Comfy mode?

Compared to some of the crazy moves that took place merely a couple of weeks ago,  this week's action has been been nice and tame.   Yes, we still have the back and forth gyration, but it's nothing like the wild wild stuff we were used to.   It's contained so far this week in a range.   Change of pace and change of scenery?    Perhaps, lets just enjoy it while it lasts.

Today's dominant news is again on the auto bailout deal.   What else is new, eh?    Frankly, not many people really believe this deal will really help the big three if this recession persists for a while.   However, if the deal doesn't get passed,  the big three would face immediate liquidation process which will definitely put the fear into the economy and this market.    So this temporary dosage of life saving deal is a pretty big deal if anyone still wants a calm Christmas.    Basically, the bottom line is that if the auto industry collapses before year end,  we would have lots and lots of nerve wrecking folks out there which is not good for this country.    Beyond this saga,  there is a tradable market to peruse.

From the trading side,  we have basically carried the same theme for the past few days.   About a week ago, we noted the change in dynamic in this market where bad news gets absorbed and it was no different today.   Stocks warning of coming quarter is "no longer" a surprise,  but an expected exercise.  So for all the corporations out there,  now is the time to warn and get it out of the way.   In fact, some stocks actually seem to enjoy a boost in stock price after they lower the guidance and come clean with the market.    We think there are two reasons for this behaviour.    One, the estimates that companies provide are much better than the estimates people fear.    We should not even bother looking at the estimate from on Financial pages as most of those are just "pipe dream numbers" from a year ago.   With the way most, if not all of the stocks got sold off during the past few months, you get bottom fisher/ value players to stepping in for some buying.    Two, we simply have the deceased activity from hedge fund selling.    Remember, much of the recent panic from this market was created by hedge fund liquidation.    We have to believe at some point that the process will eventually stop or slows down dramatically.   We are seeing some of this now take place.

Aside from the better psychology of recent market activity,  we have been getting the most bang for the buck from the commodity sector.    Oh geez, not again, you say!    The truth is, we have to play what's working from the market and it has a pulse now.    If you have seen the recent production cutting annoucement from the likes of NUE, MOS.. and yet those companies still manage to go up after the news, you know that we are either at the bottom or have seen the bottom.    The fact the drilling results are getting a lot of market participants excited on our past Shale plays also make us believe some plays are just so eye catchingly attractive at this stage.    One thing you have to remind yourself though, just because some of these plays have gone up quite a few points, it does not mean they will come all the way down to the recent bottom for you to buy some.   It just doesn't work that way.   If those plays have seen the bottom, it simply means you would NOT have a chance to buy HK at $9 or CHK at $11 or NEU at $26 etc.    Trade rationally, and not with a stubborn mind.    Yes, we would feel more comfortable playing the entire infrastructure theme related stocks at a cheaper price levels,  but it just doesn't mean we'd wait for a 20 to 30% pullback now.

Into the trading day, we said a perfect storm may be brewing for the energy sector.    The SPX, bigger names got involved helping the Shales along. Of the top 10 stocks contributing the most to the SPX on the upside today, 70% are energy (XOM, CVX, OXY, COP, DVN, APA, CHK all among top 10 contributors to SPX. One of the best ways to monitor this component is through the OSX,  (PHLX Euro Style Oil SVC. INDEX).

Energy/materials/commodities equities very strong today.  The last few days a lot of talk around the Obama infrastructure, combined w/some hope that China’s gov’t spending plans, has helped drive a lot of the commodity names.  The Baltic Dry Index (dry bulk shipping stocks) has climbed for the last 3 days.   As for Steel  names,  the decline in Chinese net exports is a positive for U.S steel producers. (NUE)

Market at this moment, is still very fragile and we are definitely not out of the woods yet.   We are hoping this market would go sideways for a long while to repair the technicals before we can get a meaningful rally.    We are not sure what can potentially drive this market higher and it's not that important at this point.    There seem to be more trading opportunities that are manageable with our trading strategy these days and we are taking advantage of that.     Remember, we can deal with a recession, but we cannot deal with a collapse of the system.     With worst of the crisis behind us seemingly,  it may not be that bad of a market to trade along with.

So what we do at DJIM is look for plays that are trading at recent high, not year high as in previous years, and adding them to our list.   Over the next little while, you'll likely see our shadowlist get many of the old names back on it .  

Technically,  885.85 (886) was held again on the SPX and 925/ 930 is the upside resistance.  The direction of your trade should be glued to these levels.