Where is the value?

The market strength is remarkable for sure. While I continue to suspect the sustainability of this rally, as a trader, I have to honor the price action of the market, which will be underestimated to say it is just strong. After it broke out from the sideway box between 2750 to 2950 for S&P, its next target will likely be the 200 DMA around 3000 for now. We will probably see it next week or even a bit over toward 3010ish. But be aware, unless it can break out from its all time high around 3400, don't simply believe the bear market is over. It may very well still just be a bear market rally at the end. Actually I start to get the same feeling back in Jan/Feb when the market seemed relentlessly bullish but its technical indicators sent out numerous warning signals. We are seeing such a dichotomy again right now. Don't be too complacent. 

For now, the best thing to do is to make swing trades, long strong stocks and short weak ones. That's what I'm actively doing these days. So far so good. As I alluded to last week, I was long S&P this week although its strength was a lot more beyond my expectation. After harvesting some gains this week for the long side, I'm still holding some long positions for next week but I start to gear up for the short side if S&P indeed challenges the 3000-3010 area. 

While overall the market is super strong, one particular sector has been largely lagging behind. That's the Financial. See the Financial to S&P ratio, which has declined even below the 2008 financial crisis. This is one of the important indicators that suggest the market may not be ready to simply move up here to new highs without the support from the Financial sector. Usually Financial should be leading the market in a healthy bull market. We are definitely not there yet!  

On the other hand, this is probably the blood in the street moment for Financial to look for values. Just pass on some interesting thoughts from Doug Kass of Seabreeze Partners, who shares his bullishness on the banking industry:   

• The robust level of bank industry "war chests" are being underappreciated by investors 
• The Banking Industry, as measured by earnings power (before LLP and one-time charges), reserve (and balance sheet) strength and loan diversification are well positioned to absorb loan losses in this cycle and to emerge strongly in the years ahead
• The recent and abrupt global economic downturn should prove short-lived 
• Banking industry share prices and valuations (absolute, relative, and measured against book value) are undeniably low and discounting an extended economic crisis
• Contrarian investing is simple but not easy 
• Opportunistic investors might recognize that the conditions currently facing the banking industry might provide the exact time in history to buy bank stocks – just as it was buying savings and loan stocks in the early 1980s

For long term investment, this may be one of the few that is attractive with some values.