Good Morning traders,

I’m moving a little more slowly than usual this morning (probably due to the 1AM blog posting lol), so I’m going to steal more heavily than usual from my morning note for Waverly Advisors.  Keep in mind that most of our perspectives there are aimed more at swing traders or investors, but I think they also serve as good reminders of the big picture:

Equities: World equities closed strongly higher across the board yesterday.  At this point, the bulls appear to be solidly in control and most market participants will be expecting a significant rally from the recent consolidation area.  However, in yesterday’s note, we wrote to be on guard for a potential bull trap which would be “a strong day that closes the S&P cash above recent resistance at 1,277, followed by a day that immediately reverses back into the range.  This does not mean that, if you are a nimble short-term trader, you cannot buy a breakout or short a breakdown in broad index products, but it does mean that you should be prepared for a possible trap and be very quick to exit the position at the first sign you are wrong.”   This is the clear gameplan for the next several sessions:  Long positions are now fully justified, but a failure back into the range will mandate reduction of exposure for the majority of our clients.

We see good potential for leadership in Industrials and Energy names.  Though we do not expect dramatic underperformance, we are somewhat doubtful that Materials will be able to maintain leadership on the next leg, and would prefer to concentrate intermediate term exposure in other areas.  Financials are still the wildcard—if the market is able to support another rally, the really big winners are likely to be in this sector, but this is balanced by the considerable risk remaining in the sector.  Traders with a speculative bent and a high risk appetite will probably be well served to concentrate exposure in Financials over the next several months.  (Note that this sector is also probably more vulnerable in the event of a selloff, so be prepared to limit downside risk if the market is unable to hold these recent gains.)

And, on metals:

We have thought that the recent breakouts in the precious metals could have enough momentum to carry for several days, and, so far, this has been true.  Platinum has been the clear leader on the rally, and could be set to take out important multi-year resistance (in the area of yesterday’s close).  Gold and Silver have lagged, but, by definition, groups do not move in lock-step 100% of the time.  The variation an flux we are seeing is consistent with an attempt at a resumption of the uptrend in a larger bull market.  For the time being, the bulls deserve the benefit of the doubt and they demand our respect.

This morning one of the main themes is the weakness in the US Dollar, with the predictable (short-term) carryovers to our domestic commodity markets.  Interestingly, we looking at strength in the Euro this morning as well… things may be getting interesting in forex world.

World equities also marked strongly higher this morning across the board.  Watch 1280 as key inflection for the S&P futures this morning.  We have had a series of tight range days (after the opening gap), so there is a good chance the broad market is in breakout mode today.  Watching Financials today… also Industrials and Oil on a rally, and will look to some Consumer names if the market is weak.  Keep an eye on specific areas of Materials (coal and metals) too, but I’m not willing to commit there without seeing confirmation.