The Buffett Premium
The market recovered a little yesterday morning. Volume was not spectacular. And SPX found resistance near the predicted level of 1155 until the bulls finally broke it in late afternoon trade. Technology was the noticeable laggard while financials surprisingly showed leadership.
The boost to financials came from value guru Warren Buffett. Yesterday, the stock king publicly announced he would buy back Berkshire stock. The move from Warren Buffett was unprecedented and showed what he thinks of stock valuation - especially for the banks.
Warren Buffett is not known for his market timing, so traders cannot glorify yesterday's action from Berkshire's Chief. But the Oracle of Omaha would likely not have come public with yesterday's repurchase if he believed that the European financial woes would intensify to a greater degree in the upcoming months.
The bullishness of Warren Buffett echoes my own belief that the market should find support at 1100. But unlike Mr. Buffett, I think the market would experience a fierce decline to 1050 if the EU cannot find stability quickly.
Although that would only be a 5% decline, and it would likely happen over the course of a few hours, it's possible he was thinking the same thing.
The bulls will have help today from Asia where the indices were up big. And in Europe, the market has also rallied following more rumors that Greece and other troubled countries will continue to receive aide.
The bulls were able to take out 1155 in a late day surge yesterday, but tougher resistance levels will be in force today.
I received a lot of email yesterday about gold - mostly from people who had bought it. I was short the GLD after gold went on an incredible rally higher. I closed that trade down on Friday. And I am looking to enter GLD long. But I also think there is a play that can be made on gold and silver miners.
The bulls lost two key areas of long term support in a very short time last month. I think we are in the middle innings of a bear trend. In the near term, let's watch price action near 1197 and 1250 closely. I do not think that buyers will regain 1250, and we should be looking to close longs, or initiate shorts in that area.
Additionally, I think the door is open for the bears to break our long term support zone and move the market all the way down to 1050 at some point later this year. The bulls must hold 1175.
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