2H-2010 Journals---Bull fiestas'

Quite fittingly on the day of the Running of the Bulls and a big World cup victory for Spain, the bruised Bulls of North America ran and ran surprising the markets with a relentless push higher throughout the day.   On the topic of surprise,  we have no doubt many were left flat-footed on the sidelines caught up in a holiday week or possibly in a bar watching the Semi-final game.   This could be beneficial as they come to play and hold up the market over the important 1040 neckline heading into the first week of earnings.   Today’s run through SPX1040, than to 1050 and than to 1060 was impressive (volume or not) as some major resistances were busted.    Yesterday’s note on the 3rd consecutive close over 1020 did bring out a change in sentiment and now seriously ‘buyers’ have to think the “market has settled and bottomed”.   We only need to 'think' it did for the time being to have a decent market,  we don't need some confirmation.  Anyways, there is really no such 'confirmation' thing in this game.

So, while many were surprised, we only have to go back to yesterday’s Journal and understand the changes from the prior days ramp and than surrender.   So, let's look at the differences…point of looking back is to learn the market and to be able to recognize future signals in your trading career.

Tuesday,  "No ground breaking catalyst" . Today, alerted 3 potential catalysts before open, each having something for every sector and thus a broad based rally ensued.   Some stress test criteria was published/ wires in the morning and it was enough (limited details so far) to push the market through 1040. ** (ECB-Trichet.press conference Thursday to monitor as a possible market mover) . 

'Big Boy' Samsung call was good for techs as anything better than feared is good in the markets mind these days.   Add STT  and a decent earnings picture possibility hit from 2 big names for 2 major sectors in the market.  The China speak has led to a 2 day move in the Shang' as sentiment improves because a winding down of programs is seemingly underway. (Materials rode China).

Tuesday, TSY action was not indicative of equities move, no sell off in it.   Watching the $TNX today , the weakness in 10’s was a signal this rally was not going to peter out like the previous days.

So, we had signals to believe the next upward move would fare better.   Now, the question is if this has legs??.  Well,  we'll just have to continue to watch the $TNX as it may be signalling rotation for more than a day.    Of course, we can derail as earnings begin to hit next week, but on the other hand we may continue a steady march if sentiment has bottomed.  Sidelined money will probably wait for 'dips', instead of an outright chase of equities from here.  There is room for such because eco`data will be sparse until August hits and we see how July was.   Starting next week, we will live by the guidance from the CEO/CFO`s.    A reprieve from 1000 SPX territory is all we can ask for at this stage. 

DJIM #28 2010

Just over a week ago the market looked like it would begin earnings season at or near SPX1000, now we enter a week full of bellweathers type announcements (INTC, GOOG IBM JPM GE) thinking 1100 might be the possible scenario instead of SPX1K.   In reality,  within the markets surge last week were a couple earnings related stories that went pretty unnoticed,  but no doubt played a role.   These were the pre-announcements noted here from Samsung  and STT  for critical market sectors.   Hopefully, this is a sign of things to come where market downward revisions and growth outlooks won’t be as sombre as earlier predicted.    Another sign things might not be so gloomy and that the recent action was just a growth scare,  is the fact this Q has had the lowest negative pre-announcements since '06-07.   So, we ask if corporations were suffering already from Europe, China etc. and expecting a terrible 2H, why didn’t they pre-announce under the dark clouds overhang brought on by the double dip crowd.   They had the perfect time to do so under this ‘growth scare’ and might have been excused you may say, if they had a negative pre-announcement during this time.  Only time will tell if this turns out be the 'surprise'  indicator for what this season might turn out to be like.

So, we enter the week at the 20MA incredibly, this has been the benchmark for us since the rally started in March 09.  The last 2 times we fell beneath this mark, we corrected in Jan and April.  On the other side, we’ve have not had the 20ma provide much resistance as the market handily crept back over this MA in Feb for another rally and than in June, a short lived rally of about 50 more SPX points after it was broken to the upside.  This is another reason why 1100+ is very possible without market turbulence from earnings.    Even though,  AA is the earnings Parade Marshall to many,  we’d look at CSX  as the more crucial report Monday/AMC to watch.

Due to the most uncertainity, we can recall in a long time heading into EPS, we think this will greatly benefit any stock surprising.   By this we mean, the gains might be exagerrated as these companies will be rewarded at these depressed prices.

Trendline from April hit

Looking at this one (17) closely as possible "R" at 1097-98

..you snooze, you lose'

The old adage, ‘You snooze, You lose’,  definitely pertains to being a trade/ investor these days.   How else can you describe a missed ‘90 handle’ run on the SPX within days to anyone sidelined asking..” what’s the market run all about the past 5-6 trading days??".    Not only sidelined money, but shorts are asking the same question,  except for the past week all they do is make predictions about where “R” might be higher and saying this will be a great place to short more!.    The question to this methodology is why in the world are they making these predictions while letting their positions from 1020?- 1040 to 1075 disintegrate if they know “R” say at 1100 is the real formidable level?.    Basically,  what they are doing is giving in to the thought the market is running higher,  yet they don’t cover their existing shorts and their losses add up.  We see this in our perusing of other blogs during lulls in trading.   Basically, sidelined investors and many shorts are one of the same these days.   In the long run, okay in this case its only 5-6 trading days both loose in different ways.   Yes, a sidelined, unprepared investor does lose too even if they didn’t lose any money because 10% runs don’t come around that often and/ or in such a short period of time.   

As we’ve always discussed trading is about preparation and a game plan.   You always you have to ask yourself the questions about what might be relevant to the market at a certain moment in time and dissect ‘news flow’ as it happens afterwards.    So, if anyone asks you the question of what this run has been about it’s pretty simple in these eyes as they’ve been all pointed out to watch as part of being ‘prepared’ and in the game.

•  “Uplift into a month”  was the play, we outlined why in detail here with the sizable liquidation at Junes end a big reason for it and "History" of such happening from experience.   This coincided with “sentiment’ readings at March 09 and February 10 low levels.   Now, this was the idea, but we needed catalysts to put this to work.  Well, we got that shortly after as all eyes were coming upon earnings season.

• Very possible rotation from BONDS into EQUITIES.   After a huge victory, outperformance in the last Q there was only so much more lopsided action possible before the easy trade was going to flip in favor of equities.  

• It’s almost too late here at possible short term resistance (addressed in a post yesterday) to wait for INTC tonight,  JPM  earnings.  These two crucial sectors have already run and this stems from earnings last week.    We have not seen CNBC or Breifing, two tools investors and traders use touch on these two catalysts from last week that we highlighted here (StateStreet and Samsung).    Instead its all AA and INTC and JPM etc. on their minds .  For the short term this is almost useless to wait for as after these reports you get gaps and unless you’re were in the market you miss profits so far.    Today, following that gap we didn’t see conviction buying before noon as most snoozers just don’t want to chase a huge move already in the indexes with the lingering battle scars from previous bouts with market.

It’s almost like a 9th inning rally in baseball.   You come in with a game plan and it probably starts in the other half of the inning.    You might be losing, but still you bring in a pitcher who can curb the other team. (we had that in the market settling/bottoming).    Than the manager brings in a pinch hitter to lead off the inning.  (we had fresh catalysts in the market) and than you have the next hitter, bunt him over to 2nd.    Afterwards, you have a couple of more chances in getting him home for the win. (we’ve had that in the earning reports yesterday from AA, CSX NVLS).   That’s the rally and that's the ball game as they say.    So, right now it’s irrelevant to us what INTC or JPM does in the short term.   These are the on deck hitters left that are not needed at this point.    So, what we’re saying is it's time to regroup and anticipate ‘individual EPS linked plays'.  As you can see this Q, we may have some decent surprises (EXPD  types would be great!).   You throw out what got you here and patiently wait for reports (fresh meat).   In the meantime,  we’ll let the market figure out what it wants to do, either break this April to June trendline for good with conviction or go do some backfilling to 20ma or just below.    

Why leave good holds and look forward to new fresh plays?. Well,  we imagine most do not have hedge fund size accounts and if you’re in profitable holds, you’ll need money/margin for new plays and not have money that is tied up in stocks that already bloomed the past week or that will backfill with market if that happens.    You might want something premarket/ AMC in size and unable to dump a hold into an illiquid market to free up some cash.   Of course,  if you have sizable accounts or time on your hands (timeframe), you can do both.   All of us are different in our decisions to take profits.

Menage a trois...

Recent macro/micro developments on the ‘soft patch vs. double dip’ off soft eco data and EPS season has switched focus from the many headwinds feeding the market previously, including this threesome…(Gov't Fin Reg, GS, BP) .   

If today’s late news flow was a few weeks ago, the market probably would have rallied some 300/400 points!.   Yes, market bounced, but it was mostly a concentrated move that was really no big deal, except for fast traders to have some late day fun!.   The news flow today is something that had to happen sooner than later,  it’s not a new catalyst likely for the very short in our view.   It’s mostly media drama for the masses,  unfortunately the scars left by Gov't/GS/BP on the public will take much more time to heal.  They won't be jumping into bed with them any time soon.

The only positive is it put some more “bull mud’  to cap the 1080 support level for dip buyers to move in. Unfortunately, we all know from BP how effective mud has been.    We’ve done this hit off support numerous times since hitting the 1098 April to June trendline that we put up as a resistance level here a few days ago.  This is the first "R" since the rally began that is not 'glass'.   Also, market is hanging over 20ma which is critical for more upside during EPS early stages,  but the range is getting tighter and something will give sooner than later, either the upside or downside.  

Problem arising with upside is if it’s not broken soon,  Bulls will give up for the time being (take profits) and allow 1080’s/20ma to falter.    Simply, even though we are the high end of recent range,  we are seeing fatigue set in after this 9% rally.  

Chart below on 'gap' hourly support:

SPX breaks hrly gap support / 20MA

Friday, July 16th-7:00am

Menage a trois...

Recent macro/micro developments on the ‘soft patch vs. double dip’ off soft eco data and EPS season has switched focus from the many headwinds feeding the market previously, including this threesome…(Gov't Fin Reg, GS, BP) .   

If today’s late news flow was a few weeks ago, the market probably would have rallied some 300/400 points!.   Yes, market bounced, but it was mostly a concentrated move that was really no big deal, except for fast traders to have some late day fun!.   The news flow today is something that had to happen sooner than later,  it’s not a new catalyst likely for the very short in our view.   It’s mostly media drama for the masses,  unfortunately the scars left by Gov't/GS/BP on the public will take much more time to heal.  They won't be jumping into bed with them any time soon.

The only positive is it put some more “bull mud’  to cap the 1080 support level for dip buyers to move in. Unfortunately, we all know from BP how effective mud has been.    We’ve done this hit off support numerous times since hitting the 1098 April to June trendline that we put up as a resistance level here a few days ago.  This is the first "R" since the rally began that is not 'glass'.   Also, market is hanging over 20ma which is critical for more upside during EPS early stages,  but the range is getting tighter and something will give sooner than later, either the upside or downside.  

Problem arising with upside is if it’s not broken soon,  Bulls will give up for the time being (take profits) and allow 1080’s/20ma to falter.    Simply, even though we are the high end of recent range,  we are seeing fatigue set in after this 9% rally.  

Chart below on 'gap' hourly support:

DJIM #29 2010

The surveyors at University Michigan (MCSI)  must have caught some folks at the wrong time early in July.   A one time drop (nearly 10 points) in the consumer sentiment reminiscent of post 911, post Lehman, post Katrina soured investor tastes.    Add some bad BAC  and investors fled the market in numbers.     How much weight do we put in the number?.    Well, the question is post-( what? ) is this number all about?.    Nothing new as far we can see!    Also, recall a big reason for the 9% rally starting …Sentiment was already known to be horrid and at historic lows, so this shouldn‘t come as a complete surprise and so we‘re just going to move on.   (“The doom and gloom is excessive and most measures of market sentiment prove it as we are at March ‘09 lows or at 2010 low's in other sentiment readings“).

The sticker shocker of the MCSI played right into the market’s fatigue and failure to get over the April/ June/ July trendline we’ve concentrated on here.    The break of the hrly gap at 1078-1080 played to perfection as we closed SPX1064, almost halving the rally gains! …“Problem arising with upside is if it’s not broken soon,  Bulls will give up for the time being (take profits) and allow 1080/20ma to falter.” 

After the initial hit of the April- June trendline on July 13th, our strategy here was to throw out what holdings we had and concentrate on fresh plays entering EPS season.   Right now, macro is overwhelming the micro camp, but with the majority of SP corporations reporting in the next 2 weeks, we don’t think the fight is so easily won by the macro’s just yet.    By concentrating on fresh EPS, we can avoid the overall market fight.    Even if the macro’s win, we shouldn’t be hurt by only concentrating on the EPS winners as they come.  If those plays don’t come, you’re simply flat a market that is dealing with a loss of global growth momo' that  is greater than anticipated half way through this year.  That's not a bad thing to be.

*Euro Stress tests to be published this week.

20MA recaptured

Despite Friday’s swoon below our critical 20ma ,  we managed to eek back over it twice on Monday and today as soon as a 3rd try ensued,  the market breezed through and staged an impressive reversal day closing 15pts above the 20ma.   This has been the ’Bulls’ benchmark here and it remains so!.  Looking at today’s action,  we think the April/June/ July trendline that held the Bulls at bay last week is much more vulnerable now and should be easier to crack.   So, what brought on today’s impressive comeback.  

• Despite all the critique about disappointing  'revenue'  lines in earnings,  you can only beat a horse so bad after a gap down.   A change that continued today was these gap down earnings beatings were getting ’bought’ up the last few days.   Examples were HAS and DAL.   Today, the same was happening early in IBM, GS  early and in a smaller name CRUS ,  which raised revenue guidance, but was knocked down to mid 15’s(->10%) before climbing to flat and than a 5% gain by close.   Simply, the market was overreaching the ‘revenue’ misses mostly and this proved to be buyers delight as they step up at these exaggerated gap downs.

• If you have your DJIM shadlowlist set up like shown here,  you could clearly something out of the ordinary early on.    The commodity linked stocks were outperforming the market in a big way. Question was why?.    As we all know if China goes, commods’ go.   Considering the Shang was up 2%, (2 days straight), you knew there must be China talk.    And, there was talk, talk of China ‘easing’ measures and also noise about better margins for the steel co’s in Q4 from China companies.    Most importantly, Shang is over 20ma and should be watched as we could be off the ‘bottom’ in commodity linked stocks.   We all know even when the overall market doesn’t give you gains, trading the commodity linked stocks is all we need if a trend is beginning.   It could be a little early, but the train may be leaving the station and buying the pullbacks gradually is probably the way we're going to go now.

• Lastly, we asked for earnings ‘ammunition’  yesterday and without going into detail, we definitely got some from AAPL  and VMW (nice chart set if trendline broken) to fight the Bears.

http://www.finviz.com/quote.ashx?t=vmw&ty=c&ta=1&p=d

Is it tough enough?

Is it tough enough?.... Bulls and stress tests!

The puzzle reaction that was to Bernanke’s address was quickly solved by the market after a night cap or two.    As we said, “thank god” the monetary policy statement didn’t just change overnight since last FOMC/minutes and instead disappointed those looking for much more.   Those looking for much more maybe just don’t realize the Bazooka has little left to launch at the economy!   What’s left is pretty clear to market observers.

We would love to discuss the rally that moved through the April/June trendline, but by noon Friday or earlier in the morning,  we’ll all have to shift our focus.   Also, once again the ETF/futures downdraft reversed as speculated!.  This (black box initiated) phenomenon is easily noticed if up against the DJIM shadowlist intraday.

Still, we’ll repeat the important catalysts that were noted in premarket alert that we have going forward after we get through the ‘stress tests’  mania.   Actually, we can make it three!

• Euro eco data points strong and the big worry of slowing across the pond is abating due to these numbers.

• China went above 50ma is confirming a bottom now ….as noted a few days ago…“Most importantly, Shang is over 20ma and should be watched as we could be off the ‘bottom” in commodity linked stocks.   We all know even when the overall market doesn’t give you gains, trading the commodity linked stocks is all we need if a trend is beginning”

• Earnings, Earnings!  UPS,MMM,QCOM etc.

Okay, the shift tomorrow!.   Maybe, miraculously all the ‘good things’ across the globe today will mute the stress tests outcome and maybe it is ‘priced in’ or will be 'tough enough' to satisfy.   If so, we'll break the top.   But, we know this market near a range top has a habit of finding a reason to fade,  so we have to be prepared!.   If  today‘s ‘good things’ and ‘priced in’ don’t work,  we hope there is more than 1 bank (Hypo) failure or the rigor of the tests will be questioned.    Yes,  the market wants to see failure, but leaks this week have shown this not be the case,  so we'll need the tough enough angle most likely.

Watch $TNX  for first signs of a lack of investor confidence in the transparency of the tests,  the market will follow. 

SPX ~60 in 5

It’s been nearly two weeks since noted..”Earnings, if they keep at this pace 'will trump' any Eco data-FOMC statements..”..   

Immediately, following this statement we ran into a few days of roadblocks where earnings were missing the revenue top line and most proclaimed Macro victorious over Micro (corporate) as the SPX dropped to 1055.    Now 5 trading days later, yes only 5, the SP hovers near 1115, some 60 handles  higher on the heels of Micro winning out.    Of course, this stands till August …“….because eco`data will be sparse until August hits and we see how July was.  Starting next week, we will live by the guidance from the CEO/CFO`s."    In other words we have some time to climb higher if we get through a boatload of technical ‘R” numbers around today’s close, but once August hits it will be eyes on US eco data’ starting with ISM’s to verify what the corporations and global markets are saying. 

The good part is we have good things on the Bulls back coming into August data...Micro (earning) fundamentals,  Western Europe accelerating into 2H and China ‘bottoming’, plus FINREG/ Stress tests over with.   We didn’t have any of this when the market was toying with a potential summer under 1K SPX in June.

Today, market had FDX  add some validility to the global picture,  but we’ve had this already here at DJIM 2 weeks ago as part of an improving global snapshot.. “EXPD , bot some, 30% upside is a great pre-announcement, should help FDX -transports”.    

A few other earning highlights noted VMW , CRUS, also making NCH (New highs).  Past DJIM Q's/2010 plays, AZO, RBCN, OVTI, NTAP, ROVI, CRM  continue to grind away at new highs.   We also have APKT, DLB  on 5-6 trading day moves that we suggested as potential run ups into their earnings this Thursday flirting at NCH‘s..“Look at tech reporting soon on sell off..APKT DLB etc.on this 20 day hit. Apr 16.     Also AMC,  VECO  report shows DJIM LED stocks (CREE AIXG RBCN ) still have momentum in ‘10.

In conclusion, if the breadth of the market stays on par and/or performance chasers come, a try at the 50% retrace would be in the cards.  This is also where we have June peak to contend with.  Still, don’t think these levels should cloud our thinking with new earning plays emerging and getting some recent ones back on pullbacks remaining the premise.   Starting tomorrow, looking for a close over June high close of 1118 for ~1130 sooner than later,  otherwise a dip is probably in order.