DJIM #7 2008
Monday, February 18, 2008 at 08:00PM
Jon in Ag/chem, FDG, MEE, MOS, coals, pot

It's just simply getting very technical out there.   Although headline news may dominate the movement of a particular trading day,  the overall movement of this market is becoming more range bound with the underlying downward bias still holding.    Things are tightening up on the technical side and we feel a move is coming sooner or later to break the latest range.   The more likely scenario recently has been a break to the downside and a test of last week's low just under 12100.   However, we may get some surprises judging from the futures trading at the current moment that coincides nicely with Fridays reversal led by financials after a BBY warning and weaker NY Empire number, Michigan sentiment.  Is the market starting to price in some of the bad Eco data?.  Well, we'll definitely know after this weeks data. http://www.nasdaq.com/econoday/calendar/US/EN/New_York/year/2008/month/02/day/18/daily/index.html

Quite a few earning reports and some economic news dominated the pace of trading last week.   Even in this recession fearing trading environment, we still have market participants speculating on earnings reports/guidance to the long side.  BIDU FSLR PCLN and even the CMG, we noted before the Friday open as a possible trade after the initial sell off.   This goes to show that speculation money is still out there.    This is definitely good news if your trading time horizon is no more than a couple of days at a time and you don't swing with huge bets.   After all, this market is only rewarding those with a quick trigger and a neutral mentality.

At DJIM, we are sticking with our recent theme of "long the good eps winner on weakness and short the crappy plays on strength".    Fading the strong market move in either direction until a major trendline gets broken should remain the theme.    Basically, this market has been trading between 12200 and 12700 over the last three and half weeks and we feel one of those level will get broken eventually.  The SPX is about mid point in a narrowing range for the last 17 trading days since Jan lows. 

For now, we are trading both sides of the market so we don't get completely left out when a strong move occurs in either direction .    What we aren't willing to do at this moment, is to commit large amount of capital to bet on any one direction.    If you want to minimize risk in this kind of environment, you just have to accept the fact that you have to churn to make a living at this point.

Chemical/Agri.  the reason we keep mentioning this group on a daily basis the last while is the fact this is one of the few sectors that is still trading near its 52 week high range.    With some names trading at a very decent P/E and a majority forecast of strong growth the next couple of years, we'd still be pounding on the long side of this group when opportunity presents itself.    You really don't have to trade every single name of the group, but to trade the ones that represent the sector best like POT MOS MON CF etc.

Solars, we'd remain very selective in this sector and pretty much stick to the saying "what's good for FSLR is only good for FSLR".    Trading a solar play that has a great outlook is less risky than trading those that don't.    If you are long those solar names that were being dumped on their earnings report, you'd likely suffer more pain once the sector pulls back meaningfully.  Citgroup upped a German solar to BUY giving a favourable outlook on the sector today.

Coals , just like we said the GS downgrade could play havoc and also produce more opp's to buy the dip.  Some like ACI, MEE took it on the chin, well actually it was a low blow. We all know most stocks in a particular sector, even if not included by name in a downgrade suffer. One that did not is FDG.  After trading it here now for a few weeks, we'd have to say there is more involved here, as in strategic possibilities.  We'd stick to FDG , MEE and JRCC for a more volatile cheaper play.

Shippers, the recent surge in DBI index, as well as earning anticipation have caused many popular names in the group to move a substantial amount off their recent lows.   After a couple of key name's reports late last week, we noted to be careful with the exuberance especially off DRYS big sounding beat.  We feel the run-up may need to consolidate for a while, especially after the fade witnessed.

ILMN, CMP continue to show strength. FSL is coming back to be picked up again.

If the Footsie(FTSE) can use todays strength which evolved from the banking stocks prospects later in the week and carry it over 6000 by the time we get started tomorrow, we could see a nice follow through on top of the futures we see now.  Qatar also said it has $15 bln it wants to put into Euro/US banks over the next year.  Some financials would not be a bad idea to trade. GS, MER etc. 

Article originally appeared on Your Personal Trader (http://www.yourpersonaltrader.com/).
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