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Entries in Steels (7)



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.

Mar282008 big deal

What was a choppy yet range bound trade on indices turned sour at 3:30pm with a quick spike down.  We're not sure why and we're not overly concerned about it.   It may have just been a pre-Meredith slip.  The Oppenheimer analyst Meredith Whitney has that effect it seems when she enters a room and yesterday she was to appear after close on CNBC to discuss her almost daily shavings of Bank estimates.    Maybe a few expected a surprise or something to slip out of her lips.   As if!.   Anyways...the market had no chance from the start yesterday thanks to ORCL's earning and pretty good ECO data was not going to change the markets mood.    We're keeping this short this morning, we gave a detailed outline yesterday on the stocks and sectors of interest and our trading theme remains the same of buying favorites on the dips.  

A few things of interest heading into the trading day is the Citigroup BUY rating change on LEH and Merrill's BUY on X.   We'd look to trade these sectors to start and then see if it rubs off on the others. 


No April Fool's Joke...

The joke is definitely on the Bears today.   We couldn't help but be amazed at the timing of this rally.    Sure, even as late as Monday, we are pondering whether our short term bottom of Dow 12200 and SPX 1315 would hold.    Today's action just proved that last few days consolidation was worth buying for.     If you haven't loaded up during the last few days and felt that you haven't taken big advantage of today's action, it is ok!    We are still treating this rally, which started two Tuesdays ago, as a bear market rally.    One thing you have to understand that nobody loads up before a bear market rally.      However, if you have just be doing a little bit of adding of the strong ones in the last few days, today would've paid off nicely.

In our opinion, today's big movement did not only provide us with some nice selling prices, but more importantly, it confirms that we may still be in a powerful rally that can stretch a few more weeks.     Buy on dip strategy is looking even more efficient now than ever.    Today's action was sparked by the earning reports of UBS and Duetche Bank, as well as the convertible offering from LEH.    Also, you can throw in the not so terrible ISM number as a catalyst.    In addition, the combination of an advance of the U.S. dollar and drop of gold also helped the cause.    Today's awesome index movement also comes on the eve of another earning period and at the start of a new fresh quarter.     Can things be so rosy all of a sudden?     We think given the amount of idle sideline capital out there, there's potential to be some more upside here.     Remember how we kept on reminding everyone to keep an eye on the financials(XLF) lately?    In a way, this market has just been absolutely fanatical and obsessed by the health of the financial sector.     Even though we totally agree on the importance of a healthy financial market,  we are still truly amazed by this markets dependency of ONE sector and how much it plays on the markets.    If you look at the last few days where the market was sliding, it was all because of financial companies that were getting the negative headline and media coverage.    Markets action is once again led by financials today.      So, we are simply once again pointing the fact that "no financials, no rally"!

At this moment, we aren't asking the financials to return to even the pre-BSC level.    All we ask for is for the financial companies to stabilize at the current level so market can shift its focus away onto some other aspect of the economy.    One sector that has benefit the recent rally in a huge way is technology sector.    We are only looking at popular plays like RIMM AAPL BIDU and ISRG since they are representing a very common sentiment.     You gotta play these some into their earnings!    This is basically what this market is telling everyone to do.    We aren't exactly sure how the earnings will come out this time but simply because we are seeing traders willing to push them ahead of the earnings, we get excited as it seems it won't be a boring earning quarter this time.

Commodities plays are a mixed story unfortunately today.   We noted in a premkt alert the pressure we may see early and it definitely happened as the Ag's-Chem, steels etc were hit.    We know that we have been putting a lot of emphasis last few months on many commodities plays, but we feel it maybe time to start lightening up a bit on the exposure.     Other than steels, most of the commodities plays feel like they have been left in cold given today's index performance.     Although you can point to a number of factor explaining the lackluster performance of oils,  agri/chem and gold plays, we think many speculators may give these sectors a rest now that we are moving away from the market bottom.   The fact that we are also into an earnings period also gives traders other selections to play.    Right now, you can actually chase strength in AAPL BIDU or ISRG as oppose to POT or a EOG.    You just have that many more momentum plays to choose from these days.    Lastly, watch the Dollar performance we alluded to.    If the Dollar moves away from the recent low, you'd see people getting less interested in the resource plays.     All of the reasons we have here give us the feeling that it may not be the best bang for the buck strategy to chase resource based plays coming up.    This doesn't mean that these resource plays will be left for dead.    We'd still be inclined to pick some up on dips but on dips only as the last two days provided.   Amazing recoveries today in X and POT are examples of what you can do on a dip.  Some like AKS, CSX just climbed all day to NCH's after recent dips.   In our opinion, if this coming quarters earning reports disappoint and it proves that we are in a deeper recession than we previously thought, those resource plays will definitely be back in vogue in no time.

Tomorrow we have MON and BBY reporting in pre- market and RIMM reporting in after hour.   All three have big implication on overall market and many plays on our watchlist.    We'll watch the action closely and react accordingly.   A few good reports at this early earning stage is what will push as forward and through the resistance levels we are at or nearing.


...a fickle lot

..and picky..picky aren't we!.  After the 3rd 3% day on the indices in less than a month, traders were in a corrective mode and excellent earnings were tossed to the side in many respects.    How else can you explain MON being taken down yesterday on the same numbers they only guiding up 2 weeks earlier?.    What did the crowd expect in 2 weeks?.    Last night we had RIMM report excellent numbers and guidance and the highest price it saw AH's was in the low 120's.    Not exactly the same exuberance as we usually see from a mighty report from RIMM.  Are these reactions a negative?.    In our we are just glad the market did not do what it did 2 times off huge surges last month and that is give it up big time the next day, even with Bernanke's potentially damaging words in the market.     The market hit some technical resistance on the SPX and NASD and we need to do some corrective trade after the latest rally and no matter how good earnings are as of yesterday, they too need to be taken in stride.    Also, many stocks here need to set up to go forward once again, so have some patiance.    Believe that these earning reports are in the back of the minds of Bulls and Bears as they possess the ammunition to go forward and they both know it.   The Bullets won't and can't be used up to blow forward now as we have the employment report on Friday and so we'd expect some subdued action today heading into it.    UBS hasn't helped this morning by D-grading CSCO, but this should be pushed under the rug soon enough. 

Yesterday was an oil/energy day ( RIG, CLB off list here) and this included the Solars moving which had a lot of company specific news as well.   We all know how deadly solars could be and after this recent run, we'd be careful chasing as there many more things out there we'd prefer to trade...the steels/coals are still cooking..X, AKS, CLF ...the RIMM types off our list

Even though we'll probably get some subdued and defensive trading before the employment report, it doesn't mean there won't be a 'pocket' of strength in some sector and that is what we'd concentrate on.


DJIM #14  2008

As the jobless rate spiked down to 2003 levels, it is almost impossible to argue a recession is in place, but it is also impossible to say that the Bear haven't lost it's grip on the markets as we saw the Bulls pulling the indices up and shrugging off the jobless number.   As we discussed all last week, the ability of the market to hold onto its gain after the 3%+ rally was signalling the selling had cooled down and this time it would be different than what followed the March rallies of the same proportions.   If this is indecision on the sellers than its good sign as they are not sure of things as before, the only argument they may use now is calling the low volume suspicious and that they are just waiting to rattle the rally.   Either way, it's not your problem or ours as our goal is to capitalize when the chance arises and last week we think did just here as DJIM's players, our index you may say outperformed anything in sight.  We had some nice alert leads ahead of the curve on CMP, DRYS, MELI and it's nice to see them getting some headlines right after.     When you're ahead of the curve, you get a chance to sell to the herd!.  That's the game!.  CMP was noted on CNBC as a stealth play behind POT, MOS, we profiled it in December, and it spiked in premkt and was a feature story on IBD this weekend. DRYS was referenced on the front page of Barrons this weekend to a good story inside.    Heading into the week, it's quite simple as there is no reason to change what's working and that's everything off our primary watchlist relating to...." Agri/chem, Steels, high beta Technology to Shippers, Solars and even oil stuff".   What will most likely come to hand this week is an important technical picture to track.  This is where volume comes into play that wasn't there last week, if it comes to the upside it will drive the market through resistance 12800.  If we see the 12800 coming with dry volume, we will most likely take positions down and wait for a clearer picture to emerge.   Right now, the Transports are leading the way and that is a very important positive signal for what possibly lies ahead for the rest of the indices, including the general economy.   Little economic data flow this week should allow an opportunity to potentially trigger some of the resistances and that is what we'd closely track this week. 

We've tweaked the DJIM primary tradelist, shadow list.  We've taken down a few financials as we don't need to monitor, trade 4-5 now and a few others that are just boring now like SAM, HURC.    Still the latter are EPS wins and if we get that trade again as we're starting to see, we'd keep them close to our primary list.  We've added the GU, JST as more on the speculative side, reason speculative you may say is because we'd rather lay our bigger dollars on the expensive stuff that's been working as that is where the volume allowing for easy exit is and where the sideline money from institutions is flowing to.   In the good ole'days when EPS and sector plays from midcaps rolled these would be on top of our list probably.   Times have changed and we need to see the momo game come back to go heavy at this point in these types.   Remember, if the mkt reverses in anything that resembles the past, these lower volume, cheaper plays will slide harder and have bigger spreads going down as buyers will dry up.    Simply, don't become complacent now just because the market is good and you think you're indestructible.   Others are included following mentions in alerts, Journal the past two weeks....MELI, RIG, CSX, SCHN.    WLT is another name we're adding.


No biggie...

As brief as it was, market today did break through 12700 Dow and 1380 SPX.    We know from a while ago how powerful and how meaningful  these resistance levels are to traders and their psychology.     The fact traders were not seeing a significant follow through after we broke through caused a wave of profit taking.    In the big picture, this is ok and it's not a big deal that we didn't close near the high today.   In our opinion, there will be more attempts to break those levels in the coming days and one of those attempts will break it cleanly with a rush of buying.      Also, the first half hour of trading action from the resource based plays was just too crazy and difficult to hold onto thanks to a flurry of upgrades.  The gaps were gifts to take down positions.     

Lets take a look at a few sectors here...

Coals,  we have FDG, JRCC, a rejuvenated MEE, and WLT now as our main coal plays and all of them exhibited a similar trading pattern today.   They all broke to new high earlier before retreating later in the day.    The catalyst for profit taking was ACI's mid day guidance call and we think this one is nothing more than an excuse for profit taking.    In fact, we'd be ready the next day or two to pick up some shares back if opportunity comes.    Again, we like this sector very much as pricing power and demand is extremely favourable for the group.

Steels, even though most of them did not close anywhere near the high, the common theme is that most of them notched a new high intraday.   X, STLD,AKS, CLF (coal as well),  all hit new highs.   This is one powerful group and expectation is very high from the group.    We are still trading them aggressively but we reduced our position sizes quite a bit.    Basically, trading X at $140+ just isn't nearly as comfortable to us as trading it at around 115 when first introduced on DJIM.    There hasn't been any pullback for 6 or 7 trading days and from our past experience, we have to be cautious at this point.

Agri/Chem, this group also is trading near the high on the back of MON and MOS earning.   POT earning is toward the end of the month and we think there's still room left to trade.   We'd go aggressive on dips and light when chasing strength.  This has worked very well recently and we'd go back to this strategy.

Shippers, even though earnings is still quite some times away but we feel with the recent activity in resource sector, this group is getting more attractive by the day.    We still like DRYS (thanks Barrons for 4 point gap) the most with TBSI closely behind.    In this sector, it is not necessary to play all of the names, you just have to stick with the best one.  Also, as the steels, coals get upgraded, we think it is a matter of time before they start doing the same to the shippers.

Solars, today's the first day where the group is showing some weakness.   We'd be patient and will be looking to add little bits at a time over the next couple of days.   We are eyeing 9 ema as a possible point to rebound.  

Time after time, as much as we like to move away from the resource plays and into some more technology oriented and other eps related plays to take full advantage of this rally, we still can't help but notice that we end up going back into the resource plays as our biggest trades.     Seeing is believing, whatever gets the most attention these days also gets our biggest attention.    At the beginning of the year, we had a feeling that this might be the year of commodity for DJIM.   So far, it is turning exactly into that.


Market train wreck.... still fine with us

Oil Oil Oil!...FED decision....falling dollar....underwhelming Tech forecasts....GS hitting their amigos' when they're down.....all helped lead to a 3% train wreck across the major indices..    No doubt about it, you could smell the doom and gloom before the opening bell!   For many people, the only thing they could do is pray that their holdings don't get hit.   Wishful thinking!    Basically, when mkt is set to open negatively on a very bad tone, you have to be prepared for a potentially nasty day and go defensive.      By going defensive, we don't mean by shorting or buying gold or T-bills.    When we go defensive, we trim any excess position or number positions to a comfortable size.     This is all still assuming that we are holding the best of the best plays before the opening bell.    As the day progresses and the day winds down, it will always become apparent which one of the holdings you trimmed earlier are bucking the market trend and you may add it back later on.     You may ask "what heck is the point of this exercise if you going to end up with a similar position toward the end of day?"     For us, this is just our way of dealing risk.  You never know when and if panic finally sets in and takes everything down.   Everyone has his/her own way of dealing the "monster down day" and this is how we deal with it.

To say this market is in trouble is just blatant ignorance.    Market has been in trouble for a long while and if it wasn't for the fact we have been sticking to the commodity plays, we wouldn't have enjoyed it either.      A series of disappointing reports and downgrades and breakout of crude just pushed this market right over the edge.    Yes, forget about that March low and you are now staring at a new low.     Even as a bystander, we can feel the pain across the board.  The casual newspaper reader must be thinking the world is falling apart, the headlines are scary.

With DJIM plays, story is different but it's eerily familiar.    Deja vu?    Most of the Shale plays actually finished in the green, a few steel plays showed resilience given the market condition.    Coal plays also closed near the high and we are encouraged that this group is showing good strength.    Perhaps, a turn is in place for the Coal group after the recent minor pullback.   The volume was low in these groups, no real sign of selling.   The game plan is exactly the same for DJIM and will continue to buy our favourite commodity plays on dips and ignore pretty much everything else.   

The question remains now is that "how much more bleeding will this market take before a bounce occurs?"    We can potentially bounce tomorrow but again, we are not interested in any beta stocks at this point.     We are also coming to the month end and there's potentially the "window dressing" action that can take place.    Just keep in mind, any "window dressing" will not come to the beaten down sector.  It realistically should come to where we've been.  

  • The market, majority of sectors have no positive catalysts, the Shales (exploration & production), the Steels, the Coals....DO!.  It's simple you do want to be where bearishness is contagious or do you want to be where bullishness is contagious?