Gaps, traps and pent up demand

Markets are up and running early morning. Several stocks have gap ups. When you see so many gaps you should always wonder if there is a trap somewhere.

One of the reason for so many gaps is pent up demand from world markets. The rest of the markets were up yesterday. Europe and Asia had strong days. So lot of action you see in the market today is linked to pent up demand.

What I am watching for is leaders like GS, GOOG, RIMM, AAPL, ICE etc. For markets to have sustainable rally, the leaders must lead with high volume. I am also keenly watching if new leaders or sectors are emerging to take on the leadership mantle. Keeping also a close eye on sector breakouts. Many times sectors start their moves at beginning of year as asset allocation decisions are implemented. Some of the out of favor sectors like transport and media are worth watching. The large cap biotechs are also on my watchlist.

HD,Home Depot Inc ;(Google Yahoo Earnings BW Chart)

One obvious trade is Home Depot (HD). Management change often precipitate big moves. Bob Nardelli was a disaster for the company and his 210 million send off should lift the cloud over this company. In HD case I will be playing it with long dated options post a pullback from this bounce.

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