..Drive by surprise!

If global markets down on ‘poor’ eco data weren't enough, notably China’s demand trending down,  the FOMC added some pie to the face this afternoon!.    As it turns out and as speculated here last Thursday before the job report report…“Starting to think buyers on fence will wait for FOMC next week to decide… but this peak will eventually be decided post FOMC“.  

Since incremental changes were thrown around last week (see article yesterday) , the sentiment that anything was going to be done was slowly being reversed by FOMC time.   This is clear in the action in USD and treasuries the past week, which are the mouth's of the FED when it comes to what the market is thinking will be done or not.    Everything pointed to this being a non-event by 2:15pm as 2yr TSY were weak and USD was being short covered, carry trade unwound with anticipation of ‘nothing material’, but than ‘kaboom’ and a short lived celebration.    As said, “..think QE2 would likely do more damage.”…  The ensuing post FOMC stock spike that recovered almost to 1127 really stunk.   Did you see your individual equity watchlist go with the spike?.   Absolutely not, this was a pure ETF and Futures move.    Stocks got no bid!… Even all those that wanted some QE and said the market would rally on such seemed not to want to participate and instead did some profit taking!.    Simply, as pointed out so eloquently in a post tonight, something in the economic picture in the past few weeks (since the hearing with congress) made them run to bathroom,  FED's economic assessment shift suggests a bigger down shift, worse growth outlook and therefore more policy changes ahead.     After some refection, the market tonight is getting the same drift thought here that this would only put fear in investors.   What does the FED know, that we don't by changing their outlook with this policy shift so quickly and without giving a hint of such recently to the market.   This needs some answers/ clarification.  The fact the FED is willing to act is really of no consequence as it’s the expectation and not a reason to rally the market in our view as many claimed it was.

One thing is clear and that is on the charts now that 1131SPX is out of view instantly with 200ma about to be cracked..  The July low points trendline has to hold!.   Also, this would put the 20ma in jeopardy, which is the benchmark buy and sell line when it’s broken in either direction here.   Buying this dip is not on the agenda here,  we’ve seen many times if a big one day slide occurs, traders/ investors are not willing to step up until some stability or clarification in this case needs to occur.    If some ‘spin’ clarification is sufficient the market will hold, but it seems pretty cut and dry as to what the FED did and why.

..a date with Bernanke and Chambers

If The FED's stinker of a 'curveball'  wasn't enough,  AMC,  CSCO 's spoken word confirmed waffling demand in their 'JULY' end Q and why the FED shifted in part.   Yes, this is in roundabout way the same July surprise that hit and made the FED do what it did.    Basically, Chambers said what Bernanke didn't to the market.   Wouldn't you have loved to be huddled with them at 'Scores'?

The broad market has gone from about 1110's ES on Tuesday night to a 1073 ES tonight, a whopping 40 handles or so!.  As we said Tuesday night, the FED got a jolt from something in the economy in July and now it's being passed on to the global markets in a rude way.     Also, intertwined is what we said below coming to fruition in just the last 2 days in SMH  space leading the market in a downward spiral.  When they are not talking about the FED, they are talking about the Semi destruction and waffling demand the past 2 days.

Monday night

"..CSCO is important because it`s the first real JULY end report, not June end.  Overall for Nasdaq/tech,  the concern here is still the SMH as noted to start the month..."and Semis down >4% this week, signs of technology softening demand is showing up globally (possible correction in technology coming).  Since, SMH has done nothing the change this view.  Sooner or later, the market may not like more talk of demand softening coming."

A quick look at SMH chart and the 4 low points since April at 25.60ish better hold or a bigger tech correction will likely be underway and last quite a bit.   Also, today the TRANS  which we said need to hold up was down double the DOW, but than, what sector wasn't down 4-5% in this broad market sell off, so it's a wait and see here.

Before today's drubbing,  we highlighted the fact buying the dip is not on the agenda if a 'big one day slide' occurs because buyers will not be willing to step as they always don't this year in such circumstances.   This is basically why we saw a flat- line market from 11am with no hint of buyers stepping up.   Now, that this AMC action has occurred and a low of 1073ES hit so far, we have to look around for battered 'buys' just because we're around 50ma at close.   It would be awesome if a washout occurs in the morning as some are predicting tonight and we crack 50ma,  but we doubt this will occur as it hasn't been the markets forte to do such for the longest time.   Still, the July trendline was destroyed and 20ma also, not like in mid- July when it just trickled underneath the 20ma for a few days before resuming up.   So caution longer term, but we could be in just another summer 'rinse and repeat'  for traders.  Unfortunately, there is little 'crtitical' data  coming until September to possibly reverse things in a big way.

"Tom and Jerry"

As the market flat lined nearly all day around 50MA, post day of a drubbing, you can’t help but think the  Bulls a.ka. dip buyers’ in this case aren’t in one of their “cat and mouse" games with the Bears.    As reminded earlier, a big sell off day like Wednesday‘s never brings in buyers until things stabilize and/ or clarity, which involves rational thinking comes back.   It some respects sellers have been rational during this 3 day slide now as ‘panic’ never ensued.    A cat and mouse game is one “constant pursuit, near captures and repeated escapes”.   Seems like the life of a Bull, doesn’t it, every time kicked and chased down and afterwards clinging by a string, they always escape and start a new run sooner than later.  

If we go with this never ending story of the market the past year, we have to ask why is now any different?.   Is the news this week any different than what we already heard, expecting and knowing we’re in a soft patch with the slightest chance of a double dip as in late June/early July.    In reality, everything is just stated in different words this time around.   Let’s face it, the European crisis spooked the life out of corporations worldwide in early July and business froze from doing anything or having any outlook.   CSCO, has verbalized this, but also followed up by saying end of July was very strong coinciding with Euro fears abating.   To be honest, what in the world did the market expect?.  A ‘hot’ July in terms of business?.  It seems the market forgets the pins and needles it was on in late June/early July.   This is why June end Q was such a strong earnings season and now July end is weak so far.   Simply, the market might be missing something here!.

Today, the cat tried quite hard to press the issue in the emini SP around 1075  and failed.  This will probably be retested before any chance of reversal considering the action.  This is also approx. where the very late July bear gap is 1086-1088.   Rest of the day, the cat sat on his romp waiting for the mouse to reappear.    Soon and as always happens, the cat will back off if he doesn’t get some friends to press the issue and the mouse will make a run for it.   By that time, the cat in Bear clothing will do nothing but scurry to cover.  We have to think this is just another, "Tom and Jerry" episode.

DJIM #33 2010

Sentiment definitely shifted last week as the market finished off -3.6% with risk coming off the table as ‘double dip‘, deflation talk renewed.   Next supports at 1070 + 1057SPX. 

Events to watch out for this week.

Earnings- July Q end earnings have been a disappointment and ADI AMAT DELL HPQ MRVL will be closely watched to see if trends continue in tech land. Also, major retailers are on deck.

Fannie- Freddie -  the future of the mortgage market and what to do with Fannie/Freddie is up in the air with a mtg conference on Tuesday.  There’s lots of speculation that this could be a market mover and if the FED’s move last week is somehow related to this event with a major announcement coming.

Eco’ data - a few August data points this week, starting with Empire Manu. on Monday.

"no worse than feared"??

.."no worse than feared"..might be the ticket to test 1088SPX/50ma from EPS and macro data this week.  If a big 'tailspin' in the economy is not so clear, the market can become a market again!.

Instead of blaming ‘dogs day of summer’ as most traders like to do this time of the year, the last 3 trading days and it’s tight range is really a confusion stemming from the speculation on the FED’s monetary policy change announced last Wednesday.  Investors/traders are simply asking where will this ‘lead’ for the short term market trend.  Today’s early action and gap down to 50% retrace of summer rally to 1070 may have been a short term ‘floor’ put in and the ‘cat and mouse’ game may move to the next level with some covering shortly up to last weeks range high (50ma/1088). 

The first sign of a floor might be in the beaten up SMH  this morning after 3 days of at the $26 level, today we saw first signs of short covering here to lead the early reversal.  If earnings this week for July end Q are ‘no worse than feared’, this might be all it will take for this stabilization to continue.    We already say a relief bid hit 'retailers' “LOW’ after bland earnings and this spread to HD etc.

On the Macro eco’ side, today’s reaction to a poor Empire State number may also prove to be a ‘no worse than feared’  mentality hitting the market.  The headline number may have increased, but it’s what inside that counts and it was negative as ‘orders /shipments/ future expectations ’ went sour ‘south‘ (not seen since mid 2009).

Tomorrow's data reactions, if like today's, will give more clarity if the market wants some risk back.  Of course, a weaker USD will strengthen the case for a short term 'floor' here.

A small step..

Bulls are rather a fickle bunch and Bears are rather a cocky bunch, if too much is read into a late day sell off post one big rally early on.    Considering the FOMC policy change and subsequent 3 days of market nothing, the Bulls should be happy to be within a blink of 1100/ break of 1088-50ma,  instead of looking at 1070 SPX and below.    As a trader, you have to understand profit taking will ‘cap’  any big move on extremely light news days, especially today because you have people trapped from last Wednesday's selling that will gladly take some of their money back.    Same goes for the "cat & mouse " game,  a ’mouse’ always runs back after getting his piece of ’cheddar’ and will wait for a ’finer’ cheese.    As far as the Bears, it’s always comical, as the market goes up they always have even better places to short from in their eyes, ie 1100, instead of pressing the issue on the depressed Bulls at 1070 day before.

A little bit of patience paid off today, the signs given before the trading days for a short covering move shortly to 1088 came to fruition.    Firstly, earnings, not only did we get ‘no worse than feared’  from the retail likes of HD WMT URBN,  we also got somewhat ‘better than expected’, even if expectations were low! .  The “SMH" floor boosted the Nasdaq/tech’s (now we wait for their earnings this week).  

The macro side of things provided a ‘solid’ industrial production # , post a sour Empire # and with the help of the USD weakness, the transports, industrials, materials all these groups prospered for the day.    Simply,  the complexion of the market changed “for the day” as things today are not as dire as the FED has led many to believe.

The past few days,  we’ve had a slew of small M&A activity as corporations balance sheets swell up with cash, today we woke up to a massive <40bln bid for POT .   This move shows the Ag-Chem trade will likely last a long time as this bid gives it more sustainability/ credibility going forward.   As far as speculating and throwing monies at POT and waiting for $160/180, we remind how long the CF/AGU merger saga lasted (over a year).    BHP are no fools when it comes to deals, so if considering parking monies into this trade..ask yourself if you want tie up hundreds of thousands and tie your hands from doing other trading for an extended time to get your premium?  

Now that the ‘short covering’ move petered out in the afternoon, we sit back and see if real buying comes and pushes this market to out ‘benchmark level of 20MA'.   The 50ma is crucial to many, but, it means little here as the 20MA takes precedent.    We also need to see the tech earnings this week, ADI starts tonight to possibly contrast with CSCO and give credence to idea that the market reaction to FED/CSCO was unwarranted.

Slippery 'initial claims' Slope?

Heading into this light news flow week, DJIM highlighted the micro(earnings) and macro(eco data) to navigate through the ‘panic’ set by FED/ CSCO.   This week’s data has loosened the rope around the Bulls neck, but that may only be until Thursday’s important Initial Claims number.  

Today, the market received ADI earnings, noted a few times here coming out with excellent numbers into the market open.  “Looking ahead to the fourth quarter, given our higher opening backlog, we are expecting continued revenue growth (0.65 (vs. St 0.60) w/revs $720M (vs. the St $706.5MM).We anticipate that revenue will be in the range of $740 million to $770 million for the fourth quarter (St $716MM).    Later, retailer TGT ’s CC was on the consensus money relieving the street on top of the HD, LOW, WMT we had earlier in the week.    As it turns out the 2 groups highlighted in DJIM#33, Semi’s (SMH) + retailers (RTH) are the outperforming groups in the market today keeping the market near 1100SPX.    Still, despite the seemingly large swings in the broader indicies, today’s trade hardly was individual stock based as majority did nothing to either sides moves, except those in M&A speculation. (POT X MOS)

The “macro equation was boosted this week with a reversal in the key IP(Industrial production)  after a terrible July tick.   Tomorrow,  the last 2 week rise Initial Claims  will be tested.   This is very important as the number has been stable all year until the last 2 weeks, if this number goes back to approx 460k levels and shows a reversal like the IP, it will likely be enough to rally the market.   If it stays on par or is higher than previous 2 (480K), it will get the ‘double dip’ noise going strong and this week’s stability will be shook as a trend will be exposed.    Put it this way, all the hoopla around ‘M&A’ as a good market sentiment this week will be dampened and forgotten quickly.   Be careful...never has IC# number been this important.

..tired bunch

TGIF…is the DJIM market Journal wrap for Friday.  Wish there were some comforting words, but when you see your market warning unfold before your eyes today, you’d be an idiot to say anything positive!.  Time to let the dust settle or more like let some ‘Bull’ ashes settle before trying to give this market another shot on the long side.   Outlook worsened after today’s Initial claims, the Phily # was really no surprise as we had outlined the underlying NY empire number stunk as well this week, “...but it’s what inside that counts and it was negative as ‘orders /shipments/ future expectations’ went sour ‘south’ (not seen since mid 2009)". 

It’s the initial claims that are so troubling!.  No wonder money is flowing into Tsy's, corporate bonds or just resting under a pillow at home,  it’s the total disenchantment with stocks and the ability to make a worthy return as even a ‘macro’ hedge fund icon proclaimed this week.    If you can’t make money on a direction from the world economies as Druckenmiller, it simply shows this a ‘fast traders’ market with machines trading or like doing here by keeping buys on a very short string and taking profits quickly when possible.   Only good thing today was individual stocks did not take a hit like the ETF/futures, which shows it’s not panic out there and many are willing to stick out the daily/weekly gyrations.  Still, it’s only a day now with realization of today’s 500k and the weekend headlines will gravitate towards it.   So, the fact it’s mostly ETF’s/futures damage doesn’t mean it can’t change shortly if things don’t miraculously change and/or HF's want to their occasional liquidations into a month end as we head into the last week of August.

DJIM #34 2010

Heading into a traditionally quiet summer holiday trading week, most are citing the market should get some reprieve from the July carry unwind trade that late last week was on the verge of giving back all of August gains in equities.   Interestingly, these ‘trading ideas’ are contradictory to all those beliefs that the market is controlled by “machines” these days.   So, throw in some Blackberry type gadgets and this market doesn’t necessarily have to take a week off at the ‘beach’…anything can happen as this is not Q2, but Q3 where the macro environment has deteriorated quickly, especially since the ‘initial job claims’ warning here came to fruition in step with NY/Phil manu numbers.   The worst thing about unwinds is the speed they can occur in and HF’s have no mercy in liquidations, even in late month ends, late August past summers.    Last week could have been the start as high beta continue to be sold off more.   Best to stay ‘defensive’ until the USD finds some footing in hope no further strength occurs and takes equities down in lock step.    Also, stay disciplined and watch for and trade what you know.   Like Shadowlisted past earnings like CRM  on Friday, if given the chance for some trades.  It is so much easier to trade  history (as in its been on list for over a year), but keep them on a short string and take profits in this rocky environment.   This is the same story as with NFLX, VMW, FFIV  types for over a year now on our Shadowlist.   They have had the best numbers and they perform to those expectations in share price over and over again.   Unfortunately, the reporting season is over and we’ll have to really dig at the potential plays.    Maybe its secondary plays off M&A activity, like a little known FTNT  noted here, which was strong on Friday..or play GMCR  again as a play on souring coffee prices and SJM earnings…or a HANS, which will one day really breakout from these levels as it sits at 2009 and 2010 highs.   If it’s trading Red Bull, coffee related or some unknown stock like FTNT in this unpredictable market, that’s just fine until things clear.

As the market unwinds from the July end Q reports, attention turns even more to the July ‘macro’ numbers (around the globe more this week), plus the markets attention will be turning to Friday’s address by Bernanke in hope of getting some light shed on what the FED did and why and what the eco‘/ deflation picture is looking like!

Slow and ugly

Those anticipating a ‘reprieve’  from August's selling in a holiday week were quite happy at the gap open to 1081.  Unfortunately, that joyous mood didn’t last longer than 20minutes and the next 5+hrs were a drift down and sombre reminder empty trading desks can still do damage.   The only question was how low?    SPX 1067 (-4 on day)  is the answer and a low close for the month is achieved.    The SPX is off at least 25+pts now off DJIM’s benchmark 20ma, that’s a long ways off thinking about being too long (oversized in lots and /or positions) as 1057 is the next zone area support.    As noted heading into the week, stay slim and trim despite the idea of a beach week trading environment.   Today was just ugly,  if you just look at the fact that this market couldn’t hold a cheap gap and went on to finish at days low and month low, you get a simple ugly day.  The selling is again reminiscent of the action since the August 11th big down day,  first clue of profit taking was Friday the 13th, this day had very late day selling and here we are again today in the morning and end of day with the same selling.   Simply, the market can’t hold it’s liquor you can say (small volume or not).   Traders want some of their previous summer gains back, something discussed here last week and will take off positions on any up move.    As slow as today was and on par for slowest day of year,  it didn’t stop a last 30min volume push (SPY notably).   If the market participants think the market can outduel the macro side by “may bid”  type M&A  rumors like today,  it’s mistaken.    This goes back to what was noted last week that all the M&A hoopla will take a step back off Initial claims etc,  if bad!.  

Only a dozen or less stocks ended green off our DJIM list as the tape was ‘safety’ biased.  The names noted yesterday, safe in our terms in an unpredictable market were some of the only green names on today’s board…FTNT, HANS, GMCR.   

Anyways,  market should find some footing/bounce some before Friday's Bernanke address, if 1050's are re-visited.