..it ain't rocket science

On a business trip?… grab a  room at MAR/HOT..get yourself a SBUX and order a flick at NFLX.   Okay, if you’re a DJIM..u ain’t getting SBUX , its not on the shadow list and it isn’t BF.A or STZ …. but the other 2 are moving in front of our eyes.   One is the hotel sec/consumer discretionary.. (MAR HOT), we’ve covered as part of recovery trade and the other (NFLX) is in the Earnings winner column since last q.  The importance of a good ‘tradeable’ list prevailed once again…

As traders,  we try to compile a list of approx. 50 stocks of the best of class to monitor daily.. adding and subtracting stocks as we go along.    EPS growth, sectors, sub groups that will show you the money flow that day(s)/ weeks.    The point is,  we are traders and we are here to trade and not spend market hours and non- market hours looking for the next big trade.   Just have the right list and the potential is endless…rotate and rotate the names/sectors.   We all want to have ’lives', we want time with family, friends and have hobbies outside of trading and not be consumed 24/7 by what is an already lonesome gig.   To be honest,  if there was a new edition of trading for dummies handbook, we’d nominate our methodology!. 

Anyway…that’s the market today simplified..NFLX MAR ..etc.  News pops next to a Shadowlist stock..read it and than watch if the money flow comes.   Trade.

Oh yeah..so… who was that masked man who has scared the market since Wednesday noon.   Well, today he put on a different face for once and had no new market damaging revelations.   Even JPM's Dimon agrees with 80% of the reform.     Simply,  this was short covering bounce as impressive as it was, it was short covering on 'relief'.    This is cool!.. it just keeps on showing shorts can’t keep their shorts on for too long as they scamper out the door on any sign of strength.    Oh yeah,  seems the bullet points of the speech were public before Obie’ moved his lips on the tube.   Once he shut them … the bounce really ensued.    The dip buying money was probably waiting a  few points above the 20ma for the move to kick into gear with the speech text in hand.   Yes,  the same 20ma  we’ve noted for the last 12 months as the single best market barometer and alerted again a couple days ago for a oppy’ buy was in play again today.   We would love SPX1175,  but it’s a bugger to get as the fight for 1200 is really the tape battle line it seems.

..a sleeper

A sleeper of a day!.  Two sides to the market, the morning consisted of more great earnings from WHR/CAT  for some strength and the afternoon dip was sell the financials before GS’s hearing on Tuesday and the financial reform bill on the floor.   In between was a flattish sleeper of a day.  Unless, we get some excellent earnings in morning, the afternoon dip could continue into the morning trade.

The two sides, you can call the headwind or the tailwind team.   The earnings tailwind coming into Monday‘s trade~40% of sp500 companies reported, ~80% have exceeded Street earnings forecasts,  the average margin of upside was 20%; companies are also stopping revenue forecasts – 69% of firms are also beating St sales ests.   The tailwinds…GS/financial reform.   Which side would you rather play and be on…earnings …a stronger than expected recovery that is appearing or the tailwinds that don’t last very long at this point??.  Mid term..earnings, but in the very short term the above smells may continue to linger.

Once the bigger names (SP) finish off this March end reporting season, we will start to get more of the mid-small cap companies.  Hopefully, the earnings will follow suit and we will get surprises to trade as new growth stories emerge.  

...Hmmmm

A few habits of the market we’ve extensively covered are…dip buyers come in on shallow pullbacks intraday and/but, if there is a big sell off >1.5%,  they always ignore the next day to step back and instead wait for the dust to settle.   We also know shorts waste many opportunities to press fresh positions/ get aggressive the day following a big sell off because they continue to fear upside risk.  Today, we have all these characteristics, which will probably point to a fight tomorrow for the 20MA (1196) and the 1200 level.  Simply, the Bulls shouldn’t feel disappointed we failed to reverse hard and take back the 20ma.  It may come tomorrow.  It is the Bears, despite the sovereign overhang catalyst, who should feel disappointment as their troops stayed in their holes.  

Despite what may seem like heavy selling the past 48hours, it really is not panicked and resembles more of simple month-end profit taking using the Sovereign issue as the excuse.  The little bounce today can be credited to short covering and nothing else as the dip buyers stay sidelined, so really nothing to get excited about either on the Bulls side

A few things need to change for the Bulls.  Firstly, tech has been running on the sell side for a few too many days, plus most recently (noted yesterday), Earnings have taken a backseat (poor reactions to X, DD VECO  etc)  to the Soverign/Gs/Financial reform overhangs.   We need earnings to be driver for this market to go higher.  For the moment,  market has lost that ’ lovin' earnings  feelin'  due to the prominent overhang.   Also, believe or not, if the financial reform debate gets the votes it needs to move on after failing 2 times, it may actually move the market to the upside tomorrow.  Hey, we have a little imagination!.  Speaking of imagination and big money does have it…with all the downgrades of Club Med members,  some are probably betting SP may give the UK a paper cut.   Maybe Paulson is meeting with GS & SP;).. Anyways, this would be a monstrous event if it were to happen.

DJIM #18 2010

On a day the market just needed a few points in the green to close above 1205 and regaining a bullish posture towards testing highs, it was bombarded by negative catalysts and made a technically bearish weekly.  

All excuses were pointed towards the lingering GS smell and spill,  but as we pointed out mid afternoon it was earnings as the NASD/tech was the real culprit in our view (fell another 20pts off after >2pm note).   Let’s just say, if DJIM’s DLB APKT were SEMI’s and not QLGC WFR (MFE tech software didn‘t help sentiment ),   the disappointment in tech earnings would not have been seen.   Yes, these are not the typical Semi’s,  but with the LED semi’s (VECO CREE etc.) still being beat up,  the whole group suffers.  GS and BP are not responsible for a 50 point NASD spill and SMH  being down around 4%.   The day simply showed earnings and guidance/comments do matter to this market in a big way.   Any signs of the recovery losing momentum and the market will be punished at these levels as earnings are the cushions for the contagion fears.

Tonight,  Greece got bailed, but futures are not surprisingly quite muted from this weekend’s expectation being fulfilled.   The good thing might be is shorts, who usual expect a big gap up on any positive news from the other side of the ocean may try to press in the early going if they don’t see one and we test 1180 at some point in the morning.     Otherwise,  the market will need more than just a bailout, but some relevant M&A activity (earnings BMO is pretty quite to help) and the usual Monday MF/institutional money that buys the market on a new month and/or Monday’s for the last few months seemingly.

..bleeding the Euro

It seems N.American market traders can’t dicipher news or Global traders, who mostly had the day off (UK,China) Monday are just better are evaluating headlines. Why?...well,  because today’s catalysts for the beating were all out before Monday’s trade and our markets eventual ‘big’ up day.   Of course,  we all know the steep decline can be attributed to sovereign fears, but it is the details of the bailout announced, notably  (ECB’s Greek bond collateral waiver rule change) that prompted an exodus out of the Euro and a break of important technical levels.   Also, China RRR hikes which we’ve said all along will come also mattered today, but not yesterday after being released over the weekend.  A HSBC PMI # from China didn’t help, but there are actually 2 numbers and the one on Friday which is considered the official PMI# from (The National Bureau of Statistics) was the better one.  In our view all this shows is China curbs are cooling things (the overheating) and that’s what it’s supposed to do!.  This is not necessarily a ‘slowdown’ scenario.  All this leads to the validity of this downward move.  Either it is way overdone or US traders are a step behind in understanding the moving parts of what is occuring overseas.  

Premarket there was no real evidence of what was to be a big gap down and a frantic opening 10minutes in which most of the days losses occurred.   Euro CD spreads were out some, but far away from panicked levels from the prior week.   If you look at many charts, you see there was really no chance to avoid a beating as individual stocks gapped big and the first 5-10min bars were most of the days losses on individual stocks.  Almost every important sector sustained 3-5% losses.  The only win was the SP was pretty flat from around 11am and closed over 1170.   There are different breach levels traders are looking at (1180-1175-1170) for a signal to 1150.   Who’s right, who knows?

Besides the Friday NFP # adding to the volatility, the ECB meets Thursday and if they do more rule changes it will rattle things again.

Basically, the markets are handcuffed as there is no ’official comments’ leadership  in the Eurozone to the soverign concerns.  One hand and/or country is saying something, the other is saying the opposite while the Euro bleeds.   Also, again, earnings take a backseat as all eyes on Euro (FXE).

3D market

It’s going to take a few days to understand what anything (stock) is worth,   it is simply premature to buy this May correction of 7.5%.   It doesn’t matter if error trades, fund liquidation due to margin calls etc. or just panic was responsible for the ‘milliseconds’ plunge.   The problem was before….We noted the ‘lack of leadership’ in the Eurozone and the ECB meeting possibly rattling the markets again.   Well, it was Trichet calmness on the sovereign concerns that was the ‘match’ that led to the fire we witnessed in awe.

Anyways, stocks were for sale before the afternoon plunge and have been for days with no buyers stepping up for 3 days as we’ve discussed.   Simply,  it’s been a buyers strike and we’ll continue to stay in this camp.

Short covering and no follow through

Prior to last weeks plunge,  we concentrated on the ECB and their ‘dropping the ball’..  first sign was “..but it is the details of the bailout announced, notably  (ECB’s Greek bond collateral waiver rule change) that prompted an exodus out of the Euro…the markets are handcuffed as there is no “official comments” leadership  in the Eurozone to the soverign concerns.  One hand and/or country is saying something, the other is saying the opposite while the Euro bleeds"..   And finally the kicker was Trichet and his nonchalant  attitude Thursday morning .. .."Well, it was Trichet calmness  on the sovereign concerns that was the “match” that led to the fire we witnessed in awe".   The damage was done last week, but the shorts sensing the ECB tentativeness, inability to fix anything had them lined up for a lotto ticket this weekend in expectation of the same ECB and who could blame them after watching these guys kick the ball around last week. 

Well, instead, the ECB did an ‘about face’  and beat any expectation with a 3 unprecendentant pronged bailout.   The significance of discussing the footprints leading is to grasp today’s trading action..the huge gap and than the flatline all day.    Firstly, the gap and early action to highs is pure ‘short covering’.. the flatline is the lack of buying of any conviction which would come from whales, MF’s.   Of course,  we also had some longs playing the other side of the trade Friday and they sold into the gap and who could blame them!   We also had those that just wanted to get something back from the ass- kicking last week selling into the gap, as a scenario noted yesterday.   All this equals a no follow through flatline trade.   The hedgies are the ones that covered,  they are the only ones who would play the big lotto tickets!.    We want to be with the whales, MF’s buying and they weren’t in the game today.   So the point is we/ you have no reason to chase either.    Maybe commodity linked stocks will continue to work, but who knows.    Until, we get a few closes above the March 09 trendline ,  we’re hardly out of the woods. 

Simply, what the ECB did was pick up the dropped ball and like a soccer goalie kick it back downfield 100 yards and wait.   In the mid/ long term this solution may work, but as a long trader, we still have to see be on the defensive and just be selective in our trading decisions/ stocks until this soverign debt is hopefully put under the rug with attention turning elsewhere.

..the right "stuff"

It’s only one day,  but the market got some of the ‘wait and see’  stuff that is needed for it to feel better about Europe and itself.   We alerted pre-market to the Portugal successful bond issue/ tax hikes, we also later heard about Spain’s austerity plans and Greece received a 5.5bln instalment to blow out the Ouzo.   All this leads to tightening of CDS spreads in these countries showcasing the bailout is becoming acceptable to the markets.   The biggest drops prior to last weeks plunge were the Euro banks and as we see clearly, they are acting just fine to this point.   These are signals the market was/ is looking for to rally today.  Simply, ‘it’s not the Euro ’ that is dictating the confidence and thus the market.   It’s CDS spreads, issuance of debt successfully, European banks action that is the wait and see stuff.   It's the collaborating evidence to ease systemic risk.   Those relying on the Euro for trading are behind the curve.  

Yesterday, ‘No specific reason for sell off, which is good news”.   Once again the market showed what we’ve pointed out numerous days…if there is a bunch of small catalysts that really seem insignificant, it usually means we see dip buyers arriving soon.

On the home front,  it was back to business!.  We had M&A activity and ‘back to earnings” related positive flow from IBM INTC analysts meetings.  

Technically-  yes, it is very technically minded market now!.   Before the plunge, May 5th close, we said…“Today’s breakdown to 1156 taking out the last support at 1170 and not closing above  it pretty well confirms we are in a May correction.    Mayday Mayday is the distress signal from Europe that has put the market in this unstable position.   Add, the China curbs creating a possible slowdown in many eyes and we're likely due for a rocky month.   Any push higher/bounce now and we are looking at "S"upport at 1180/1185 now being "R"esistance.".   We are sticking to this, so the market may have a little closet space, but we're not seeing 'conviction buying' enter to think we can push higher now.   Considering this was noted before the plunge, it is seemingly ‘double’ the resistance as we’ve come a long way back up in a very short period of time!.

Our trading methodology here has been keep trades 24/48 hours and be very selective and it’s best we keep to this as we come into market "R".   We’ve alerted 3 stocks in May,  all "safe harbors" and earnings related.  VCI  twice. first at $30 to $34 before plunge and a few days ago for a breakout in 33’s to a high of $36 today.  GEOY  $28-31 in two days and SXCI  to a hot $70 yesterday after oppy’s to pick up all the way down to $58 since alerted last week.   That’s a lot of points between them during market turmoil, a few thousand shares in those names is better than 500-1000 shares of even an AAPL momo' type in taking up trading dollars and it comes without the stress.

SPX trendline

Excuse all the crayon work, some have asked about the March 09 trendline noted in Journals a few times (#14 blue)...SPX1155 is it this week and we've had 3 closes over it that we wanted to see.

DJIM #20 2010

At the end of it all last week, we’d have to say it was the ugliest 2% weekly broad market gains witnessed in our market history!.   The ugly was the rejection of the 1170-1175SPX  and the ensuing fast drop from late afternoon Thursday to Friday’s low in 1120’s.    Somehow sanity may return next week,  but wild swings will be the expectation going forward for the next little while.    Possible positive catalysts are unclear.   As noted before friday's open, with no conviction buyers at important highs or dip buyers at potential lows,  we’ll also stay on this buyers strike as we have reason for our money to be ‘toyed/messed’ around the March ‘09 trendline.   Well,  by Friday’s close,  we were well below this line and deep in Bear territory in the 1120’s.   Now the “R’ is lowered to the trendline after we had a major rejection 1170-1175 with longs giving up and those who used the relief rally to book cash they thought they had lost in the plunge.  

Instead of monkeying around to start the week,  we’d prefer the market just go ahead early and test a gap formed early in the week 1113-1122 and/or even 1100 (200ma).   Anyways, the market has holes in it and we don’t want to fall into one of them,  so patiently we’ll wait it out on the sidelines to begin the week.   We're not about to follow in the footsteps of the big boys..

http://www.ft.com/cms/s/0/909e6634-6112-11df-9bf0-00144feab49a.html

If you need to press the trigger at any point and there's no room at your local Traders Anonymous meetings,  it is likely index ETF’s would be the best way to go as individual stock picking will be difficult with no clear rotation/ sector bias seen.