DJIM #52, 2007

Believe it or not, DJIM has now been at it with the TraderJournal for a 1.5 years/ 5X a week.  As the year closes off, we wanted to especially thank all those who have stayed with DJIM since day one.     We hope all have enjoyed our journals, alerts-comments, and forum of DJIM as much as we've enjoyed providing them.  We'd also like to thank BT for keeping our plays updated with his chart work.  As the last journal of year 2007, we want to take this opportunity to look back on the past 12 months and as well as take a peak at what potentially lies ahead of us in 2008.   

We have to admit, that trading in 2007 has been a challenge.    It's a challenge not so in the sense that it was difficult to produce a profitable year.   It was a challenge because we have had back to back to back great years in 2006, 2005 and 2004.  

In the beginning of 2007, expectations were high among the traders but the results did not come close to what we had in the previous years.    At least, that is the case with DJIM traders and many other traders we know.    This year has been dominated with volatility.   At the end of the year, you can say it was a trend less year.  Stocks moved up and down in an exaggerated fashion along with the indices.     The most difficult thing about the market this year is that no trend lasted for more than a few weeks at a time.     We were constantly battling a changing trend where you literally didn't know what to expect some days you walk up to your trading platform in the morning or after lunch.  A few things are clear though, we know the exact cause of this volatility, the sectors that are getting hurt the most, and we are still not through to start a new year.

Shanghai surprises, Housing bubbles, credit crunch, massive writedown, potential weak consumer demand, potential recession......    you can see what we have to deal with heading into 2008.

Ok lets go over a few things that have worked in 2007 that may give us the headstart in 2008.

Solars, many agree that this is the year of the energy stocks.    As oil price crept up to $100, alternative energy stocks have been benefiting the most.    To many traders, solar stocks are the reason their accounts are in black this year.    It's true that this group has ran up a lot but earning side of things have been keeping up the pace.    At this point, we are 50/50 to give it the end of the run up prediction.   The key thing we are looking for is how some of the leaders in the group react to each others coming earning reports.    Yes,  this group can correct anytime now and they really should based on the way they have ran up.   So far, they haven't been able to crack the major trend line so we don't believe they would until something dramatically changes the whole group behaviour.

Earnings winners, other than the first few months of the year, the so called earnings winners from small cap land have been scarce, very scarce lately.    Many of the earning winners we noticed, however, come from the mid cap group where the action was the most fierce.   If this is the trend that continues into 2008, we are basically not going to argue with it and we'd put most of our effort into earnings plays from the mid caps.

BRIC plays, this is the area which has been shining on and off in 2007 and we think it'll continue this trend into 2008.    Lately, Russian plays have been very hot and we were pretty aggressive with them as you can tell from the number of mentions from nightly journals.   So far, we have just been playing MELI (Argentina- latin America)and PBR from Brazil and those two are currently enough exposure from that region for us.  

In terms of China plays, we still have a bunch on our watchlist and we are just waiting for them to heat up again.  A pre- Olympic fever may come.  The year of the Rat is ahead of us and the "New kid on the Block' of 2007 in the trader/investing community should continue to provide trading opportunities.

Going into 2008, we expect a lot of "more of the same" attitude from the market participants.   We have a Fed meeting coming up, FOMC minutes January 2nd and busy weeks of earnings reports just ahead of us.   The dreaded Employment report comes this Friday and could be a spark either way. Hopefully, most of us have relaxed enough in this holiday and we are back to focus on the busy trading in front of us.

DJIM #1 2008

Who would've thunk it that by the time we put out DJIM #1 of 2008, we'd be down between 4 and 6% on the major indices for the year .  Add the 10% off recent highs for the RUT and we have a mess on our hands.  An incredible week of headlines..ISM, FOMC minutes, employment report leading the way to a one sided week as the techs, small caps continued to fall for a 6th straight trading session.  Our methodology was always to not hold stocks into their earning reports, now 2008 is shaping up as a year where we might never hold anything at all into an ISM #, and especially payroll number!.  Imagine that!.  Talk about a daytraders market, a long term investor will see any gains generated quickly on a gap down like we saw Friday in this environment.   This will be a difficult market to move around in, the nervousness has really set in and it makes the credit crunch we've traded through look like child's play now.    Simply, the hype during the week to the payroll report led to something all feared, but there is no use to moan and groan and analyze here.   There`s enough media outlets to harp on the events and possibilities it holds.   We have to look to the very short term possibilities this week.    This includes a very technical bounce scenario that even has the Bears thinking a recovery of sorts is inevitable now.  How long it lasts if it happens is any ones guess.    Examples are The NASD comp, if you draw a trendline up touching  Feb-Mar, Aug bounce levels, the DOW you can go back to March, Aug and early Dec and do the same,  the SPX on its 400ma you can see the bounces Aug and December. The volume late last week suggests the panic has not set in.  Selling positions on Friday`s gap down could have been a losing proposition as it was day 5-6 of losses for the indices with technical bounce levels setting in.   The desks will finally fill come Monday as everyone gets back to work and many will start to see bargains in front of them.    Another possibility that can scare any Bear is the FED giving a surprise rate hike before the scheduled meeting as in 2007.   This market needs some intravenous therapy and it won`t be a quick fix unless the FED surprises, otherwise it will be a slow drip of help that could include technical, earning surprises etc.   Maybe the techs will get some help from the CES fair hype this week. 

As of now,  we are not going to change our trading methodology and what we have traded with success while the odds of recession grow.  The time might come where we have to look seriously at Golds, Oils, Widgets or consider shorting seriously, but in the meantime there are niches that we are familiar with that still have momentum in`08.   This inc. Chemical-Ag sec.   There are many things we can rally off and retrace back.  We need to see a start of it early this week.  Let`s wait and see...

It may get worse...

From the Indices, one wouldn't be able to see the kind of stuff that was going on in this market today.    If it wasn't for some timely program trading and short covering near the end of the day, we would've for sure closed near the low of the day given the look of things.    The story of the day is that many growth stocks, especially the well known ones from last year,  were getting hammered today.    Yes, we are talking about the Solars, the shippers again, and some growth oriented tech stocks.    Even the invincible chemical stocks looked shaky intraday.     This is of particular concern to us.    If the growth stocks are broken down with the short term trendline, what else have we got to look forward to as a retail trader?      As a trader, if the short term technical signs turn very bearish, we aren't going to give the stocks any time to work their way out of it by holding them.    We bail and we avoid them.  This is our way to control our risk with the long plays we trade.    The strategy has done a good job for us for many years so it's not going to be any different this time. 

Basically, market is at a point that it needed to test a new low.    Naz has already taken out the November low and there's no telling where it's going to bottom this time.   Dow and SPX are barely hanging on from November low and we feel it's just a matter of time before the low gets taken out.    As a matter of fact, we'd prefer to see it happen sooner than later to get the inevitable out of the way.   Therefore, what we don't want to do at this point is to get sucked into a probable short lived rebound.    A rebound is not a rally and we have to distinguish the two.  A rally can last few days to  weeks while a rebound can quickly turn sour as we have witnessed intraday today.   For us, we have time to wait this out.     Ideally, we'd like to see some more panic selling that take us to a new low the next short while before this market finds a good footing.

Solars, this sector is definitely having a poor showing today with most if not all the plays breaking down.   Now, whether some plays closed at the day low or not is irrelevant and don't get sucked into thinking that this sector is reversing any time soon.   We think the only thing that can save this sector is a potential stunning earning report (guidance will be most important) from some of the sector leaders like FSLR STP SPWR JASO...    Again, even with the breakdown of this sector, it doesn't mean that some of the plays wouldn't get a pre-earnings runup.   We feel that the safer strategy with this group would be day trading them on a good day from now on unless the group is back near the high.

Again, this market is going to be tough if you try to trade against the trend.    Many of the plays on our watchlist can pullback enough that they'd never come back.   It's essential to wait out the selling first and then see which plays are still attractive once things settle.   There is going to be a lot of events this month from the economic, political front and as well as the earnings front.    It's almost certain that we'd get some good opportunities later on this month.    For now, we just have to make sure that we remain careful and disciplined for the next few days.

cheers, 

..need to pull a 'Hillary'

Seems every morning the bulls have a glimpse of hope as either the futures indicate a good opening and/or we get a move higher early on.  Unfortunately, any hope is soon relieved and the indices start to sink sooner than later.  This is being repeated over and over again and all it does is make the bulls lose confidence.  This makes it easy for the Bears.  Considering we follow the small caps one thing we watch carefully is the IWM, yesterday the high of the day came at Fridays gap down high and there was no follow through higher. The next obvious step was to start looking at IWM's lows (low 71's) and if it was threatened it would break lower and it did to 70.   Considering the beating of growth stocks Monday masking the indices action as we noted, there is/was no belief we could have gone higher.  It makes no sense that we would with what is going on the day before in our favorite plays in '07.  All that was happening was these stocks were having bounces off a terrible day and were nothing but sucker bets at this point.  What you have to do is look around at what is still happening and that is a domino effect was in progress as more growth stocks were getting slaughtered.  If the bounce in the JASO's of the world was a beginning of a rally, why were stocks like ISRG, CMG still getting hammered?.  We need to see consistent action in the growth stocks, if some are still taking a fresh beating you have to ask which might be next?.  This is something we fear that a hot group like the Ag-Chemical shoe is yet to fall.  If MOS blows guidance today, we might just get this happening today. Considering there is plenty of institutional money in this sector with many of the stocks over $100, it would be pretty ugly if MOS gives any signs of a slowdown.  If they give a rosy outlook and don't move higher and/ or give up premarket gains later in day that would also be a bad sign for the sector.  Wouldn't you want to take money off the table if you were given a gap up in this market with one of your stocks?.  We only have to look at yesterdays words from AT&T that hit the market to understand what a negative word company related can do to the rest of the market.  It doesn't take much and in reality its nothing we haven't expected.  It's just the market is incredibly sensitive as of Friday.

Simply, it is easy to get suckered in now, especially if you are frustrated sitting on your hands. Just do it though until a clear trend change occurs.  So we repeat..we have to wait this out!.  What this market needs is to pull a ' Hillary' Clinton and cry a bit to pull off a comeback it seems, in the markets case this is called panic selling. A sob job!

*As earnings kick off what is essential is to not look at the headline number for the Q 'only' and jump in, but wait and see or hear the guidance. This is about looking forward now!

A Rebound?

After many days of intense selling, we finally got a bounce today. We noted at 250pm the bulls have come in to battle, this became evident as the action seemed to change after we skidded to the August lows on the DJIA/ NASD.  The DJIA/NASD moved up their entire 146/34 positive points for the day from this time and finished strongly giving us what we wanted to see.  This is the sort of action that marks the first process of making a bottom.   Don't get confused, we are only talking about a tradable short term bottom here at this stage.    The possibility of a turbulent market remains very high at this juncture.   Fortunate for us traders, we really don't have to plan months ahead for events that may or may not materialize.  As we noted heading into the weeks action, "We have to look to the very short term possibilities this week.    This includes a very technical bounce scenario that even has the Bears thinking a recovery of sorts is inevitable now.  How long it lasts if it happens is any ones guess.".   With the way this market has been trending, it's probably more advantageous just to deal with the days ahead as oppose to start thinking months or even weeks ahead.

Lets talk about the days ahead!    With today's rebound, there's no doubt many traders are jumping on the gun and calling it a reversal thinking a bottom was formed.    However, in our experience, the more severe the preceding selling, the less likely a bottom would be formed in just one day.  The shorts will be lining up to refresh their positions if this move continues.  If you have been bottom fishing this market the past few days, it's likely that you are still hurting prior to today's move.    In case you are still heavily long, we think it's best to reduce some exposure during the next day or two of trading if given the chance, especially those positions that aren't quite following the overall market direction.

Can we take advantage of this rebound still?   Of course we could, we wouldn't want to be left out with so many stocks trading a dozen points off their day low.  Many hammers on beaten down charts were formed and these stocks should continue.  Definitely short covering was a key ingredient in many of the stocks forming a hammer.  The key here is to stick with those stocks that are performing with the market move.     We are talking about the world of AAPL RIMM MA GOOG BIDU here as always.    You can throw in FSLR as maybe the first and/or only solar play we would trade on a good day.    Most of these trades are going to be treated like day trades with a tight stop.    We just can't afford to think that this rebound is going to turn into a multi day rally.   If that ever happens, we'd adjust our strategy to suit the markets condition.

AA officially kicked off the earning season today and we have many market impacting stocks to report the next while.    Because this market has been beaten so bad lately, a couple of good reports from some key companies can cast away the shadow of recession and prove that the global market is still sound and healthy.  Behemoth, Dupont (DD) of the Dow gave some hope early on off their report.   A combination of good earnings reports and a friendly Fed can really take us out of this recent slide and it won't be long before we know what to expect. (btw...Bernanke takes the podium today, but it may be wishful thinking anything will be revealed of substance).   Ironically.. today's reversal came as a few gurus started calling the close yesterday the beginning and confirmation of a Bear market, it was also the 'unofficial' kick off to earnings day, a season that could leave that call hanging.  We'll see soon enough...

Bottom line here, the rebound today is far from injecting confidence back into investors' mind regarding the big picture, but it is an expected and welcomed relief.   We'd trade small using tight stops and reduce any unwanted merchandise you have left during the pop.     We'd be disciplined about our play selection and let the market show you the setup.

A few things from today...it was kinda scary to see our words regarding the MOS report coming to fruition early on.  A nice report had it to $96 in premkt and then a gradual turn down before riding to $80 by noon as they proceeded with the CC.   TNH, MON all joined in for a quick $10 buck bath.  Yeah there were hints of panic, but considering DD's report fell on the same day it might have saved their bacon as they reversed before the rally in the market even took place.  Hopefully, our note had some eyeing this sector with opp's to go short and/or long intraday.

..slippery when wet...

Frankly, if INTC reported a bullish forecast we doubt it would have anything close to the reaction IBM caused just hours before.  Reason being the market road showed there was dangerous curves in the making all day.  We underlined the ECO numbers heading into the week, the importance of them was overwhelming. The possibility also existed they could mute any positive earning reports from the big corporations.  This remains the case as we still have a plethora of economic data to be released this week that could drain this market even further.  The tap was opened by the PPI/retail, the flood ensued..."Still as of today, we have a flood of ECO numbers this week to deal with that will either salt the roads or make them slippery once again".   Simply, any walk up the hill was flooded and iced!.   Slippery when wet it is going to be even more this morning following INTC #'s and as the case with anyone living in a winterly climate, you'd know not to come out and try to drive through the mess outside.  In the trading world we will exercise this and not come out and play.  We're going sit on the sidelines and will only watch out the window, even if the skies clear some it is very doubtful we'd exercise the option of getting in on what is most likely another futile attempt of a rebound rally.     Any rebound in the short term will be sold off and we think it will be just another opportunity for the shorts to load up.  It is unimaginable to see where this market can get a leg up as of this morning.    The banks with the help of C and potentially more writedowns cooled any bottoming action for the moment.  The retail figures released showed the consumer has been screwed back to 2002 as numbers have not been at those levels since.   Geez, even Jobs couldn't pull a I'Rabbit out of his hat at AAPL.   Then finally AH's INTC crushed hopes of living on the hope of earnings getting us out of this mess.    So what's left that could get us back, even if for only a whipsaw move up?.  Well, we noted this a while ago and yesterday this became an almost inevitable outcome and that is helicopter Ben giving the market a rate ease before the end of January.   Still ..after yesterdays hammering this notion doesn't have the same flavor now to us.   A market going to hell feeling that flushes the market to much lower lows might the only way to go now!.  A smackdown is needed and one at the bell off INTC is not going to be enough.  Maybe the CPI can help add to it. 

There is no reason to moan about the bloodbath in individual stocks, but it never hurts to remind ourselves of what momo stocks are all about. The rides up have been incredibly enjoyed, but to stay in love with them and live with them when they have lost steam is a nasty divorce in the making where you are most likely to end up holding the bag.  This was everywhere yesterday in momo stocks of the past year or more.  The lights went out on solars as 10% plus losses were all over the place. The poor shippers had a big drop in their BDI index and sank!. The Chinese stocks fared not much better, nothing was more proof of a momo stock killing than the reaction to one of our biggest momo stocks of the past 2 years as the EDU classroom had the kids yelling fire as they ran out of the classrooms.  All this on a headline that didn't read that bad....Reports Q2 (Nov) earnings of $0.10 per share, excluding share-based compensation, $0.02 better than the First Call consensus of $0.08; revenues rose 50.9% year/year to $32.6 mln vs the $30.7 mln consensus. Co issues in-line guidance for Q3, sees Q3 revs of $42.1-44.2 mln vs. $44.22 mln consensus.  This just serves as a reminder here now as to what we have said and that is don't chase the headline, let the market show you the way first and if there is a CCall, either trade some before and get out as the call starts or jump in after unless you could follow the minute ticks while the call occurs to get a feel. 

Also...be careful of firms coming in today reaffirming their belief in the solars as an example.  They've been doing it almost daily since their highs.

Anyways...better to be safe than sorry at this point.  If you're not a daytrader or if you can't monitor your plays all day.. it is best to sit out. Definitely holding overnight is not a option as it stands now.  Take a breather.

Dubious action....

By looking at the final box score, you'd led to believe that market didn't behave so bad given the potential carnage caused by Intel.   On the contrary, we think this market missed an opportunity today to mark a tradable short term bottom.    Yes, the rational thing would be for this market to get sold off hard on the Intel news.     Ideally, we'd be sold off hard enough to cause some panic and a meaningful and powerful reversal ensues to mark a low point short term.   The morning had more momo stocks down 10% than we've seen in recent memory. A bunch of them from every sector we have followed.   This was a golden opportunity for more panic to set in!.  What a bummer it turned out to be!...What we think happened today, however, is some brutal action that tricks(sucks) more people into the market thinking it's a bottom.    If we had another half hour to trade, this market would for sure close down triple digits again.

The financial group rallied today and normally we'd cheer for it.    But lately, cheering for financial group has been nothing but costly for investors who'd believe the group would lead us into a rally.    We think a combination of over sold covering, anticipation of a surprise Fed rate cut and some rotation from tech sparked the rally in financials.     Unfortunately, this kind of speculation is so short lived and we just can't trust it any more.    As a matter of fact, financials didn't help any other sectors today.    We had chemicals/agriculture group try doing another day of heavy selling.   Yes, we want this!...last week noted....."We need to see consistent action in the growth stocks, if some are still taking a fresh beating you have to ask which might be next?.  This is something we fear that a hot group like the Ag-Chemical shoe is yet to fall".   This was a start as many were down 10% plus to go with the another 10% plus down from the solars early on.   If solars can do it 2 days straight, we'll take the Ag's doing a trip down...slowly or getting it over with quick and deadly drop.  That is really the last group of strong momentum stocks that have been broken during the last couple of days and realistically it should be as every other momo group to get us to real reversal potential.   Right now, cash is the king. 

At the beginning of the week, our thesis was that companies like Citi and Intel might help to stabilize this market.    By middle of the week so far, we know neither one is helping and they are actually helping on the opposite(down) side.     We as traders just have to be flexible to decipher events like these and do what we considered as the right thing.    We are saying "no thanks" to the dip buying at this moment because technical signs are showing more downside in the near term.    Perhaps, the best thing for this market right now is for everyone to agree things are bad and sell off to a level we can work with.

Bottom line, if there's no panic, then there's no dip buying from us.    We are preserving our capital and will monitor the events closer than ever.   When the sentiment does get to be extremely negative, a tradable bottom will be near.    At this point, it's not quite there and we just have to patiently wait. Unfortunately,  we are running out of potential market bad news to this.  INTC was a perfect catalyst, instead we got a half ass rebound again that was sold off into the close.  If this flush doesn't happen soon, we are stuck with this market dripping and dripping down with false daily moves.  This is excruciatingly painful and before you know, you are at wiped out in more than one way and you know what we mean!.

...the flush

The headlines will be rampant tonight, tomorrow morning and into the long weekend.  We'll save the 10mth lows, 17th month lows speak.  What has happened in about 2 weeks of trading in 2008?.  How important is capital preservation?.  Let's see just a replay of 2008 so far!.  A full 11 trading days of it that has literally blown almost 11mths of market gains.    http://www.youtube.com/watch?v=WofFb_eOxxA

The purpose of our site was and is to provide commentary, methodology of doing and being in a trade(s) , the market.  Sometime in the early stages we started tossing email alerts-comments as an addition.  Some took this too far and blindly chased without doing any homework, but with the market firing on all cylinders it was easy to just jump on a train and rob it nicely.   Maybe fortunately, it is this group of so called traders that have been slowly getting removed from this market.  These are the first to crumble.  The plumbers have gone back to concentrating on plumbing, the teachers to teaching, the housewives back to 'wifing just like in those post bubble days.   Unbelievably, we've gotten a few complaints about not giving alerts on stocks in the past month or so!.  Sorry, but whose butt are we supposed to pull them out of in this crazy market?.  Besides, we weren't built on this.   We have a track record of 5 years or so in the online underground trading world, we've done the grunt work and were on the 'growth' train from the beginning and sometimes from the first minute on a DXPE, BTJ...BOOM...and so on and so on.    Well...times have changed!!   

You see the same subprime mess, ECO numbers as we do and the time has come to things differently, maybe.    One of them has always been the possibility of going into cash, capital preservation.  This is nothing new to our strategy, we've done it plenty of times before.  It's always been around but it's never been more important than these past few months and even more the past few days of horrible losses on the indices.  Hopefully, we've saved you a buck or two this week by sitting quietly.   This doing nothing is tremendously difficult for anyone doing this trading jig full-time as they always put candy in front of you and you get sucked into a play or two.   Why do you think we have so many false moves intraday, even the the biggest technical shorts are waiting for a rally and are dipping in as we see on so many blogs day after day .   Does this mean we needed or need to change to a Bear, a short sale idea site?.    Absolutely not!.   All you really ever needed was the Journal the way it is, our commentary offered many plays we didn't like any more and said why.  That's a short if there ever was one from us.  When were we off the Shippers and let you know, as one example?.  October? November?.   We know a few of you just short whatever stock and /or sec we stop discussing and following on the Journal.   That's cool with us and actually quite smart..lol   Too bad its always been hard to find shares to short for many of our plays or we'd been at it for years now.   Recently, we've talked about the fear the AG'sChem shoe was yet to fall.    We had day 1 on Wednesday, glimpses of it before on MOS's earnings day and before Thursday's open said a day 2 in a row was very possible.  One look around the losers list Thursday and you see TNH POT MOS MON etc. doing another 10% plus down days.  We've talked about panic setting in, something we want to wash this market out with.  We noted some of these stocks were great to set this panic off as they were expensive, widely institutionally held stocks related to something we all can understand and that is commodities and everything that encompasses it.   This doesn't mean we were making bushels off this commodity sale the past two days, it just shows the idea, potential lead was there for you and us to use.  We simply don't short for numerous reasons, the big one is we never needed to.   Thursday.. we finally got some panic, market volatility with the VIX spiking.  Will that continue into Friday?.  Probably not.    Despite the lower and lower market so far in '08, we have not seen this fear gauge move until today.  We may finally be on the cusp of what we need to bottom.   Say for a second that we are almost there, maybe we even start to bounce if there is some 'stimulus' and something to go with it ...maybe even the reports from multinationals GE-IBM will give a boost and short covering into the long weekend.  This will curb the VIX for now and give us a green day.  Not exactly what we wanted as of the close Thursday.

What would have been the point of turning this site into a 'short fest' of ideas and then switch back to what we do best sooner than later?.    Simply, if you wanted short ideas there were plenty, it is all in how you work and interpret the Journal.   The premise behind the Journal was to show how we think as traders, there was enuff to pick out to short if you wanted to play that way if sitting on cash is not for you.   Now...if this market bloodletting continues much longer, we have discussed and are open to changes we would make to deal with the changing and challenging environment..a Bear market.  For ourselves and therefore the site.   Until that day or until we are certain of a bottom to rally off for more than a few hours..we will promote cash is king.  We don't want any Gizmos' cats as members.   Let's just be ready to pounce with money in tow....

..UGLINESS

We must learn to live together as brothers or perish together as fools.
Martin Luther King Jr.

 Bloodletting has hit the world markets...

....SHANG -5%  HANG -5% BSE (india) -7% FTSE -5% DAX -7% Brazil -7  TSX -4%

...the long awaited gap down to flush?....FED intervention seemingly inevitable in the morning?...

...the possibilities are endless of the scene to be played out Tuesday

DJIM #3 2008

-60 SPX, -76 Naz 100!   Oh yes, this is just the current quote of futures trading.    European market and Asian market were both hammered on Monday.  Continuation is evident in some markets already.  The SHANG has seen 4575 half hour into trading.  These are the facts we have to deal with when the U.S. market opens for trading tomorrow as of tonight.    Is it going to be bad?    Yes it will be!   Right now, we basically have the world's acknowledgement that U.S. may be going into a recession, or at least with the concession that the U.S. economy is slowing down big time.     They voiced their opinion by selling off the equity market as we slept on this holiday.

For DJIM,  we've been pounding the table to be in cash for nearly a whole week and this isn't any big surprise for us.   We've already had the SPX skid 5.4%, NASD 4.1% and DJIA 4% late in the week and now we'll get more.   What we wanted to see is some full out panic kind of trading and spike in VIX and we finally may get to see it this week.     Having a market potentially crashing is never good news, but it's definitely an opportunity for those who have been waiting for such an event.     Although nothing is for sure or certain at this moment, but one thing is getting clearer and more probable.    We are setting up for some panic selling.   Basically, if we don't panic now, there'd just be some more prolonged pain in the short term.   

Tomorrow is definitely going to be at least an entertaining day.    At this point, we wouldn't want to be too eager to jump into any trading conclusion on how tomorrow is going to play out.    We'd monitor a few things closely and decide if a setup is tradable next couple of days.    For now, keep a tight grip onto your cash and lets hope for some panic.

..big bang theory..

..yep..the big bang 'panic' theory was thrown out the window 8:20am Tuesday.  All the ducks were lined up and out comes the mother of 'ducks' and goes QUACK QUACK QUACK for each quarter and squelches any panic selling we were after.   Considering what happened Monday in the world markets, a 500pts drop in the 'electronic' cyber world of trading is of no consequence as a very small percentage of us had a chance to participate.  Simply, what happened was a disappointment.   There was no panic selling as nobody had a chance to begin the selling.   Surely the trading desks had thousands of sell orders to input in the morning, instead what we got was panic short covering in our view at the open and and 30minutes later we were left with an incredibly boring trading day to deal with the rest of the way as the market ran through a sideways consolidation phase..  Nothing happened after and it felt like were back to the previous weeks shenanigans.    We do not believe the institutions were lined up to buy the first half hour as it's not the way they do things, so the only answer is the .75  got the shorts covering and the ones who were scared and ready to sell after seeing the turmoil in world markets didn't have to and sat on their hands.  This was the opposite of what we wanted and of all the 'possibilities' this was not one we imagined.  If the buyers had flowed into the market after the 820am and before 930am to ride the Fed news, the gap down of 460pts would not have occurred as only some of the electronic losses were pared...instead the gap down gave the shorts an excellent opp' to cover and they went for it and most likely reloaded again by late morning and into the afternoon.    What a gift.   Some will say the fact we ended -128/47/15 in the indices as a positive and the start of the 'progression' into making a bottom, unfortunately for us we don't see this as a tradeable bottom we were looking for.  Great the financials and retailers rallied in many an eye, but we know how fast these party poopers can rattle any good time.  So what we have now is more of the waiting game, we now have to start to look to the jobs report and the size of the next Fed cut to potentially get this market going one way or another.  To make matters worse, we have to put profit fears back on the table..high on the table as AAPL's after hours forecast squelched any possibility of a follow through and early morning extension of what they called a rebound yesterday.  If the market can somehow shake off the AAPL news by the close, we'll then know if yesterday was anything of a bottoming process beginning. This is farfetched, but anything can happen in this craziness and if the market show signs of this late in the day then we know the buyers are stepping up and then we should all probably too.   In the meantime, we remain conservative and if nothing of substance happens today, we'll hope there are some earnings surprises that will get through the cracks and give us something to trade till this mess takes us to the end of the month. 

Chasing the action...

Basically,  it all came down to the noon time puking of many growth oriented names, not necessarily momo stocks to mark what we think is a tradable bottom as of now.    Why is it a tradable bottom?   First, there were signs of panicking among some of the well known names intraday, actually quite the panic and they all came back strongly toward the end.   Actually, what we saw was scary enough that we did not not where it might end by the close the way it was going at lunch hour.   It could have gotten really ugly if not for a few news items related to the insurers that started to help the markets around 2pm (eg.charts of ABK MBI).   Second, during the worst level of the session, financials and retails, the two most battered group of last few months, had actually held their ground.   Surprise. When the financials stabilize, it provides ground for traders to look for upside action.    Still, we don't doubt the retailers will feel the traders pinch soon enough,   Sure, we may have not all entered long positions today, but we are not here to hit the exact the bottom, but 2pm + seemed to be the green light of sorts looking back.   We just wanted to see the bottom forming.  Pure and simple.   If it's real, we all have plenty of time to enter positions as we don't expect the recovery  to last an hour, a day.  We expect a ' true' bottom to give us more opportunity than this.    So, don't fret tonight , many of the stocks still finished in the red today (thats how bad it was) and are still way off 9ema as a measuring stick.   It was all of 2 hours so far in our books.    We want and expect more for what we've patiently waited for.   By the time Naz turned green, it just felt inevitable that we are at that point, the reversal point after a head fake or two by the Dow leading us on today.    Remember this to take with you into a what looked like a bummer trading day....."If the market can somehow shake off the AAPL news by the close, we'll then know if yesterday was anything of a bottoming process beginning.  This is farfetched, but anything can happen in this craziness and if the market show signs of this late in the day then we know the buyers are stepping up and then we should all probably too".       Not only did it it shake off the AAPL, but it shook off everything that came after 8am today that shook the market to another big gap down open.

Keep in mind, nothing has changed in the economic environment.    This is what we think was a tradable technical bounce, but it in a bear market even they can last a while.    Can this bounce turn into something really special?   We'll reserve that judgement at this point and will have an answer in a couple of weeks.     For now, we'd be looking at Dow 12700 and Naz 2450 as potential area of resistance.     It doesn't mean that we'd actually get to those levels but in case we do get a good rally going, that's where we'd be looking for some stiff resistance.

What to play and how to play?     First, whatever you want to play, don't commit full size and too many plays. We are only doing 1/3 of our usual size and leaving a hefty cash % in our account.    Secondly, do partial fills.     We are not going to long 1k of BIDU or GOOG or anything and hope for a 30 pt run-up.   We are trading plays in this bounce with multiple fills and small lots each fill, in order to protect from sudden change in sentiment as of now.    Again, this is not going to be an easy trading environment to take advantage of and everyone needs pay caution to make it as best as they can.    Now the plays...    We are sticking to those plays that have either released good earnings or those plays that aren't releasing earnings until at least next week.    We wouldn't want to be touching stuff that are releasing earnings tomorrow because earning risk just isn't necessary..ever.  We are also sticking to well established and well known liquid plays because that's where most of the hedge fund/institutions would be gunning for as well .    So, no cheapies and no illiquid ones.   We mentioned ISRG today as a play in a tight trading range that was actually near 9ema and may breakout.  That's hard to find these days.

Some key reports to look for tomorrow morning which may affect our play selection and strategy....   premarket POT(chemical/agri. group), WFR/SPWR(Solar market) can potentially lead us into these momo sec's for a trade , AH's we have MSFT(entire tech sector).    The key is that not trying to catch every single gainer out there.    As long as you catch a couple of good ones, this potential bounce will be that much worthwhile to you. 

Please remember to visit the site periodically to see if you are subscribed to email delivery pages.  Sometimes a maintenance upgrade bug overnight knocks some of them off.   Considering we've missed maybe one Journal entry in a Year and half, which we notified in advance, it would be prudent of you to sign in/ check in on site and check your "profile" and then " subscriptions"  if you did not receive your Journal by email before 830am est.  This should ring a bell to check if all is right with your account before the trading day starts.

Earning domination...

If Wednesdays move was a technical reversal, then today's follow up move is purely due to some new found earning momentum.    We had a number of technology stocks ( QCOM WDC FFIV TRMB...) gapping up because of their earning reports.   This in turn, helped many other technology stocks that have been battered recently to gain some good momentum.     The game has clearly turned since yesterday from sell on fear to buy on hope.   The hope for many stocks is that they'd release better than anticipated earning and give a rosy outlook for the year.

In the case of MSFT, we had a pretty good report including good guidance for the whole year.    This again is causing all sorts of technology oriented companies to move up in tendon in after hour.    Friday is likely going to be a good day and we'd be buyers on dips if they come.  Some of the usual Friday profit taking may creep into the equation following this quick trip up.    At this point, we can feel that many market participants are just "afraid" to chase up this market thinking that we are still doomed for recession and this market will eventually find its way down and break new low.  You can't blame'em.  That analysis may very well be true.   But first, we have to try and take advantage of this rally at hand.     We feel that we are at least safe up until the next Fed meeting(which is next week), if not the whole month.    Why?   Clearly, companies that have released good earning have been rewarded nicely and some beaten and forgotten stocks like RVBD ride the coattails.    This is the confidence traders look for and more speculation on potential good reports will put more money at work, it's that simple.    After this earning period, then we can focus on the actual economic side of things and prepare on a longer term strategy.   For now, this rally is most definitely becoming tradable.

We have to admit, markets action right now can make even the seasoned traders go crazy.    Even though we have to be aggressive and take advantage of things but the thought of carnage that happened merely 48 hours ago can curb your actual execution.     Basically, it isn't easy going from super cautious from the back of a deadly drop that last 2 weeks to super aggressive to trade this pop.    The transition isn't easy and you are not the only one feeling the pressure.  The bargain hunters and more long term value investors are the ones who will probably make the most out of these last few days in the long run.

Now some sectors and plays...we outlined the reports coming out Thursday to get a better picture into what may be tradeable...

Chemical/Agri.,   POT's earning is definitely helping the entire sector to pop up on good gains.     We really like this sector and even though some of these plays can be super volatile, we'd be inclined to buy on dips quite aggressively assuming this market isn't going back to yesterday's low any time soon.    Our favourites include MOS MON POT CF TNH.   In this kind of market, bigger is safer and easier to play.

Solars, this may be a tricky sector to gauge now as one report from SPWR was getting sold off while another report from WFR is getting bought in AH.    The only conclusion we have is that it is going to be more of an individual game for this round at this point.   As long as the good reports get bought up, we will not write off this sector.

Bottom line, even though we may enjoy a couple of good days ahead but it's still prudent to set stops and take potential profit as we move along.  Nobody likes to sit on cash during a long decline so now is the time to take advantage of this market.

Tough decision ahead...

Mr. Bernanke and company won't be making an easy decision when they announce their policy tomorrow.    It is no secret that market participants have wanted a sizable rate cut.  Many times what the market wants, it gets from the FED.   What we don't know at this point is that if the expected rate cut comes, no matter the size, how is the market going to react?   What's also important, if not most important is the Fed's view on recent market turmoil and economic outlook.    Every word of the policy statement will be digested and analysed and we should know how people feel by 3:30 p.m.   

Instead of betting on the outcome of the reaction, we'd prefer not to take the risk and wait near the close to do some position shuffling.    As far as we are concerned, there's likely going to be three possible outcomes.    An extreme selloff, a powerful surge, or a flat line who cares kind of action leading into the crucial employment report later in the week.    Given the last couple of fed meetings and the skittish nature of this market right now, we think the first two possibilities are more likely.    We feel that a good approach might be to wait till late in the day and take the opposite action of an extreme reaction, good or bad.

After 2 boring days already on the NASD this week, tonight's YHOO report is not giving people any comfort when it comes to internet/technology sector.  However, YHOO has had a long history of disappointing reports because it's simply losing the battle to its competitors.  It`s a well known fact.   If we do get a surprise extreme reaction on the other two because of this report,  GOOG and BIDU tomorrow, we'd be keen to look for a long trade near the last week's low.     Keep in mind,  GOOG is also set to report Thursday AH, so any trade we do tomorrow on those two would be closed before the Google report.

Chemical/Agri. we still like this group but we feel the recent action may require some consolidation/pullback move in order to stablize the group.   Again, this is the group we'd be trading heavily if we get an extreme reaction from the Fed policy tomorrow.    One thing is for sure, this group has got the goodies (earning wise) and it's safer to add on pullback compare to many other groups.

Shippers, it does seem lately that this group has perked up from the lows and looks to be stabilizing.   We'd like to see if this group can weather anymore severe market downturn before getting ourselves involved on the long side. 

Bottom line, last week's low is still serving as a short term bottom and we'd be looking to fade the extreme moves until a clearer trading direction is established.    Next couple of days are likely going to be very volatile,  so we are looking to take advantage of some of the moves to flip in and out some of the fast movers. 

..put up or shut up

Simply...the FOMC,  by cutting its target Fed rate and Discount rate by another .50pts said put up or shut up to the market.  They've given everything including the most recent .75 cut for all the dry powder, cash that has been sitting on the sideline waiting for a reason to get back into this dismal market.   It also happens to be the FED can't put up much more. It has pretty well exhausted it's ability to do more as they have little left to cut.  Seems the only thing cuts do these days is let the market use it as a reason to sell the news.  Considering the markets got what  they wanted it sure put in a paltry effort to show it was thankful.  Yes...the timing of the Fitch credit rating downgrades rumors of the insurers was quite suspicious, but the least the market couldn't have shown was not to sell so fast and show some appreciation and say we accept your apology for being so behind the curve.  That was no way to show confidence or give confidence to all of us looking forward as the markets weakness to sell on all the old concerns is still prevalent and overshadows anything the FOMC will do.   The expectation of yesterdays decision was like a New Years countdown only to have one guest (the insurers) come in and ruin the party. The only cork for the short term that popped was our confidence.  It's crazy to think one can spoil a party that should last into the morning, or next trading day as is the case here....but that is exactly what happened.  This FOMC decision lead in was worse than all the pre Super Bowl hype. Now, we didn't expect a rally out of the .50 cut as supposedly it was priced in, but to tempt and tease and than to close so weak was not priced in either.  It just leaves a sour taste in many and gave the shorts the ammunition they wanted and were waiting for.  What this means and was probably a big reason for the letdown was technically the DOW hit a point of resistance by hitting the 12600+ level.   Simply, the shorts were waiting with gloves on to put in a punch and drive the market back down, of course the bulls use it too as an area to sell and just added to the potential burn.   We've said the recent rally is probably a way for the shorts to reload and you can't blame them when even the bulls think we need to test the recent lows before we can move forward.  Talk about showing your hand!. 

What now?.  Well...things are not any clearer, sure the cuts will help down the line but it does nothing for the short term thinking we need to have at this time.  There isn't much to add today as we need to see more in the days ahead.  This starts with what GOOG produces tonight, unfortunately after seeing all the reports out of internet / tech we can't be all too thrilled of the possibilities we may see and get.  We also have the employment numbers coming up.   Basically, you can't expect an anticipated cut to do magic by itself, but if you stick it in a blender with a positive report from GOOG, a positive employment report you might be able to mix and blend it together to get something going in the near future...but, that's a lot to ask of this market and economy isn't it?.  

A good thing is the next meeting is 6 weeks away for the FOMC and the addicts, which probably most have us become to cut decisions will have to turn our attention to other things and not rely on this so much.  Trading individual stocks these days to long side, even to a day long is almost impossible as any gains are short lived....forget about a lunch outing, hell forget a pit stop in the can as by the time you get back your green stock is in the red.  Something that might take a few hours to built is evaporated in seconds.

If you believe we are going to test the recent lows very soon because of yesterdays action, you should start shorting the market and the high beta stocks on the heels of the reversal.