Chemical reaction...

The trigger earlier was a nice report from MON, a report we noted to watch in the previous Journal with secondary plays in tow. Unfortunately, the market was just not able to gather any momentum outside of the oil, chemical and mining area.    Semi stocks also got hammered today but fortunately we haven't had a semi stock on our watchlist lately.     For what it's worth, most of the stocks on our watchlist had a decent day.    So what can we conclude from the action today?   You want to be trading the stuff that is still working.

Tomorrow's job report, assuming it's decent, should provide some relief to this market in our opinion.    Market is really in need of a bounce and it wouldn't surprise us if it shoots up because of a bullish job report.    Basically, this is what we meant by  "more of the same"  trading environment starting the year.    Just when you think we should test the November low, we may just get a hard rally over the next week or two if we don't break Nov. lows.

Regardless, lets look at some of the stuff that are working today and recently....

Chemical biz, as long as the earnings are exceeding the expectation, there's no reason to believe  this run-up is over.    The group (MON, AGU, CF, MOS, SYT, TNH...) had a big year in 07, it's looking probable that the group can carry the same momentum into at least the early period of 08. SYT, is a new name we tossed out into the mix and it didn't disappoint closing at highs.

Solars, the one thing we have to remember is that we shouldn't get too greedy with some of the volatile and speculative names.   It doesn't hurt to take some off the table and reload when things are calmer.  Thursday was definitely a day for the cheaper alternative energy plays as AKNS HOKU DSTI etc.

GU, this is a play we are putting on our active watchlist and started a position earlier today.  Briefing mentioned it after our note by throwing it into a mix of the names above.   We think this area may deserve some more attention now that the oil price is hovering around $100.    Based on its action today, we think it has caught some traders attention and we are hoping that the momentum will pick up from this point on.

SDTH, this one can trade in a volatile fashion but it does feel that its trading path is going higher.    You can take advantage of its swings to trade around a core position.   Friday is the day that will determine if it'd be added to IBD100 or not.    In our opinion, you'd want to buy dips regardless what happens tomorrow and remember this is not a one trick pony as in being a pure IBD play only as it is in the AG/Chem mix of names.

China plays, it seems some of the Chinese plays like CMED HRBN  have been doing really well recently. Throw in the IPO name VISN as well now. We are also keeping an eye on some of the older favourites WX, EJ, STV, EDU just in case they get a bid too.

Friday is likely going to be a very busy day and we'll be looking forward to it.  Today was a day you wished the market closes at 1-2pm, hopefully, today we're not wishing it never opened after the report comes out.

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.

DJIM primary shadowlist

Our platform list at close Friday,

Symbol  News  Last Price  Chg (Prev Close)  %Chg (Prev Close)  Volume   Low  
     
AAPL          181.08      +1.08             +0.60              35,931,400   178.55  
AKS           65.72       +2.79             +4.43              2,719,400    62.73   
AXYS          56.20       +0.96             +1.75              203,200      55.49   
BDX           88.27       -0.97             -1.09              977,300      87.94   
BIDU          362.00      -8.00             -2.16              4,117,500    357.60  
BZP           21.65       +1.89             +9.56              1,300,700    19.78   
CF            135.12      +3.08             +2.33              1,860,300    131.18  
CLF           159.96      +5.15             +3.33              2,142,700    153.85    
CMP           66.40       +2.80             +4.40              738,100      63.86   
CTRP          67.87       +2.82             +4.34              1,426,000    66.03   
DRYS          90.75       +7.54             +9.06              5,310,500    84.50   
EDU           75.73       -0.31             -0.41              318,900      75.13   
EOG           127.22      +0.37             +0.29              2,975,400    123.92  
EXM           43.23       +3.17             +7.91              1,450,900    40.50   
FDG           63.50       +2.73             +4.49              1,318,600    60.78   
FLS           123.57      +1.49             +1.22              677,000      121.77  
FSLR          277.50      +14.15            +5.37              4,754,900    266.70  
**FXI           164.00      +1.84             +1.13              4,882,600    162.45  
GS            200.27      +1.22             +0.61              9,437,500    198.00  
HES           106.34      +3.88             +3.79              3,905,800    103.51  
IPI           44.75       -0.33             -0.73              2,972,900    43.68   
**IWM           72.69       -0.06             -0.08              58,836,700   72.24   
JRCC          24.16       +2.48             +11.44             1,095,200    21.67   
JST           38.91       +1.09             +2.88              83,200       38.00   
**KOL           45.23       +2.11             +4.89              197,500      43.01      
LNN           100.65      -3.09             -2.98              468,700      99.81   
LUFK          74.99       +0.65             +0.87              144,600      74.81   
MA            285.50      -8.44             -2.87              4,470,400    281.85  
MEE           52.81       +1.77             +3.47              1,769,300    51.32   
MELI          50.25       0.00              +0.00              554,100      49.80   
MER           52.72       +0.33             +0.63              20,350,600   52.08   
MON           114.51      +0.85             +0.75              7,392,500    111.72  
MOS           124.90      +2.35             +1.92              6,247,600    120.15     
MTL           145.36      +7.51             +5.45              1,172,300    137.44  
NS            53.45       +0.43             +0.81              138,300      53.16   
PCLN          126.37      -1.86             -1.45              1,621,600    122.87  
PCX           68.02       +2.76             +4.23              275,100      64.49   
POT           186.94      +3.78             +2.06              12,151,800   184.64  
RIG           151.71      +5.95             +4.08              5,817,400    146.50  
RIMM          132.52      +4.52             +3.53              18,962,400   129.48  
SCHN          87.79       +1.39             +1.61              508,100      86.13   
SOHU          77.89       +2.45             +3.25              3,110,300    75.00   
SOL           16.00       +0.38             +2.43              981,100      15.85   
**SPY           141.65      +0.53             +0.38              181,585,500  140.56  
TBSI          44.25       +1.58             +3.70              697,900      42.29   
V             82.95       -2.45             -2.87              34,162,100   81.00   
WLT           72.95       +5.24             +7.74              4,146,500    66.13   
X             157.06      +5.40             +3.56              4,373,600    151.24  

** denotes ETF