Today's Sneak Peak for May 16, 2008 - Excerpt from the Bedford's Tradecraft Newsletter
For bulls,
yesterday was just what the doctor ordered. We had a slow, steady climb
higher on weak volume. There were no bombshells. That is good
because we didn't get aggressive selling into the advance and we did not see
traders react negatively to sudden breaks lower. All things considered,
that is what bulls need to make this market move higher through the next several
weeks. Now, there are some causes for concern. Financial services
stocks continue to behave very poorly. All of yesterday, with the
exception of some short covering and option strike price hunting for the like of
Lehman Brothers (LEH) and Merrill Lynch (MER), there was selling for financial
services. Indeed, the kingpin of all of these stocks, Goldman Sachs (GS)
was a noteworthy loser the entire session. As you know, I am very careful
whenever Goldman Sachs is moving in the opposite direction of the overall
tape. That being said, bulls still own this tape and they made a nice
incremental move that should see stocks advance toward the next major resistance
point at SPX 1,455. That level represents the underside of the longer-term
up trend from the 2003 lows. It is quite common for stocks to test these important break levels before moving
significantly lower. I have felt for
some time this would happen. In terms of sentiment, there is more good
news for bulls. There is increased talk about the worst being over in
terms of the credit crisis and that is a good thing. Many traders and
investors alike have been kept out of the stock market because the perception
has been that it was just a matter of time before another major financial
services firm blows up. I'm not certain if that is realistic given all
that the Federal Reserve has done to shore-up that sector. The term credit
lending facility and extremely low borrowing rates should mean that all but the
most tightly strapped firms have access to capital. Still, that in no way
means that the results reported by the banking sector will be good. I have
long made the case that all of these investments by sovereign wealth funds and
new preferred share issues are actually a net negative for the financial
services sector. These investments ensure that (in the best case scenario)
the same amount of profits are spread out over more shareholders. In other
words, they are dilutive and that is not good. Still, traders have been
willing to look past that fact. We are at the end of another option cycle
and these events have had a tendency to go out strong. My best guess is
that we get more of the same this month and that stocks end strong. I'm
still a buyer of short-term weakness.
