Surprise!!, we're back to picking on the financials today. Actually, we're not the ones who started it or followed. In our view, the main culprit was a Deutsche analyst and we just waited out the day waiting for this to kick in. The same analyst recently got the market going on July 23rd, we noted in the next days Journal...."Yesterdays, late day was ignited by an influential Deutsche bank analyst who said his bearishness on the banking was reduced over the past week. "Bad results are good when expectations are so low", he said. Seems he had a change of heart and picked on the biggest fish downgrading GS to hold. It wasn't JPM small loss this Q, or Oppy's analyst who is constantly hacking at the firms, or Bove's late day estimate cut on JPM that ruined the day. These were just filings to the most influential banking analysts words on GS.
Can this market be more original than this? Naturally, after many days of relentless selling, commodity plays got a break today even with a stronger dollar day and got into green for the most part.
Something has to be worth playing in this sort of market, right? Yes, it’s time to move away from the mainstream names. As we mentioned yesterday, our Shadowlist has been going through a “change in direction”, sort of! Okay, we still have the POT, MEE, CLF,GDP to fill up few spots as they are pretty representative of their respective sector. In essence, unless something big and dramatic happens in the commodity area, we are most likely going to stay away from the sector for a while. We hate to say it, but in case you haven’t gotten the message the last couple of weeks, “the commodity run is over”
Instead, slowly but surely, there are more “obscure names” creeping onto our Shadowlist. You want to know the reason? Take a look at the recent 52 week high list, and you’d swear that you haven’t heard or seen 70%+ of the names. This is just fine with us. With the trading business, moving on to new stocks and leaving old ones behind isn’t exactly shocking. What we have been doing the last couple of days, is taking notice of those names that are making new highs/or about to off the back of their earnings reports. Believe us, there’s quite a few out there. However, we can’t play them all, nor do we want to. So hopefully, we'll stick to the ones we think have the best potential in terms of upside, liquidity and potential longevity. The last is the most difficult to deal with.
A few names we track are behaving a little different from one to another. After a few days of run-up, AFAM finally came down hard on heavy trading. We couldn't see a reason for the hard sell and it's not surprising it stopped near its 9 ema. When it's not clear as to the reason, it is best to see the stock stabilizing before entering. FSYS, on the other hand, is just refusing to give anyone a decent price to get into. For now, we’d simply want to be a little patient on this one. ROCK is stalling a little and we’d see how much it will give back before we start putting back in our bids. If you see a stock like AFAM stall after a run as it did on Monday and than follow up with a drop, you now know it may be reason enough to give up your ROCK as it stalls for the time being. As we said yesterday, pocket your earned cash and wait for another entry in this environment or at least size down..
Bottom line, it may be attempting to jump back into some commodity plays for a quick point or two, but you still have to be crystal clear on the trend these plays are in. Right now, commodity plays are on a pretty severe downtrend and if you happen to make a mistake, it will get you. On the other hand, with the plays making new 52 week high off the eps reports, clearly, they are on the uptrend. Don't forget our early earnings plays this Q, ILMN might be next in line to do what AXYS did late in the day.