Day 5 ahead?

We mailed in our request Wednesday afternoon for a bank-brokers led reversal and today it was stamped as the group followed through in the morning bringing along the rest of the SP tape.   An impressive ~3% SP Financial rally tacked on to yesterdays 30 minute move accompanied by Crude (yesterdays E&P plays PVA GDP  tagged along) and slowly commodity stocks began to bounce as the USD weakened. (becoming too closely related the USD moves).    Was yesterday’s big sell off just the usual hiccup?   Maybe, but Shippers stayed red into close.    If all this action wasn’t your scene,  the DJIM earnings/ story scene is enough as more Q’s plays,  DDRX  OGXI  EJ  (co’ cnbc guest) all had 10% -20% intraday rips higher.    A few others were on the cusp of/ and breaking monthly/ recent  highs  EBS TSL SAFM ARUN.    The buy pullback theme remains pretty clear on all DJIM plays.   Basically with the majority of these you can use the ‘hit and run’  play by taking profits and switching between names while waiting for a pullback to get back in something you sold.  

Chart: SPY move/ SPX reversal off 200ma

Once again the shorts are thwarted as they can’t get enough downside days to get cocky and initiate new positions to press the market lower, but this has been one of the bullet points we’ve pointing out since SPX ~800, so it’s nothing new!.

Ahead of NFP  #'s tomorrow,  we have a few things roaming in our crystal balls.  As we know the ADP # (532K losses) handicaps the NFP (-520K consensus),  so you’d expect a similar number, right!/?.   Well,  we’re feeling a little squirrelly and think we may get under 500k.    Something also interesting is the Banks-Brokers, we’re seeing and using the XLF  here.   Considering the action in the group in the last few hours, if this is only the beginning of a move,  it would soon be kissing the 200MA.   The last time this occurred was in prehistoric times;)..2007!.    So, is this the missing link to push the tape higher as most indices are over 200ma now?. 

Oh yeah,  we are moving into a possible day 5 with SPX over 200ma.   This is crucial as this confirms for many the breakout,  we‘d actually probably just prefer this occurring to close off the week to avoid excessive bullishness setting in and instead take baby steps.

Chart: DAY 5 SPX?

DDRX - BWY - CVLT- EJ alert plays in May

At DJIMstocks.com,  besides maintaining a ‘bullish’  posture in our Daily Market commentary since late March for the broad market (SPX) detailing reasons for such as we progressed higher."  This is almost a clincher and what will drive this market closer to SPX 1000.…03/24/09”,   We also initiated a trade in commodity linked stocks-groups at the same time,  followed by the probability of the small caps trade off earnings.   Below are a few examples of alerted plays in what was to many a boring ‘chop’ trade in May.

DDRX, alerted April 30 trading in the low $9's. traded to a high of $18.75 in 25 trading days.

BWY, alerted at the open May 5th at ~$11 as an EPS play, traded to a high of $16.75 in less than 25 trading days

CVLT, alerted as a DDUP secondary play May 27th, ~$11-12, traded to just under $16 in 8 trading days.

EJ, alerted at open ~$13.50, traded up to ~$17 in 13 trading days.

DJIM #23 2009

Market’s behaviour Friday morning brought back memories of past FOMC/statements where the market behaves wildly in both directions afterwards.    Even our squirrelly possibility of a NFP # below 500 was off the mark as we got a very low 300K number that melted up the SPX futures +15 pts premkt.   Unfortunately,  we saw this market get too bullish (recall we said end of previous Journal, we wanted to avoid excessive bullishness) and most importantly have the report take the $USD for a ride up.  We warned before the open to be ‘careful’ and hopefully, we all avoided chasing and just watched the big fade job of the tape begin immediately at the open.    The highlight of the the day became the very strong USD, unfortunately for many this was too late before the consequence of a low NFP # was figured out.    Still, we finished a 5th day above the 200ma which is quite important as it confirms the breakout for many with a technical view of the market.   We’re still going to be hesitant here for the broad market tape as the market is showing 950 level is formidable, we’d start the week maintaining Fridays premkt note to be ‘careful’.

So..that’s’ one market, the broad market!.    Meanwhile back at DJIM farm, the underlying market of small caps was outperforming as some of it’s animals continued to run freely.  EBS  noted at the beginning of the week as one setting up finished the week up 25%, other notables +4-7% gains Friday..ARUN, STEC, EJ, BWY. 

Despite the commodity linked stocks reaction to strong $USD, a clear trend emerged and that was the early strength in Steels..AKS, SCHN, NUE, CLF, X  held and outperformed the coals, ferts. Oil/ energy.  A little digging and we figure the RIO/BHP deal is beneficial to the US steel producers bottom lines (EPS..especially X) as higher iron ore prices are on the horizon from this massive deal.   We say horizon, not tomorrow or next week.  Right now, we may continue to be at the mercy of a USD bounce in the very short term.

One scenario we possibly see ahead is on a ’psychological’ level that may just rhyme with the technical picture at this point.   We have 3 weeks till Q end and we may have a ‘Little Blue Pill’  theory to keep this market strong and potentially take out 950 to 970-980 range.    The LBP theory is the performance anxiety that must be felt by money managers who have refused to ‘believe’ and will have to show something on their books for this 40% rally.   They are still very underinvested!.   One way to do this and what we would like to see is a ‘sharp’ decline to 200ma  very soon and have them hammer this mark with vigor and vitality.    Once again, we would than see our premise of an underlying bid prevailing as has been the case since March.   Once MM’s are given this entry level they would have even more reason to buy push this market higher to squeeze out better numbers for their books by Q end.

Good trend in tact...

Every couple of trading days,  we get a day where the Bears seem to have an upper hand in the early going,  ONLY to give back all their gains in the final hour.    In fact,  this isn't a new episode we witnessed today, but a pretty consistent show that comes every few days for a couple of months now.   Since March,  we’ve been pointing out an underlying bid at 20MA coming in,  now it’s seemingly ~200MA levels  on day 6 over this important technical level.   We were still quite short of the 919SPX present day 200ma (7pts).    Today, overwhelmingly an underlying bid came where the breakout occurred last Monday‘s (200ma level).   Even on those days where the Bears do claim victory, a failed follow through day puts the ball right back into the Bull camp.   It’s never-ending and frustrating to say the least, for those Bears.    If this hasn't been a continuous classical buy on dip kind of rally, we don't know what is!.    In fact,  all these little mini back and forth action simply put this rally in a much healthier state than the Bears would ever hope for as we grind higher.  

Still, as we said 950, even 940+ is quite formidable for the Bulls for now without a positive catalyst.  Also,  putting the move 3pm move into context,  it was following a very low volume day to that point and the ensuing move was purely SPY  and a few other ETF’s related.    You will understand this as you look at your ‘shadow list’ and see little follow through/ little movement in individual stocks/ sectors after 3pm.   One sided move so far,  we would like confirmation by seeing some follow through action in Asian/ FTSE mkts in am before getting too excited for more, just yet.

This is, in fact, is a Bull run that gives us plenty of opportunities.   As long as you trade with the trend, not with your feeling, and not with your disagreement with the state of the economy or policy makers, you'd be doing fine so far.    Is there manipulation in this market by the market makers eg. JPM, GS or policy makers as cried by the Bears?   So what if there is!!   If you are a trader and consumed by visiting blogs to clog your mind,"blogs that clog",  you will see these useless cries.   Think about for a second,  if you have another gig to worry about other than trading and come home in the evening, what do you see?.    You see a market going up and up,  that’s all !!.  Sonner than later, you call your broker to buy!.   If you read the WSJ, your local financial print or just tune into CNBC,  you don’t hear this manipulation noise.    We are simply here to trade with the majority (trend), regardless of what the minority opinion is on the 'net'.   The most ridiculous aspect of these ‘conspiracy’ theorists,  is if they believe it sooooo’ much and are so sure it is pushing this market higher for weeks now …why do they not just trade this trend up and make money off it!.     It's a daily laughing matter to us to visit these characters when we don't have nothing better to do sitting in front our platforms for hours on in daily.  

In this market, it's not our personal opinion that matters on the bigger picture,  it's the majority of everyone else' opinion (money) that matter. 

As far as individual stock action goes, we are still finding a lot of good dip opportunities from our earnings plays.   SAFM ARUN STEC BWY GMCR.. all were making fresh highs today, some dip a little, some don‘t.   Most of the Chinese plays look buyable too on dips.   If you are uncomfortable or unsure about some of the commodity dips, then it's ok not to buy them.    After a few days of strong $USD ruckus,  we may have a good commodity linked trade back very soon.  Not counting Oil/energy plays related to(if) higher crude prices,  we'd stick to 'steels' over the other linked commod' groups.    In the meantime,  we have plenty of "sure" plays on our list that can be justified as safe dip buys, only problem is some don't dip and that's why it's essential to do quality 'stock picking' early to make the bigger dollars as has been the case with our small cap 'earnings' plays this Q.

In AMC newsflow, TXN  guided higher on a optimistic call.    We are wondering if this is a sign to come for many tech' companies.   After all, if there's some growth business segments from a big one like TXN, it has to be the same case for many other smaller players.    Basically, we don't expect TXN to be the last one to pre-announce good guidance, we already had CREE  be the first recently.   Bottom line,  the ball is seemingly never in Bears' court for long.   It’s hard to press new shorts lower and lower because it's hard to get their brothers and sisters to do so when the declines only last a few hours, or a day.   As we said, the volume is light across the tape today indicating the shorts are not confident to press new positions even when down big for a few hours.    We are hoping for some more grinding action in order to set up a more powerful leg up down the road.   Yup, still...that's our 'bullish' plan.

Lull them to sleep and attack…

That’s exactly what the market is doing to the Bears as it’s grinding them into one big fur ball!.  First, they moan and groan in disbelieve of the latest closing manipulative buying,  now it’s the so-called boring market closing exactly at where it was last Thursday at SPX 842.    What they really should complain about is that their comrades don’t have the cajones to press fresh positions and try to push this market lower when the opportunity arises as its done a few times in the past week.   This is the " upside risk",  we have been talking for months now in the premise of this markets health and they are simply afraid of it.    What happens is the Bulls have it easy to reverse the market as seen by buy late buying and also lull them to sleep before attacking 850 in this case with a little help from our overseas allies.   An attack from the rear is likely coming!.   Simply,  the Bulls army is entrenched and the Bears are on their heels.   After 2+ months of a blitzkrieg rally on the Bears/ shorts, a directionless and worn out group lies in wait.   Their continous short-sightedness over the past few months can be linked to many a fallen “General”.   The beauty of trading is the correlation to almost anything in life, including war!.  Trading strategy deals with time, force, distance, the same as in war.   If you don’t use the ‘ psychological’ aspect to trading,  you won’t know WTF is going on and will be at lost as the many novice or wannabe traders we see get hooked by the mentality or lack of,  in some forum-chat like blogs.   Their minds clogged as they learn to read the markets by ones self absorbing hosting ‘gurus’ ways/views.. technical, political, whatever and not getting anywhere ..educationally or financially.

We know our day in the sun (40% rally) will eventually concede this summer as we go back to pre 2007 summer trading days with liquidity drying up., but until a clear signal, we march on like Bulltroopers!.  What we see now with low volume is a sign of these dog days of summer returning.   Many a hedgie, many a retail will most likely take it easy this summer and hold on to the gains of this rally until we truly correct.     Actually,  we feel slow trading in the broad tape will be a sign of stability and rationality coming back as we come to an economic trough, recession end.   A sign of confidence.   In no way do the slow, grinding indices like today mean you can’t money this summer.   It actually might be better as traders flock to what’s working, a sector, a group because that’s where the action will be!.   What’s likely to continue and probably pick up is ‘selective stock/ sector’ picking, we said was the way to go back in late March after Treasury news.    Major ETF trading will continue to go down % wise.  Today’s is a primo example as we’ve been talking about the ‘steels’ since the BHP deal a few days back.  Since that Alert,  CLF  and now X  have been given upgrades as the firms come to analyze the deal and it’s potential for US ‘steel companies’ down the road.  X +8%,CLF +6%, AKS +9%, RS +10%, SCHN + 7% .  

So,  while the 4 horsemen (RIMM etc…) slept today, while the Banks-brokers TARP was somewhat sell the news in an orderly manner,  we still had an underground market in Steels leading by hand other commods’ with the USD weakness. 

Charge...!!!

..respect SPX/200ma & equities/9ema

When the market slides about ~2% in the opening leg of a trading day and never recovers,  you’d think there was one piece of negative news flow catalyst to account for such a broad based drop.  Unfortunately, today you cannot find a single concrete catalyst to cite (only mixed lot of small ones) and you need to look for the real underlying reason for such a negative tone.   In trading,  you only have to go technical analysis/ charts and figure out the culprit.   Yesterday,  we said last weeks range trade off was a caution that we’ve lost momentum.   It is clear today,  Thursday’s failed attempt over 950SPX has slowly installed a negative tone (see alert-comment intraday post) leading to a bigger broad sell off a few days later.   You could clearly see this pattern prevailing in tech land.  SOX  , predominately, as the index has declined on average of 1.5% a day for 3 days.   The question now,  is the last 3 days the beginning of..???...“We need to respect the probability of a profit taking correction finally from those participating since March to allow latecomers a chance now to get in“.   Well, we need to break 200ma for this to become a ‘real’ possibility!!  Simply, we see 200ma as the critical level as after 10++ days over the mark, it will be a huge disappointment to close below and will surely lead to more selling and shorts pressing fresh positions.  Back to today's action,  part of our reasoning today that 920-923 gap is vulnerable is any single negative catalyst will trip this level and eventually test ~200MA(now 910) for an underlying bid,  today was not a day to look for a reversal based on Euro stocks close.  Thus,  no reason to buy as ~950R looks like a stretch now (possibly summer high hit at 956) after losing 929S today.   As we said before,  it will be selective stock/group picking this summer (even if this was the summer high).   Meaning, there will still be very good opp's to make $$.     As far as individual stocks, simultaneously most we shadow have slipped below 9ema in the past few sessions and if you've been with us since day 1,  you know we view this as a negative until the level is recaptured.  This is a possible show leading the market to 200ma.

Instead of guessing and/or assuming we will continue the 10 day holding pattern, trading the range by buying 920~, selling 950~,  we rather wait and see what a few earning reports say this week.    We have BBY  tomorrow for the consumer , we also have ADBE  Tuesday/ RIMM  Thursday for tech.  In other words,  we rather be buying a ‘positive’ catalyst for a trade,  albeit in earnings or some other news flow.    Still, we now fear we might be running into a ’cooked in’ Q,  especially in tech’s.   The reaction to reports will be crucial.   If we get an excellent report and the reaction is eventually a sell on the news soon after,  it will be a sign of a profit taking correction in full swing.  If the reports just plainly 'suck', it will paint a broader economic picture and the rally will not be renewed soon.

Until the reports, keep in mind,  we know any good news flow can really bounce this market as the volumes were relatively light, (todays sell off didn’t come with a volume spike), therefore we can easily melt back up over 929+ and sneak in some intraday trades.

..not bad at all

There is nothing like getting something over with!..?.    Something in this case is a generous meltdown for the Bears that hardly feels like a drop in the bucket for the Bulls.    Despite, a drop of ~6% on the SPX from recent highs to todays low,  we must admit it hasn’t been anything to lose sleep over.   Well, that is if positioned or in this case non-positioned in anything commodity, bank-broker, simply any High Beta liquid equities.    These HB's are always the first to encounter profit taking due to the flock comings and goings as they please due to liquidity giving easy access to such movement.   

How did we get to 200MA and lower intraday so quickly?.  A few notables have occurred, since we alerted Monday, our worrisome view on Banks-Brokers have produced a decline of about 5% from that point and …“As far as individual stocks, simultaneously most we shadow have slipped below 9ema in the past few sessions and if you've been with us since day 1,  you know we view this as a negative until the level is recaptured.   This is a possible show leading the market to 200ma“.    It’s not a coincidence we saw stocks such as EBS STEC CVLT  putting up 5% moves intraday as they have continued to trade above 9ema during these downside days, while the commodity linked stocks under 9ema were given the pile driver lower.    Okay, so what now?.     Barring any terrible eco data points tomorrow,  we’re glad to get  this first leg of a correction possibly over with as we regained the SPX’s 200MA.  We should trade range bound now between  ~903S-920R-929R.     Just like consolidating upside moves, a downside,  should be as well.   

What we like about today is despite what looks like a flattish day,  we broke/ regained the 200ma (meaning little conviction amongst shorts to press) and got a further beating to the commodity/banks- brokers all in one swoop.  (We still feel this correction so far is..  profit taking vs. giddy shorties)   Simply,  we can get cheaper shares now at what could be a short term low put in on the SPX,  possibly leading to a reversal bounce.     So far this week any bounce attempt has been tepid,  either the volatility including those late buying closes are gone (which is fine as we can just grind up to next R), or we’re due for a nice pop, especially in bloodied commodity linked stocks.    Giving credence to such a move coming is the sale sign went down in Techs (Semi’s/SOX) , Retail closes at highs as it saw some buy interest and Transports reversed later in day despite FDX's premkt crappy guidance.  If we’re flat through the morning eco data points,  we’ll look for a tradeable bounce beginning in the morning.   If this is the case sooner than later, you can't ignore buying those 'still on sale today' cheaper shares below 9ema in whatever group leads for a trade to begin with.

DJIM #25 2009

In last weekends, DJIM #24,  we finally conceded to the fact that , “ We need to respect the probability of a profit taking correction finally from those participating since March to allow latecomers a chance now to get in”.   What we didn’t and won’t concede in 2009 is ..“we are still very much bullish longer term on this market”, even though we thought we lost momo`the previous week.

As we come to the end of 1H, this upcoming week,  we look forward to a climate change for risk appetite in equities continuing as the recovery takes us out of recession with manufacturing and financial systems rebounding.    The landscape is definitely changing,  but after a 50% decline with many individual accounts bloodied it takes more than 3 months to rid investors of fear and regain confidence.   What’s occurring now is natural in the process of a recovery.   It is called 2nd guessing,  especially those green shoots as they are known.    Instead of looking at obvious fundamental changes, many are turning to the , ‘what if’ mentality.   This the ‘watching life go by’ way of mentality crowd.   Many are already suffering this from SPX 666 and will only punish themselves further if not looking for another ~20% from this market in 2H 2009 at some point.    Last week,  we got what is now is a 4th consecutive correction of ~5% off SPX highs holding during this rally without what should be sooner than later, a meaningful correction of around 10%.    So….is this the one that declines further or are we going to be questioning the same thing if/ when we begin a 5th consecutive 5% ?.     After, seemingly holding above 200MA, we are beginning to doubt the current correction will allow latecomers a chance to get in.    One thing,  we definitely believe is those latecomers will NEVER be given an opportunity to get in the 600’-700’s, maybe even below 850SPX.   Those in the market will never allow such a gift.   Human ..fundamental nature…say you buy a home and keep putting money into over time.   You’re never going to let someone buy it at your initial investment price are you or lower (unless of course stuck in the recent ordeals).  Well,  same in this equity market,  we won’t be letting the latecomers into this neighbourhood so easy.  It’s gated now.    They’re going to buy this market at a premium!.   Maybe they are getting the message as current inflows into equities are surpassing those at 2003 lows and MF inflows have doubled over the prior 4 week trend.   We`re not talking chump change (9bln vs. 4ln)

Here’s an idea of what may be happening that will not allow a meaningful correction just yet.  We are having an orderly quite transfusion.   A transfusion where those in market for weeks are doing some profit taking, but the selling can’t gain traction as the Bears hope because there is sufficient inflows taking the supply.     In essence,   this is why our premise from March of an underlying bid prevailing keeps on motoring.    Those that have been following the market with us for over 5 years,  you know in the good ole days,  we always said the market will not go down further if declining at that time due to EPS just around the corner.   This theme is also possible now in a 5% correction as the upside risk remains of corporate growth here and there.    We are also up against what could be and actually should be window dressing for end of Q2,  especially with a 5% decline already in place for a buying opp’ for managers.   This all works unless higher powers used the 956SPX early on in June as a time to cash in early.   A game of cat and mouse here as we‘re stuck in June gap resistance last few days.   Simplifying,   we are fine unless we close below 200MA.   To be honest,  we’d accept a terrible and unexpected headline over the weekend to see how strong we are at 200MA around 900SPX.   This would give either side (Bulls-Bears) a belief system.   Bulls..“nothing can stop us now” and the Bears a belief in finally pressing shorts with confidence(maybe).

To simplify more, we’re sticking to this Q’s plays, mostly EPS or story wise until new babies are born in the upcoming Q.   Even though,  the big boys like RIMM may have EPS cooked in,  it should not stop the risk appetite for newborns in the micro-small cap world.    Keep those STEC PWRD CMED ’s upside guidance coming!.   Speaking of,  you might have noticed strength on Friday anything China  related in any sector outperforming, besides PWRD, CMED.   See Shadow list link on site..EJ ADY STP.    Also,  noticed some risk was coming back into our Casino/ lodging... ASCA WYNN PENN HOT LVS WMS  plays,  so look here as well starting next week for possible continution. ( we think these C-L`s are a group that may move best into their earnings given recent slide).    If we see the same reaction (RIMM) going forward....”cooked in..sell news,” in micro/small cap types off earnings,  we’ll now it’s time for a real market breather,  but we doubt it as the risk appetite back for such plays should continue in a recovery trade.    Other than individualé group plays above,  we always have banks- brokers/ commods sector  rotation to take advantage of on any intraday/ short term rallies to dive into for a trade.

..Some footing

All we could ask for is some stability at this point,  today we probably found some footing.   Early in the trading day,   it looked like the recent downside grind would continue to May lows and we honestly had/ have no problem of going 880,  which marks the May lows with the April highs just below.   Maybe the market participants feel lucky and feel like they can prosper from 888.8  as the market finally found a bid.   Still,  all eyes are on FOMC at 2:15 tomorrow and all we really did was flat line all day, so we'll keep commentary short.    After we get through the statement all eyes turn to earnings and the possibility of the “Golden Cross” for a technical signal.   So, let’s just get through this tomorrow in one piece.

As far as flows today,  our ‘Steel'  focus in commodity -linked stocks had numerous positive commentary points from CMC  MT  X .(alert- comment post today).   The USD$/ DXY below 80 helped the cause for all groups, but we’re concentrating on Steels as we’ve pointed out numerously.   We continue to pick up X ,  but we have others you can buy like AKS, RS SCHN ZEUS .    Considering,   we’ve been playing commods’ for what seems like years now,  everyone should have their favourites that you feel comfortable trading in whatever commod’ group.   The positive flow in commods’ may continue for a few days at least after the bear market like recent slide of 20%+ in most names.   Some decoupling from USD should occur at some points after such a slide and so stocks may move on their own.

Remember,  despite what the World Bank  noise was on most economies,  they did raise China  forecasts the week before and so we still like this group now for trade.   PWRD  made new recent highs after alerted recently.   A few opps to pick up in $27s have come since and it flirted with $30 a few times today.

Everything else is still shaking off their recent beatings and money flow into the sectors just wasn’t there yet today.   Basically the Banks- Brokers./ Tech hugged the SPX later on as they found some footing after recovering early losses.   That’s all we can ask for today.

DJIM #26

The only trepidation you may have in trading this market is if you’re consumed by technical analysis of the SPX on a daily basis in making trade decisions.   If this continues to be the case,  traders will continue to miss opportunities heading into this earnings season.    Fortunately,  since late March on TSY news from the FED,  we said we’re going back the DJIM basics and going back to individual stocks/ sector picking concentration.  Back to our roots, yep.. back to the days of the Swamp with Lizard King and eventually as moderators for the trading forum in Rev Sharks (www.sharkinvesting.com).    Up to that FED intervention almost everyone was consumed by and fixated on the daily activity of the SPX, including us,  as long opp's were few and far between.    Many traders have stuck to this SPX trade and have missed a beautiful run in individual stocks/ sectors.   The reason we bring this up now is it has become tiresome hearing this is a boring market with little chance to make money due to the trading range last 2 mths.     Besides putting on the commodity linked stocks trade,  we thought if the market continued to act right,  enthusiasm would come back to micro /small caps, focusing on earnings.   Well,   it definitely did as the BWY  DDRX  ARUN  GMCR  ADY  EJ  CVLT  ICE  STEC  EBS  etc. dominated our DJIM platforms with big gains during the recent Q, while supposedly the market produced nothing but a chop trade.    What we’re saying is the market may become more boring in the next 2 months for many traders ,  but we’re looking forward and excited for new opportunities as companies begin to announce earnings for their June ending Q’s.    If things were better for the names listed above last Q,  we expect a slew of new stocks to come on radar with better bottom lines from a recovering economy.  

Until July 13th or so,  you should be drying up some powder in readiness for new stock buying.  You don’t want to be holding stocks that are losing steam or holding any losers if it takes up buying power.  You want to have cash on hand for fresh meat and /or continue for now to be very selective in buying. Your trading proficiency is not measured by how much trading you do,  but by your profits!.   We don't expect any fireworks until next holiday weekend,  we probably did not trade more than 3 or 4 stocks last week with PWRD, DDRX  heading into the week.    It made for a long week,  but at the end of the week it is only your P&L that matters.

..and 5,000 households say...

You can literally take our note following May’s CCI #,  just turn it upside down to discuss today’s market place.  Have a read through first of what we said back in May.

http://www.djimstocks.com/djim-journal-09/2009/5/27/taken-with-a-grain-of-salt.html

As you recall this green shoot was the mother of all green shoots!.   The surprising May CCI # , a number most traders do not include in their top 10 monthly eco’ data points to monitor.   We did move this data point up the ladder to watch in June,  but we still go by…"taken with a grain of salt”, in respect to its importance,  as it’s all of ‘5000 households’ across U.S.     Despite, what we think of this gauge,  we have to think logically on how the market may initially react and that’s why it only took a minute to alert after its release.   One tier1 broker had the estimate at 57, above the consensus.   This told us a low # would cause the wind to be let out of the May bubble# (common sense) as the mkt will use any excuse to move at this juncture.    We came into the day thinking an interim term top (as in this week) could be mid 930’s,  it probably turned out to be 930 today on this data.    Interestingly,   we said last month..  “Nonetheless, we closed at SPX 910 and we are 19 pts away from the short term top. So get ready to lighten up on some positions, folks”.    Well,  we topped out exactly at that same level today as traders unloaded positions taking SP from 930 to 913 quickly.     Considering our views last month, including lightening up positions,  indicated we didn’t take the number very seriously in May and so why should we change our tune this time around.    This is why alerted later in the day for a possible reversal  ~920+ as we have more important data points to move this market coming up shortly.   A probable good China PMI and we should erase all of todays losses in premkt (more on PMI linked stocks below).  Simply, we dropped ~17 pts from initial alert and climbed out of the gutter for about 7 pts after the last post.    Those trading SPY’s were gifted today with some easy volatility points.   As far as a technical wrap,  we think this it for the recent leg up,  we pointed out ~40 points exceeds probability of any more upside on no new worthy catalysts during the move.    We/You have to admit it would be surprising to get a fabulous data point to close off the week.    Therefore,  we have to think some downside potential from here.     Entering the week,  we noted our strategy is to wait on earnings and get your powder in order.     To be completely honest,  we’d welcome a correction part 2.    What we mean is the June correction is probably still in play and sooner than later, we could be testing the ' Golden cross' and then the 888-880 area.    We would love to have this occur or even breakdown lower before earnings kick off, while we sit on cash.   It would make risk reward better for upcoming EPS reports.   A test wouldn’t take long as in days to achieve,  so it is a possibility we are open to.     Look,  we’ve been saying for years, you make your best money in spurts a few times a year,  you don’t need to be invested 24/7.   Just stay selective now and burn a few points here and there off a play or 2 until earnings.    Enjoy some summer!

A few bullet points..

China PMI is overnight and as we said yesterday it is probably a good number once again.  One thing we did notice is traders were not lining up to buy the commodity linked stocks that go hand in hand with the number at the close.   Looks like market might baking this # in on individual linked stocks as traders were not positioning for a premkt gap to sell into.  We were thinking this play into close, but the mkt decided for us.  This is a change in trader tactics, we'll see if this holds premkt.   Next,  we’ll have to look to ISM after the bell, if this China number doesn't muster a positive response.   If a good number in US, follows a good number in China and we get no real positive action as in breaking 930-935,  it will put all the weight of hope on the Thursday's NFP.   Also, US SAAR auto number out tomorrow to monitor for a reaction trade if all else fails.

Sectors,

Friday afternoon, we alerted we were cashing in on PWRD, DDRX.   This week we were beating our heads for doing so as DDRX climbed 4pts this week, consolation prize is PWRD imploded 5-6 pts as regulation news hit all China gaming stocks come Monday morning..CYOU, NTES SNDA.   End result is it never hurts to book profits.     Everything else, financials, oil linked, tech is basically following the SP daily tape.. Ho-hum.

...hit the road, Jack!

...but, do come back!...

Nowhere does it say the first trading day of 2H is like a change of seasons in the traders almanac.  Today was just more of the same anemic volume grind,  a day which probably sucked a few in the morning expecting something more than just a market that slowly rolled over by it's close.    If you’re following the script here this week,  you knew the day was probably done by 10:30.   Firstly,  we had a good China PMI overnight that erased all the previous days CCI# losses by premkt/ open as proposed yesterday.   A decent ISM # that continues to show a bottom in manufacturing followed and we came up to our interim top levels of 930-935  quite quickly,  a level that resembled the 4,000 mile long Great Wall as the market stretched along it all day and eventually rolled from it.  Interestingly, the market push to 930 was not accompanied by the commodity linked stocks as is the case most often.  What we had was a decoupled trade with the PMI- sectors that progressed into a bigger one as the USD rolled over later in the day.  Our hesitation to enter a trade due to inactivity of the commodity stocks into the previous days close was not in vain.  

The only stock(s) that garnered our attention was STEC  as it lit up our shadow list/ platforms from the bell, the other was the SAFM  for an 8% bounce from alert yesterday.

So,  we didn’t muster enough strength to push through 930-935 today and putting all weight on NFP tomorrow to do so is seemingly a lost cause following ADP release today.   Seemingly,  the only probability is some disappointment,  so you might as well hit the road now to avoid traffic out of the city!.   Whatever you’re doing this holiday weekend, enjoy and play safe!.   Oh yeah, speaking of play safe.   You know our number #1 rule since day 1,  we don’t hold stock into earnings!.    As shown this past earnings season,  you can make plenty of money after the release or pre-announcement of a report even after a gap up ..eg. STEC , DDRX,  ARUN…and so on.    You don’t need to gamble for a gap up by holding.   If the last few days are a prelude of things to come,  you are going to be sitting on a potential firecracker malfunction into the ground !….MYGN, BEAT. ILMN SCHN.   Yes, a couple of these are pre-announcements/ one sector and you can’t do anything if you‘re unlucky to be caught in a pre-announcement,  but, believe us!!…this is a sign of things to come if companies disappoint this Q.   You will see huge 20%+ losers all over the place this upcoming Q.

..Nicely done..

As SP futures traded down 10pts to 883 in premarket, most Bulls probably wished the weekend hadn’t ended as the market was swamped with negative headlines noise.  It doesn’t help when your VP comes out and flatly says the administration ’misread’ the employment picture while their country celebrates. Considering many were probably absent for Thursday shellacking, the morning was their time to cash in their profits as growth worries extended from the NFP report through the weekend headlines.

It turned out to be almost the perfect setup to test the 888-880 level,  notably the 200MA again for support.  We commented yesterday the world economies, including U.S should not be held hostage by one job report.  There are other things that should be in focus such as the PMI’s, upcoming earnings until the next job report.  Basically, we think the market can slide this underneath the carpet for awhile and deal with other eco’data points/ earnings. 

In a very timely manner, a better than expected ISM release coincided with the market at 200ma. Slowly, the market made an impressive reversal taking baby steps all the way into the close.  The ISM is now at it's highest point since last September with many of the sub groups following suit, including employment rising to just below 50. A day the SP opens at 894 and goes to 886 before closing above open at 898 should bring a positive tone to the marketplace the next trading day.  Intraday (2pm), NASD was only 5pts off days lows and we noted there was no reason for the lagging downside action.  We were waiting for a turn off 50ma and we got 12 points added on after our note.  If the market rebounds more tomorrow, we think this might be the group to lead and so we were looking at our shadow listed techs to play first, eg STAR STEC RVBD etc.   Just go on site to access shadowlist and in sector box click to 'Technology' and you'll get 10 or more names, we'd look to trade.

We red flagged the action in commodity linked stocks last week due to lacklustre action heading into and after China PMI and today they got hammered with many down 7-10% in the first hour.  As we said yesterday, we’re avoiding this group in the interim, but today's sizable beatings should provide some intraday trades this week.  We also have no love for banks- brokers probably till we get to some earnings action next week, so we’re down to only Techs possibly keeping the market away from 200ma this week.

Judging by todays reversal at support for SPX/NASD,  we highlight the fact we have little in the way of economic data points this week.  Bears should have little ammunition to press this market below 200ma with no eco' additives to the NFP#’s to use.   Of course, we can get some macro political or some bad earnings pre-announcements, but you can’t trade off your heels.   Simply, we think today turned into a buying opportunity near the support we just discussed in Journal and why we alerted intraday.

..where's the Armageddon fear

We entered June trading at around SPX 920-930 saying in DJIM #26...“Until July 13th or so, you should be drying up some powder in readiness for new stock buying.  You don’t want to be holding stocks that are losing steam or holding any losers if it takes up buying power.  You want to have cash on hand for fresh meat and /or continue for now to be very selective in buying”.  If you’ve been patient, you’ve survived 5 days of a trading wreck that took the SPX to 869 (~6% since).   Now,  that’s quick and has probably caught many a Bull and Bear by surprise.   Best outcome as it's given us an opportunity to participate in any rebound with our most playable stocks at cheaper prices,  notably the battered commods’ (if AA’s report tonight and a stabilizing oil coincide).

Yesterday‘s Journal,  “We definitely hit correction part 2 as discussed from 930-935 and are only 2% (to 869) from a standard 10% correction from 956”.

Guess what?.  We reversed today right at 869 for a 10% correction.  There’s only one thing to take from today and we pointed this out in an intraday alert heads up(1pm) just after testing this mark 30minutes earlier.  As many technical levels, including previous days 888, Golden cross, 200ma support and with the much hyped about H&S pattern slowing coming to fruition against the Bulls today,  we were ready for a shakeout of sorts once the ladder stroll came and broke 875.  But, there was one problem, there was little conviction as selling was quite orderly and stops were seemingly not getting hit because they just weren’t there.  No volume spikes!.  It was more a case of little buying than a lot of selling or most importantly shorts were not pressing fresh positions to take this market lower.  Reason we pointed this out is simply an opportunity to buy for a reversal trade may be around the corner.  The 1^st test of 869 and upside was soon negated due to AMEX`s Ceo interview on CNBC.  Once this level was tested again, we had a double bottom on the daily and traders were jumping on the opportunity.  What we got today is seemingly some breathing room with many sectors bloodied and therefore some potential to bounce into next weeks earnings true kick off.  A strong close should bring a modest gap open, it will likely seem the Bears got nowhere with so many technical levels breached so far this week if we can get and hold 'green' tomorrow.  We only think modest because many buyers still absent today will probably wait till next week.  You probably noticed not many individual stocks turned green with market by close, reason is this was driven by futures/ SPY trading.  Stocks may play catch up.

We should have a good sector or two to trade, maybe commodity and/or consumer discretionaries thanks to FDO  to start.   Still, a 'bullish' posture overall only comes at 900SPX

We noted the Bears will have little eco data additives this week to the NFP to potentially breakdown the market.  This seems to be the underlying reason for the unfolded failure today.  We`ll accept the majority Armageddon story spreading since NFP# of a recovery breakdown when/if we see more negative economic data.    As of now, we are not going to be held hostage by one US employment report (DJIM  #27) as we don't think the world economies are or should be.   Maybe some are believing the same. There was no scrambling out of the market today like in Feb-March Armageddon times.

DJIM #28 2009

So far July has been a technical driven market,  the storyline should begin to change this week as we hit ‘EPS’ season.   This has to be the most anticipated Q in years,  a Q that will be dissected and scrutinized till the market is blue in the face.   Away from the majority coming into this, we think this market will only face ‘green’ when it’s all over with and the market will be higher than where it is now.  We are bullish on what might be in front of us.   We’ve had a correcting market as pessimism has grown out of a disappointing NFP and consumer confidence numbers recently, we think it’s been a timely correction as this may provide more upside as better outlooks will surprise those doubting a worldwide economic turn is here.  The US consumer will eventually come around.  "If you build it, he will come", we hear those whispers in our 'Field of Dreams'.    Simply, we think earnings will be a positive catalyst for the market this season as we’ll see many more companies beating estimates vs. missing estimates and improving outlooks.   This plays into the DJIM trading methodology of going after earning driven stocks,  we definitely think we will have plenty more to add to last Q’s crop.    As we said last week, if we had so many positive plays 3 months ago in dire times than this Q, we'll have even better reports-outlooks as a global economic turn has been seen since in Emerging markets (EM).   We think many companies misjudged the potential of a fast recovery and will have to improve outlooks.     Billions have been added in EM GDP in the past Q with Industrial production leading the way.  Companies in the SPX should see this in their top and bottom lines and sectors- stocks with the most international exposure will likely be the winners, notably technology, materials, industrials.  U.S Banks-brokers should not be the focus this Q for obvious reasons if we're in a global industrial production recovery.  Still, they will represent a hurdle this week the market must jump over first!

Let the 2009 summer games begin with the passing of the torch from a technical to a corporate driven market.   Even if we lose and don't get the "GOLD',  the worst we'll get is a Bronze as worst case scenario is maybe 50 points off the SPX from today's levels.  For us at DJIM,  even this outcome will provide many surprises to trade the rest of the summer!.

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