WATCHING THE WINDS FOR DIRECTION

Going into yesterday, it seemed pretty clear that it would be Intel’s day, likely spilling over into the technology sector – and, in the end, propelling semis to multi-month highs. We got our anticipated short squeeze. The S&P500 posted a good day and the Dow Industrials enjoyed the best gain in three months; in fact, there was a nearly 3 percent rise in major indices on great breadth and volume. After a month of pain, for the Bulls it must have felt a bit like Christmas in July.

And in the Bear camp, leaning to the short side, there had to have been a gathering around the campfire with chatter about waiting to see happens now -- because it is possible that the Bulls’ Christmas could continue toward the yearly high. Gold, which we believe will eventually move higher, stood firmer.

And yesterday financials had gifts under the tree. But we knew that it was prudent to contain gleefulness in front of reports from JPM, BAC, C and GE reports. Today JP Morgan, the second largest bank, reported that profit rose for the first time since 2007, helping to offset rising defaults on consumer loans. But investors are back in worry mode after CIT, running short on cash, says that it will not get a federal bailout. And there are the BAC, C and GE reports.

Yesterday the S&P 500 closed slightly over 930, the peak of the right shoulder, but that raised a dilemma – some stocks, after a few days of gains, became extended and possibly in need of churning for a bit. And some resource stocks, recently in No Mans Land, moved to overhead resistence on light volume – what did the Bears around the campfire decide about that?

What about the fact that Intel’s news was yesterday – and there are wild swings between euphoria and despair? Will the Bears, caught leaning the wrong way, feel too distraught to bet to the short side? What about the extended charts that need a rest? It will not surprise anyone that we want to see which way the wind is going to blow. Until we see clear signals as to the direction and strength of that wind, we want to play the slow game and be certain to play our cards right. It is all about risk-reward, and making the right moves.