Good morning traders,

World equity markets are generally higher overnight, with Hong Kong and Japan marked strongly higher.  Europe is a mixed bag, with very small moves across the board but major European indexes currently flat/mixed.  Note that a number of markets made new 52 week highs overnight (Japan, UK, Switzerland, Germany, France, etc), but are having some trouble holding onto those gains later in their sessions.

Currency markets are a bit of a jumble.  No clear themes in overnight session.  Bigger picture, I still lean short on the Dollar (the February issue of SFO which just published yesterday has a write up on a longer term USD short that I wrote), but it is overextended enough that a bounce seems overdue.

In terms of precious metals, this is from my morning Waverly report:

We are seeing good strength in Platinum and Palladium, but Gold and Silver refuse to budge off of support. As we said a few days ago, we are stepping back from the precious metals complex—there are simply too many crosscurrents in consolidation to try to call every turn. As an interesting (and mostly irrelevant) aside, there was a time when Gold would have responded strongly to the crisis in Egypt, but we offer the recent price action as one more piece of evidence supporting the argument that the shiny metal has largely abandoned its traditional role as a safe haven and now functions like any other risky asset class. We must understand this shift if we are to judge the psychological backdrop of this crowded trade.

If you are actively trading Gold and Silver, the best opportunities are probably either in very short-term intraday swings or longer term holds.  The middle ground (3-10 days) is exceedingly difficult right now so it may make sense to take a step back.

Crude and petroleum products have given back a lot of the Egypt-driven run-up, but we are still seeing some interesting strength in the crack.  Most immediate impact from the crack tends to be on refiners which hedge to varying degrees of efficiency (some not so much), but do not naively assume that refiners will go up because the crack spread is strong.  Still, this might be a group worth watching over the coming weeks.  (note there may also be some play in the Brent/WTI spread, but that is a bit beyond the scope of this blog.)

In terms of the big picture, large cap indexes punched to new 52 week highs while smaller caps still languish under those highs.  (Compare daily DIA SPY and IWM for example.)  I was holding a short int he S&P 500 futures in the Waverly account, and was stopped out of that trade in yesterday’s trading.  As stupid as it looks, if we fail back below 1,300 (approximate level) on the futures today, it makes sense to re-enter this short, but it is important to keep in mind that this is an aggressive countertrend trade.  Until we see a clear shift of momentum (and, like porn, “you’ll know it when you see it”) it definitely makes sense to lean long.  This market is strong.  The bulls are in control.  Shorting, while justified under very disciplined conditions, is clearly countertrend and, for most traders, if you focus too much energy in that direction you will miss many opportunities on the long side.

Still a good number of earnings stocks today.  I will focus attention there and on the Energy sector.  If the market should be weak, there has been good weakness in many Consumer names (which are now potentially oversold…keep in this in mind if we rally) and Financials remain go-tos for shorts.  There is good potential for two-way play in this market, but, just to reiterate, the bulls clearly seem to be winning the fight so be careful about focusing too much on shorts without clear justification.