Each day this market feels more like a bucking bronco. Just when you think you are positioned just right and ready to ride to victory, she bucks you off. If you're lucky, she doesn't step all over you after you hit the ground. Whether long or short, one has to be careful what ride to take here. The currency markets are wreaking havoc on the day-to-day moves and now we are shifting into high gear for earnings season. Bob Lang has referred to earnings season as a "No Fly Zone," and I can't think of a better way to describe it.
Traders are anxiously awaiting word out of the European Central Bank this week in terms of quantitative easing. I haven't been a fan of the euro and still I find myself having no reason to buy it for anything more than a scalp. I am intrigued, though, by the idea of playing something in the European bank space and Spanish bank Banco Bilbao (BBVA). If we are going by the U.S. playbook, banks performed rather well in the light of QE, so why not look overseas at the same thesis? Spain has had its challenges, and BBVA is good evidence of this.
Today, we are seeing a nice little gap higher after the last week or so laying out a clear downside support level for BBVA. Two gaps now sit with similar upside and downside potential. On a move over $9.05, or $9.10 if you are bit more conservative, and BBAV looks set to fill the gap above. A close back under $8.90 and it will likely retest the low. One doesn't have to risk a lot to the downside. I would even be so inclined as to give this one new lows before I exit. And if we do catch some momentum, then a push back to $9.80 in the short term seems very possible.
The Relative Strength Index is pushing over 50 today, along with a swing out from oversold in the Stochastics. Everything is not perfectly aligned yet, but for those wanting what I view as a solid risk-reward into the ECB this week, then BBVA fits the bill, especially with the weaker earnings reports we've seen from banks so far.
Unfortunately, not a lot seems buyable right now. I'm waiting to see if the United States Natural Gas Fund (UNG) breaks recent lows or can hold and bounce. The $14 area has been my target for entry. I just missed it last time and the $2-plus bounce that came immediately after. As far as oil goes, I still don't have a downside level I'm willing to buy with conviction. It still feels as though there's one more downside thrust left in the market. The charts aren't screaming buy and even the sentiment feels like it has lightened up from staunch bearish to some optimism. I've yet to find many execs in the industry who believe these levels will last very long. They are the ultimate bulls, so we may need to see some capitulation of sentiment from energy execs before we find a sustainable bottom.