a rest period unless...

Biggest takeaway today is in what we’ll have to monitor this week and probably beyond for the short term.   Most recently, we’ve concentrated on the 10yr TSY/$TNX for market direction, now the focus turns to the Euro.   The Euro plunged through 1.28 signalling Euro-land worries ahead, next and possibly only short term key support 1.268-1.27 before the levy may break.   Sovereign debt issues and Euro banks are back into the picture due to a few major newspapers articles doubting the stress tests credibility.  "DUH!"   There was actually a similar piece in FT (Friday) and you know what took precedent that day.   As before, these peripheral Euro issues may disappear again, but , in the meantime damage still can be done if Euro keeps dropping and spreads widen, which will push risk markets down further.   The problem today is not only,  if the Irish can make it home safely from the pub, it’s the amount of capital raises by banks/countries coming, management chances at key banks and a profit warning from one financial name today that is causing the market hangover.

The market has no catalysts ahead as discussed this weekend after the ‘Bernanke/ Macro’ rally other than a longshot chance, Obama’s posturing promises for the mid terms helps a few mkt participants/sectors.   The markets eyes are focused today on Europe because there is nothing else on horizon.   The premise Friday morning here of taking a rest = taking some profits, as the market hit 1105 is unfolding today with a (1.2% SPX decline/ 15pts from Fri. high) market dip.    Unfortunately, even a 1% loss in the broader markets gave little chance to pick up back some of the favorites here lately as they hardly pull backed, even some like NZ  NFLX  were outperforming and making new highs.   (note: FTNT kissed 9ema)

See last week’s Journals for dip buying levels that may come into play “if” Euro doesn’t find support here.   Considering the 'slew' of negative headlines today didn't come with any panic (just a lack of buyers),and if Euro holds,  today will be looked as nothing more than just the profit taking/ rest period we were discussing coming into the trading week.

DJIM Shadowlist outperformance

Entering the trading day,  yesterdays ‘biggest takeaway’  reversed and allowed the market to have a decent day, although the highlight around here was the outperformance of DJIM’s closely followed stocks.   Our alert in the premarket noted the nice reversal of the FTSE with ECB stepping up the buying of their problem children debt (Portugal, Greece etc. )/ bond buying program.   Once this ‘comforting’  act was done,  you knew the Euro was not going to slide further today and the US markets would be able to stabilize as yesterday‘s missing buyers would appear.    Also, the Irish sobered up and compromised with a good/bad split of one their banks, which is better than a complete wind down.  It’s good to see action being taken on all these Euro fronts immediately, instead of allowing problems to drag and watch the markets get spooked.   

Speaking of problem children, we have one in the US markets that underperformed badly (Semi’s)  and will keep this ‘rest period’ below 1108 extended if such bad behaviour continues to be exhibited.  SLAB   is #2 warning now after INTC.  Considering how early this comes, you can expect more from this sector.

On the home front (DJIM’s), we had an array of stocks outperforming off the latest Shadowlist update this weekend…

NZ , up >14%, flying already, it got some rumor mill action (IBM).  Stock is now up a good 25% since alert buy.   Note,  ARST  rumors from last week were refuted today and so this one may be too in days ahead.    Still, NZ is an EPS stock foremost in DJIM books this Q.   GMCR , announced a raise in product pricing and exploded to an intraday new high above $40.     NFLX  mentioned here plenty of times just the past week or so, kept on ticking to an intraday high of nearly $148...PCLN  >5% off upgrade,  APKT , NTAP , LVS , HLF  were also outperforming the tape with NCH‘s intraday.   In the commodity section off DJIM’s shadowlist, machinery’s outperformed, BUCY/JOYG  >5% were the winners going into Obama’s afternoon promises.    This was a day you can just ignore the broad markets stocks and sectors up and downs and just trade away the DJIM composite.  

Note: add retail PVH  to Shadowlist in consumer sector.

One man show

Heading into Friday’s trade and a week later, the market is still grabbling with the April-August trendline around ~1108.   The simple reason of no breakout was showcased again today as it’s  a ‘one man show’ with only the financials (bank index >2%)amongst vital leadership groups doing anything.   We’ve already shot down the Semi’s here (NSM tonight is another sign), so it’s up to industrials, materials.   It may take China macro data coming up to get these groups going.   The market looked good today, but a capital DB  raise report at 1pm knocked out the chance of closing above the April-Aug trendline.   The way media hyped this was as if this came out nowhere, but as posted here following report,  some European banks coming to the market for cash is an ‘expectation’ ahead of Sunday’s Basel decision on capital standards for banks.   The initial sell off looked like investors were thinking this will spread to what are ’strong’ capitalized US peers.  This is highly unlikely, you can see this as the US financials continued to trade well and the market rebounded back to 1107 after some digestion of the news by the market.

Overall,  the equity market is at the trendline, positive for the week and the TSY is at 2.75%,  so stocks are still better to buy.

DJIM #37 2010

Expecting a rest period into the week turned into exactly that for the market…Luckily, we‘d add!!  Why luckily??.    Just look at the underperformance of the Semi’s this week (>4% down )  and you ask how the heck did the market hold with a ‘leadership’ group failing so badly?    However this plays out, one thing is certain is it’s a Bull ‘worry’ to have a leader puke and it’s curtailing upside penetration.    As we pointed out August 1 before CSCO Aug 11th,(CSCO note below), INTC ..”..signs of technology softening demand is showing up globally (possible correction in technology coming),   he sector is down near 15% since with more pre-announcements blow ups on the way.    BBY’s  report will be in focus this week to see how big the consumer related softness (PC‘s TV‘s.)    On Friday, SMH (-1%) was down 2.5% mid day before reversing off lows helping market eke out a 1109 by close.

The market recouped it’s DB  losses after cooler heads prevailed and this weekend the Basel capital rules  are forthcoming and should not be as oppressive as feared.   It actually may turn out as an advantage for US-CDN banks in the form of consolidation and even payouts to the equity holders.  In the beginning of the week , financials will also update the street via conferences.  This is shaping up as a potentially big week ahead for the group.  Rotation ..new leader emerging?

CSCO’s  man speaks at an analyst day premarket Tuesday, FDX  earnings on Thursday(transports) .

Simply, rest period ends Sunday night with Basel, China macro consumer data leading off, probably with a single, followed by a hard hitting lineup.

FTNT, Fortinet Inc. NZ, Netazza Corp.

Mid-August alert additions to DJIMstocks.com closely followed trading list.

FTNT, Fortinet

 

NZ, Netazza

..CSCO on deck

If you blinked, you missed it!.  That’s the 7% blink in of an eye in the SP over the first 7 trading in September that has left those on the sidelines scratching their heads and/or suffering from some performance anxiety.    What’s come to fruition is simple …Journal sept1st/AMC….“September will be no different in dependence on data…It only takes a few day’s of data to change the prevailing sentiment away from ‘double dip’ speak.  We still have what may be 'determinative' numbers this week to sway the conversation of 'double dip vs. soft patch'’ . .  Buffet said today, no double dip at all and slmost all his corporations are coming back!

Today was no different as our lead-off hitter for the week (China data) got things rolling with a single up the middle and Basel iii was well received for not being (oppressive)as expected here.  That’s 2 critical groups (materials/ financials to get any rally up and running with the euro .  Also, the missing link (semi’s) came from nowhere and continued their late push from Friday for the market to bust through the 200ma (1116 last week here for next step if 1108 was closed above).   So, we had all the necessary Bull leaders in tow today, including small cap space (R2K) as evident in DJIM’s composite stocks making NCH’s across the board…RVBD+8%, FFIV 5%, NTAP, GMCR, HLF, HMIN, JOYG, EXPD, CMI, SXCI, LVS, APKT , ROVI, NFLX with FTNT/NZ flirting with NCH’s off ARST /news.   That’s a high percentage of stocks breaking out/ flirting with breakout moves at NCH levels, if you consider some stocks are just for watching money flow/rotation as part of the trading day.

What now?.  Playing around ~1120+ is probably getting shorts all riled up, especially those (this includes Bulls), who may think the market is going to continue it’s range bound  trade(1040-1120/1130) to eternity!.  We’ve laid at the catalysts for the week, now with our lead-off hitters doing their job, it’s up to the meat of the order with CSCO’s analyst meet up today (8:30-9.45am) and BBY earnings to continue the move to August high/June highs/ semi's continuation or the shorts will have some juice.

Open bar..

Today’s market seemed like a chicken running around with it’s head chopped off as all asset classes rocked with no relevance to one another as usually would be the case.    It was open bar as Bonds rallied, gold rallied, Euro rallied, USD weakened and equities whipsawed back and forth.   This simultaneous action was triggered by calls about QE2 coming soon from MS next meeting / GS in November.  This is news to DJIM,  the FED has given no indication and/or recent macro data that this is coming, so we’ll stick to the FED until it hints what’s underneath their skirts.

All that matters to us, equity traders, is stocks still have underlying bid as BBY, CSCO  (kept the SMH ~<2% reversal intact) and retail macro data did nothing to spoil the better to buy market in September as we challenged the August high.   All the noise outside is just speculation and a detriment to actionable trades.  It’s hard to believe today’s ‘we all go up’ trade can last.  

Risk is to upside as macro data continues in Bulls favor, a new twist is the MSFT/CSCO  return of capital to shareholders news.  A big problem with 1130 being resolved is conviction buying coming in from institutions/MF’s.  Maybe, this ‘big cap’ friendliness is enough to get things going.

Live with it!.

Oh, the disgust amongst Bears and shorts tonight after the late 30min ramp in the markets.  Why would they expect anything less on a day when the FED fills 4bln into the coffers of sellers of treasuries that can now go buy something else?.    Also,  it’s clearly been a better to buy market with stocks having an underlying bid on dips, especially when technicals come into play.   Anyways,  we always enjoy the disgruntled tone and this sort of action,  even if it was just a ES/ ETF trade  for the most part with DJIM shadow listed stocks basically flat on the day.   A few days ago,  DJIM closely followed stocks and their NCH’s were posted, clearly these stocks ran before this market inch by inch move to fresh highs mid week.   

As expressed last night ignore the QE2 noise / why all safe assets are running in tandem as yesterdays trade would end shortly and all explanations would be worthless.   All you we need to know is..‘equities are better to buy’ as has been the theme in the 10 trading days of September.   The ‘all we go up’ trade noted fizzled 24 hours later.  

A possible myth in the market is if SPX1130 resolved to the upside, it will get traders/investors active again.   Yes,  “PA”,..some performance anxiety will hit, but it already has as noted if a break of April-Aug down trendline occurred.    We’re not getting the 30% loss in volume from last year back overnight on a catalyst free breakout.    So, even if this summer’s nightmare range is resolved shortly,  it’s breaking out to the upside is really no biggie as it’s not going to be a wild rush in.   Hate pointing old stuff out, but remember breakouts are not of years gone by in the major indicies.   Instead, breakouts have been of the grind you Bears /shorts to death over days and days/weeks.   

Recall, a market top call this year because of the turn in X  first in April.    The last few days have included warnings from Steels..NUE, STLD AKS  for Q3.  We don’t think this is another top.    Just throwing this in as fear mongering is abound after these warnings.    This weekend’s edition overview of week ahead has gone to plan with China data/Basel/BBY-CSCO  playing their part and brings us to Thursday’s watch on FDX .  Considering the market action this week, watch if a good report gets sold off after a move higher as it could signal a broader market move for the day.

Simply,  if 1130 is gonna fall or fail,  it’s going to do it without much fanfare on this side.  The trade has already taken place with DJIM list as a lead.    If our list is foreshadowing a temporary top with steels, it will only be a buyable pullback.   It may be best to wait for the outcome of 1130 as most of the heavy movers are already pausing and pick them back up around 9ema ( like note here for Sept 8th trade when FTNT  kissed 9ema at 20.30 and moved 15% in 5 days).  This pertains to recent movers like GMCR, RVBD  types and of course, excludes commodity linked stocks. 

Come out, come out, wherever you are!

Another constructive market day as it consolidates above 1111/1113 gap from Monday.  Other than that it was incredibly lacklustre day with no conviction buying in anything except AAPL  late afternoon.  Simply, we can add AAPL to the ES/ ETF trade and repeat everything from yesterdays/ market journal.  This would have been it for tonight’s write-up, if it wasn’t for an after hours market!  

AMC, the revived tech/ SMH this week got more life support from v. strong earnings from ORCL, RIMM and a big buyback from TXN  and a Western standoff at SPX ~1130 is now scheduled for tomorrow.   "Come out, come out, wherever you are" is the general market cry for buyers to surface.

Here’s the moving parts to watch tomorrow as the expectation here is not for the usual big breakout as in years past.  If we had all this tech news tonight in the past, we’d have the market near SPX 1140 by opening bell.

Interwined in the good Tech news  will be the below points as to how far we go on Friday.

• Macro data- if CPI  comes in weak,  it will push USD down and QE2 expectation will heat up heading into next weeks FOMC meet up.  So, possible immediate positive as the market liked the QE2 rumor this week.

• Euro- Monday premarket noted a countertrend rally to 1.30, we’ve surpassed this mark and important “R” is just a touch below 200ma and could spell an end to it.

• Financials - 'if' this noise gains steam that Basel tier 1 ratios increase may actually be to 10% instead of 7%, it may curb financial participation.

DJIM #38 2010

Friday’s gap up possibility (ES was 1132 ) not surprisingly deteriorated as v.good earnings tech earnings are not a mover and shaker at this stage for the market.  ORCL/ RIMM earnings were not one of the moving pieces we included as a worthy bit for the week and it turned out that way.  Market’s inability to breach 1130SPX was not because of renewed sovereign issues as CDS ‘ widened to new heights in peripheral Euro countries (same song and dance), but, mostly because the Euro was already in it’s textbook descent off fresh highs overnight.   Overall, the problem was there were too many little things interwined (Euro, CPI, financial weakness) and notably a big thing ahead next week that postponed a stand off today at 1130 levels.   It was more like shooting blanks from both sides.    The market’s focus has turned strictly on the September FOMC meet up  as the week progressed and what the FED may partially do has intensified ( give a taste of QE2 ) and/or hints of it’s readiness to do such or much of it for later.  

So, there is no disappointment or signs of failure at 1130.  The market was able to consolidate above the Monday gap all week, which is bullish, even if the majority of high flyers off DJIM’s list are pausing.  They are more likely being accumulated on slight dips for broader market highs to come.  As discussed earlier in the week about high beta action and steels as a ‘toppy’ possibility sign is gaining noise as the week concluded.   We still don’t think this is the case as long as an ‘accident’ catalyst doesn’t hit.   Another mark getting lots of attention is meteoric rise is ‘sentiment’ gauges over the past few weeks.  A couple of these readings (AAII for optimism on markets) correlate to previous market peaks (Jan/Aug).  Just like overbought technical RSI readings can stay overbought for longer than expected without market cratering, these readings should prove to do the same now for the short term.  What’s not getting a lot of attention is a ‘huge’ reversal in equity ETF inflows from outlflows the past few weeks.


In this view, the April-Aug DT and DJIM’s 20ma ‘bullish’ benchmark was Bull captured.   Also, holding the 200ma for the week is significant.  The longer we stay above 200ma, the sooner it will finally curl up, which would be very bullish.  The constructive action all week is lending to the thought we could end up with a big breakout day still, if the man vs. machine theme is hit by a favourable catalyst sending the market into an Algo covering /buying fit.    Question is where and how much of it is set in the 1130’s -1140'ish or ES levels to run the market into mid-Octobers earning season.