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My Gut Feeling for Today, Jan 17, 2012

The media took the bait but the markets did not. Standard & Poor’s downgraded several European nations’ debt after the markets closed in Europe on Friday. I would note that US futures looked about 1/2% lower on Sunday evening. The European markets rallied on Monday. Then on Monday after the markets closed in Europe, S&P downgraded the ESFS, the European version of our TARP, so to speak. Monday evening, China reported 8.9% economic growth which was the slowest rate in ten quarters but exceeded expectations of 8.7%. Furthermore rumors began to spread that China would ease. As the late evening news went on the air, US futures were up about 4-tenths of a percent.

Let me boil this all down to a few salient points:

1.            The ratings agencies were one of the main culprits in the financial crisis but got off more scot free than the banks.

2.            Why should we put any faith in the ratings agencies when it comes to Europe?

3.            AA+ is the new AAA. The bond market will wise up to that fact pretty soon. Any fund that could only invest in AAA will revise their authorizations to AA+

Get ready for the first wave of earnings this week as the financials tell us about their quarters. Citigroup (C) and Wells Fargo (WFC) both report before the market opens today. I expect consumer metrics to continue to improve, deposits to be on the rise and trading and investment banking revenues to disappoint.

Besides a slew of earnings this week, options expiration takes place on Friday. There is an equally large amount of open interest on both the SPX 1,275 and 1,300 options (put plus calls). This will make for some interesting intra-week volatility. If either of those levels is breached during the week, it could gain momentum. Let’s also be wary for the traditional mid-expiration week sell-off which if it occurs, will likely happen on Wednesday.

So far the S&P 500 (SPX) has tacked on 2.50% in the first two weeks of the year but has been rather flat on a closing basis the last four trading sessions. I can already hear anxiety in traders’ voices on the financial networks and we only have 9 trading sessions in the books already.

So, buckle up but don’t get sucked in or scared out. This is going to be a great week to observe and learn.

Today I will have the opportunity to meet a whole new bunch of students in the real classroom. I will also be available in our virtual All-Star Classroom as well.

It is not too late to pick up a copy of 12 Food & Restaurant Stocks for 2012

Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long C — although positions can change at any time.                                                                                                    

You can email Scott at scottallstars@gmail.com

Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. You can subscribe at www.restaurantstox.com


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