Shifting Focus...

In a way, this market is getting extremely difficult to lean heavy in one direction at any point.    Even if you are a super bear, and with every economic indicator going your way, you still want to arm yourself with enough hedge to deal with a day like today.     This market started off just as everyone suspected but the turn of events in the afternoon astonishes even the most optimistic bulls.    Did it really matter what S&P said in the morning with regard to the conclusion of writedowns from major financial institutions or the housing rescue plan?    We think the market rallied because a lot of people believe that our Fed. will do anything creative to keep this market afloat, while delaying the inevitable indefinitely.     Of course, any policy announcement by Fed these days is greeted with warm welcome.   We just had a super 200 billion "cash for trash" injection announcement and now people are asking for more, at least they are hoping so.

More importantly, we have to understand why we gapped down earlier in the first place.    Perhaps our market here is solely focused on subprime and credit crunch crisis the last couple of days, while the rest of the world is however, only focusing on the weakness of the U.S. dollar and the strength of Gold/Oil.    The weakness of U.S. dollar basically hurts all those countries who export a great deal of stuff to America, which is just about everybody.    The high oil is also increasing the cost of doing business because a high percentage of fixed cost in transporting goods is the fuel.  With the dollar getting trashed, as traders, the only protection and hedge we can use is to buy gold and other base metals.     All of these factors are creating what we call an inflation environment here.     This is still in addition to the credit crunch crisis we are dealing with here that is still months away from being resolved, in our opinion.     The more Fed tries to save the capital market by boosting up the lending programs and lowering the rate, the worse it gets with the inflation as traders use every Fed policy to sell the dollar off, hard!

Fed right now is in a very difficult position as on one hand, they want to stop the bleeding in the financial market.    You have to give Fed credit these days as both the surprise rate cut back in Jan. and the recent 200 billion lending program came when the market is about to break new lows.  Basically, it feels that there must be a chartist out there working for the Fed to try to kill the bears in a timely fashion.     Oh yes, we forgot that this is an election year too.   The last thing Fed or the government wants is a financial market in total disarray going into the election.     This may sound like a conspiracy theory but you just have to admit the impeccable timing of both Fed's announcement the last two months.

Now that we know Fed can and will rescue the financial market, is there anything they can do about this inflation or the recession we are facing?   Absolutely nothing we think.    Both the inflation and recession are part of the economic cycle and it just takes time to get through them.    However, now that the Fed has signaled their intention with the financial market, the focus will be on recession and inflation going forward.    This is why we think the volatility of the market lately is the result of crosswind between Fed and economic events.    To sum it up, people are buying this market because of the endless bailout attempts from Fed while people are also selling at the same time because of the poor economic indicator which points to both a recessionary and inflationary environment.

With DJIM, we'd keep monitoring any ongoing events while keeping score of which sectors are getting bid up and which sectors are getting sold during this volatility.     Looking at today, Oil , Agri/Chem, Steel and base metal were all getting bid up aggressively.  

Just to highlight some of our favourite buy on dips play here, we like Oil stuff such as EOG BZP HES, Agri/Chem POT MOS CF, MTL CLF X STLD from the steel sector.  

On the short side, we still like the idea of shorting tech, shippers and solars on strengh only when fading the move.

Going into the trading day, the focus will rest solely on CPI and inflation.  The market seemed to have a memory lapse going into it.

Sideways

As market participants we've become so used to turbulent days that yesterday seemed like too long of a walk in the park.   We've become so programmed to violent times that even slow sideways action that is 'good' for the market is excruciatingly boring.   Guess..we've just become adrenaline junkies relying on news headlines good or bad to get our fix for the day.   Yesterday was rehab for a day as normality returned.   What is left from the sideways action might as well be construed as constructive action.    We wanted the market to slow down from this recent rally and it did.    That's good part 1.  Another good point is our watchlist here at DJIM was 95% green, which would have given many of us some room to maneuver out of positions if we wanted to and told us we have a good bunch even if the market is mixed.     Right now, we are maintaining the idea of buying the dip on many of our favorites, yesterday was frustrating as most provided no such luck.    Instead many continued to run forward, especially the often mention lately names like X ballooning to nearly $127 intraday.  In runaway cases like this, we'd start to look more closely at other steel stocks that are behind the X curve like a MTL on our list if we can't get a dip on the best name out there.    Maybe , we'll get a little retrieve today to snag a few favorite names back.    Maybe the most important takeaway from yesterday was in premarket when MON raised guidance heading into earnings season.   As we noted heading into the trading day, pre-announcements are on deck and some reports are due that will most likely tell us if we are going to move further to the upside.    MON's raising guidance is a feel good start and comes at a time this sector was showing signs of slowdown on the trading end here.   MON's guidance holds the other Ag-Chem stocks on our primary and puts the junk small ones back on radar.   Maybe not on our radar, but maybe for some of you that like to play the cheapies like SEED.   One sector we started to watch is the Rail segment and added CSX as a start to our primary as it made new highs.   So basically not much to add here this morning, we're in buy the dip mode intraday and hope for some good to come out of ORCL after the close to set a tone.