Regional Banks Fade the Market

The news that the Fed and the U.S. Treasury will come to the support of FRE and FNM is giving the market a boost this morning. Shorts in Financials are probably looking to cover, and they might even be screaming on fire and jumping into the ocean before the day is out.

AAPL is getting a boost from excellent sales of the 3G iPhone over the weekend. So the combination of shorts covering, and perhaps some buying in Big Tech (I'm throwing out the latest squabbling between YHOO and MSFT because traders are used to the mud throwing by now), will probably give the market a decent bounce today.

7:55 am MT: The Market has thrown a little Gap and Fade so far on the Financials short covering and Big Tech bargain buying. The RUT finally made it above its 10dma, but the Dow and Naz went right to their 10dma's and faded a little. The SPX is lagging the other three indexes. The battle this morning will be between the fear over earnings and the economy (bulls), and the fear of oversold market conditions (bears). And the battle, initially, looks to be fought at the 10dma's of the major indexes. We shall see which side wins out.....remember, whichever side does win out doesn't mean it will hold tomorrow, we have way too many earnings releases this week to not have volatility day to day.

As it is, I just don't smell any momentum yet this morning. So far it's still a Hot Potato market with Bulls frantic to toss the stocks to Bears and Bears frantic to toss the shorts right back to the Bulls. However, I speculate that the Bears will get more frantic than the Bulls today, and that the day will probably finish in the green.

By the way, DNA is off the table for me today as a pre-earnings play. I will check it tomorrow for the post-earnings play that I outlined.

8:30 am MT: Still no real momentum one way or the other. Still a Hot Potato market. Still nothing for me to do. Gold was interesting, but I didn't catch it right at the intra-day breakout, so nothing there for me right now either.

MARKET ALERT:

President Bush is lifting the Executive Ban on Offshore Oil Drilling, although new oil exploration on the Outer Continental Shelf will remain off limits until Congress takes action (Congress taking action? Isn't that phrase an Oxymoron?). This news will probably compress some of the speculation in the oil premium right now, although it might not change the supply demand equation dramatically until new areas are open to drilling. The news could give the market a little boost by possibly dropping the price of oil.

I dug a little deeper, and it turns out that the lifting of the Executive Ban won't lead to any new exploration (as I suspected above) until Congress takes action to lift its own prohibition on offshore drilling. We may only see a limited affect on the price of oil from the news, which in turn will be a muted affect on the overall market and economy.

9:20 am MT: There's a whole lotta nothing going on right now. Although we are still sitting at an intra-day tipping point. Gold has Flagged back on the 5m charts and the SPX is going tight into the apex of its 15m Triangle. If the Flag on Gold fails then the market probably goes up and the SPX intra-day Triangle plays out, if Gold bounces then the market probably goes down and the SPX intra-day Traingle fails to the downside. We shall see.....

9:55 am MT: Looks like sellers are winning the battle for now, and interestingly, even Gold is selling. Nobody wants to be long this morning.

10:45 am MT: The shorts didn't even blink in the Financial sector. Nobody wants to be long over there right now. There are no bulls in Financials this morning. I speculate that the biggest catalyst is the Regional Bank Group, which is stocks like WM, ZION, NTRS, and STT. The epicenter of the calamity is twofold: IMB had a run on assets and collapsed over the weekend, which led to a takeover by the FDIC. In addition, MTB scared investors with their earnings report this morning. MTB had a 25% drop in 2Q profit due to losses from "residential real estate," which is the same old story of over-speculation by Financial institutions on the subprime real estate assets and other areas of the real estate market. The net result is a growing fear that more Regional Banks will go under. Some of the Regional Bank stocks are just getting obliterated today, and that's after the scorched earth nuking that they have already taken in the past six months.

11:10 am MT: I nibbled on GG and AEM calls for an intra-day swing trade. I think the Regional Bank mess isn't over in traders minds, and might not be over until we see a dramatic capitulation. I'm looking for a move up to the 51.00 area on GG and a move up to the 79.00 area on AEM and then I will sell the calls.

11:45 am MT: I sold the AEM calls for a small .15 cent profit. I decided I would rather just have one Gold position, even though AEM could still move up.

12:55 pm MT: I sold half the GG calls for a .40 cent profit or 12% gain in an hour. I will probably sell the rest of the GG calls in the next 30 minutes.

1:15 pm MT: I sold a couple more of the GG contracts for a .40 cent profit.

1:40 pm MT: GG hit my target of 51.00 so I sold the last of the contracts. The total trade was a .42 cent profit or 12.3% gain for a couple of hours. The market is doing its usual late day bounce after the mid-day slide, so I had additional incentive to get out of the Gold calls.

1:50 pm MT: The biggest bullish movers today have been in Energy and Commodity stocks. I'm starting to get the shakes over buying puts on Coal and some Energy stocks. It's all I can do to restrain myself from Cherry Picking like a crazy man over there because of the Earnings Season risk the next few days. However, I've learned to be cautious during weeks like this, so I will wait, even if I'm shaking and drooling while I do.

3:30 pm MT: Market Wrap: Regional Banks were like a cast iron hippopotamus standing on the neck of the market today. Traders just couldn't wriggle out from under the sheer weight of worry in that industry, or the concerns over the Financial sector. There was a lot of interesting news today, but the net result is that the market continues to ooze down below the 10dma. It's like watching a slug crawl its way down the underside of the market's 10 day moving average and leave a slime trail in its wake. We still haven't seen anything climactic, and we still haven't seen enough of the slew of earnings reports due out this week. So there's lots of volatility to come in the next few days, we'll have to see which way it goes, up or down.....

In the meanwhile, I'm making money on the intra-day swings and getting out before the end of the day. DNA is probably off my radar for an earnings play tomorrow morning (see Saturday's post). Other than that, I'll be looking for the momentum sectors early in the day and playing Day Swings on those stocks.