $93 level with resistance just overhead. With crude holding near this level it opens the upside opportunity in the stocks going forward. The key is global demand. As the stock markets around the world have begun to bounce off their respective lows, the assumption is demand will rise. There is some increase, but not to the level expected just yet. The large cap energy stocks have stalled at resistance, but the oil services stocks are beginning to show some signs of life on the upside. IEZ, iShares Oil Equipment and Services ETF moved above the first level of resistance Ā near $52 and is bumping against the next level at $54. Watch as the short term trend remains positive and the upside is in play.

Agriculture prices have not shown any signs of moving higher near term. In fact, a look at the chart of DBA shows a downtrend is still in play off the September highs. In contrast to that data the chart of the Agribusiness stocks (MOO) have moved to a new high. Monsanto posted better than expected earnings on Tuesday and fertilizer stocks have been moving higher as well. Is this all in anticipation of the planting season at hand? Could very well be, but the upside in the business stocks is worth our attention as we track the uptrend.

TheĀ argumentĀ for higher gold prices continues, but the evidence has not shown up in the charts. The chart of the metal itself is sitting near support at $1635. The upside potential is $1750, but that would mean a shift in sentiment short term towards the metal and a shift in the current downtrend. The miners have lagged the metal, and a chart of GDX, Market Vectors Gold Minders ETF shows nearly a 20% decline since the highs in September. I am not saying the metal can’t reverse the trend, but for now it is not showing any signs of doing so, neither the metal price or the mining stocks.

Futures are leaning to the positive side as we post this note, but we remain cautious as this all plays out. No earnings news bright enough to spark a rally and none disappointing enough to shift sentiment. All is quite for now, but that tends to be when the party starts. Manage your positions relative to the risk they present and keep looking forward.