Up or Down? Yes!

Rally ON? Wait, yesterday it was Risk off that led to selling, right? Which is it, risk on or risk off? Do we really have any way of knowing for sure? The market/investors are getting short-sighted again. It is taking the lead from the headlines day by day.  With gold diving more than $100 to open the trading week, investors panicked and started selling stocks. That led to a drop of more than 2.5% for the broad indexes. Tuesday the housing starts were positive along with solid earnings from Coca-Cola and Johnson & Johnson and optimism about earnings helped set the tone for the day as the broad indexes gained 1.5% on the day. When the market lacks clarity, it defaults to news. The result of a news driven market is insanity day to day. Thus we have to take the good with the bad and determine the trend by the charts. The challenge for you and I as investors is putting it all in perspective relative to our portfolio. When logic meets emotions the results are days like Monday and Tuesday.

Gold attempted to hold support and pretend as if things could turn around on Tuesday, but the metal ended the day up $6 and closed at $1387. The good news is the selling stopped for the day, but the challenge is for the metal to regain any substance of a rally or upside trend. Gold is not dead, but it is not exactly tops on my list of opportunities short term. The Goldminers (GDX) ended the day lower and they are acting (technically) like they would like to move even lower. Silver (SLV) managed a 2.6% gain on Tuesday, but like gold, is still not very attractive short term. The silver miners (SIL) were higher, but not convincingly. The precious metals (DBP) were higher overall, but plenty of work left to be done before this reversal plays out. Not interested in the upside here, the risk remains to high.

Joining the precious metals were the base metals (DBB) which have been in a distinct downtrend since February. They bounced 1.7% on Tuesday, but a quick glance at the chart shows the damage. Copper (JJC) has been the primary leader on the downside for the sector. The metal was up roughly 1%, yet the mining stocks moved lower again on the day. Again the disconnect between the metal prices and the mining stocks. Still not interested in jumping in on this sector either, but it is of interest and on my watch list of opportunities going forward.

The theme of meeting or beating earnings estimates, but struggling on the revenue side of the equation has carried over from last quarter. Yahoo after hours beat on earnings, but the ad revenue continues to erode. That pushed the stock down more than 4% after hours. Intel was essentially the same story just slightly less of a miss on the revenue and the stock was flat in after hours trading. The point being we have seen this from Wells Fargo, Goldman Sachs and others well. The bottom line is a validation of the economic data showing little in terms of growth. Companies are creating growth any way they can, but keeping their primary focus on earnings. Investors didn’t punish the sins of revenue last quarter as they gave the benefit of the doubt. Will the same mercy be present this quarter? The result thus far have been mixed relative to the companies. This is something to watch the next couple of weeks as we hit the heart of earnings season.

Sticking with the earnings theme Citigroup earnings were lost in the gold droppings on Monday, but was rewarded Tuesday with a gain of 4% for the bank. The importance of this was the banking sector is in need of some good news. KBE traded off the lows and is holding support near the $26 level. The upside for banks takes a longer term view and some patience in trading the sector. The key is to buy the positions you like going forward and trade around the position to protect your downside risk, putting yourself in a better position to make money from the sector. We will start adding these positions to our models and set up the trading strategy to benefit from the positions as well as the sector overall. This requires discipline and patience to accomplish.

Today is another day of news wagging the market — Yahoo’s earnings could weigh on tech as the stock has run higher on expectations of a turn around. Intel is flat, but could weigh on tech as well. The focus is to remain patient today and take what the market gives, eyes focused on the longer term goal.