...last hour shenanigans...again

Just when you think the intraday volatility is easing, it comes back with vengeance and slaps the trader/ investor in the face.   You had reason to think the market is showing signs of resilience as it battled back easily from being down 250+ points as traders seemed to be buying the dips.   What followed was disappointing as what we’ve become familiar with late in the day and that is the seemingly never-ending ‘forced selling’ took over.   Yesterday, we reminded that October is going to be the worst month of redemptions, simply by the 22nd of October it’s still ongoing.   On the positive side, the LIBOR rate is showing signs of erosion and earnings are generally well received.   On the negative side, the market likes to turn it’s head everyday and concentrate on something else.  Today's `last hour fall `seemed to coincide to the minute with the news of pension funds being halted from trading in `Argentina'.   If this was the case for the decline,  it’s stupid and we may have a chance to rebound if this is discussed at all.  We doubt it will be and the market will just turn its head and seek out gloom elsewhere.   In reality, we need back filling as noted yesterday, the market just finished one it’s best weeks and needs to do what it needs to do.   Unfortunately, every drop is magnified and many start saying here we go again!.  It’s not realistic,  but confidence has been shaken and as expected is the market continues showing signs it's all shook up on an hourly basis.

If we think AAPL`s call is going to pop the markets,  we are likely to be disappointed in the morning.   The company showed impressive growth in Iphones, but reined in near term expectations given macro uncertainty. The stock price has expected and indicated such.   Nothing really is a surprise, there is nothing damaging or a great surprise,  so besides possible short covering in the stock after- hours,  it gives little reason for the broad market to rally off.

..runaway $USD

This market has simply become a mental patient who's ready to burst out in a hysterical behaviour without a moment's notice.      Frankly, things did not look that bad until the last hour of trading of yesterday where a lot of things just broke down.   Besides, the obvious global recession noise,  we are faced with a rocket of a $USD  that is completely interwined.  The huge dollar rally is causing trade in all aspects to freeze worldwide and something must be done by gloabl leaders on this front!.   Still, every rocket runs out of fuel and so will this one very soon and that will stop the commodity sell -off momentarily at least should cause a run-up.    Monitor the $XDE for intraday possibility of a commodity reversal.    We wanted some backfilling to stabilize this market this week,  but now that notion seems too naive at best after the last hour.   One thing is obvious,  it's that the more we test the recent low,  the more likelihood we'll break it and panic will ensue once that happens.   Also, we are now also at the bottom of one those 'triangles' on the SPX.   If you remember we discussed this same technical picture months ago, a picture that became a yo-yo as we banged back and forth off the upper and lower lines before any resolution.   We may have the same thing now, but back than we were not faced with such noise globally.    Just draw lines off October 10th low and October 14 high > to see what eyes are on.

On the earnings front, reports aren't exactly hitting the optimistic 'guidance' tone and this just adds to the pressure.    Has anyone noticed that we have been very quiet on the credit crisis and all the recent ups and downs were largely due to the economic headlines.     The real problem right now, is that there's no visibility and confidence is just not back.    Despite the fact many companies have lowered the guidance for the coming quarter and year, there's no telling if those guidance will be lowered again and how long this trend will continue!   It's just "cloudy" out there for most CEO's and they are letting it be known.   Yes, things are not disastrous at this moment, but trend suggests it will get worse, and perhaps much worse down the road.     Have we discounted all of the potential negative stuff 3 or 6 months or even further out down the road?   It is simply hard to say at this point.

Technically, there's a very high probability that the recent low will not hold.    When you see people are taking stuff off their portfolio as soon as Dow hits 9k and SPX hits 980, so,  you have to assume that those people are feeling that the bad market will persist for a long while.     Perhaps, we can all attribute to massive mutual fund/ hedge redemption and hope things will turn for a change next month.    However, right now, there's simply no immediate visibility of a stable market and we have another week and half trading to go in the month of October.  Also, AMZN came out with report that is disappointing in every way.   We feel AMZN has a much broader impact to the consumer than AAPL.   Bottom line overall, there's some major worrisome sign out there and we have no choice, but to try and avoid this fast market fight.

Simply, we need volatility (intraday ranges) to come down before institutional and fundamental investors return.  Until, we'll have a fast market.

..Snap Crackle and Pop..

Nope... that's not your bowl of cereal that is going Snap, Crackle and Pop!. This is no fairy tale song of health, merry chorus...It's your U.S markets!....

...Just when you think you've seen it all lately

Well,  this pre-mkt morning is a rare lock down happening on the U.S markets. ...  "Forced selling",  redemptions,  yesterdays break in SPX,  runaway $USD all in part has led to these inevitable developments.   Add to the mix,  overseas data showed the U.K economy shrank strongly.  It was the first decline in output since 1992 and the biggest single drop in any quarter since 1990.

Fear has settled in this morning and the circuit breakers are in to let everyone breath it all in.  Considering the freeze we just discussed yesterday in trade around the world,  it's only natural it's payback time as they freeze the markets!.

We're going to hear all this 'capitulation' speak in the morning, buy the open noise for a 'pop'.  To each his own.   Didn't we just have one of these?.  Sooner than later,  it will be snap, crackle and no Pop. 

As far as we're concerned,  until we get back to days of 3% intraday low- high ranges instead of the 6+% we've been witnessing,  we won't see a bottom form off any institutional, fundamental investors.    

3+1 HALLOWEEN offer from DJIMSTOCKS.com

Last time we did this offer mid-March, we got a nice rally to summer!.  Let's try again, yes, we're becoming superstitious...(Hey, what's left?),  before what could be a tumultuous Halloween week. 

In the spirit of putting the Bear into hibernation for the winter,  we are giving away an extra month on our 3 month/$145 subscription until November 1st.

This offer is also available to current DJIM members on 1 month recurring and 3 month subscriptions.  The 4 month special to will be automatically added to the end of your current subscription date.

To participate, visit the 'Subscribe' link at www.DJIMSTOCKS.com and proceed to the temporary 4 months for $145 payment box.

**offer available only till November 1st/ 2008.

DJIM #43, 2008

After digesting some of the action in the past couple of weeks, the only thing stands out on everyone's mind is "when is this madness going to end?".   This includes those Bears as this is not an easy environment for anyone.  The biggest bears in blog land have been calling the bottom for days now, if not weeks only to be burned trying to be ahead of the bottom.   Unfortunately, we will only get an answer to this 'bottom question' after the fact and we'll keep on saying be patient and wait for downside momentum to slow.   We are waiting for bottom process to be confirmed by smaller intraday ranges.   We feel lots of people are still looking for this "mother of all" whoosh that can give us THE bottom and many are calling for it this week,  even Monday.    Based on the market volatility indicator, VIX, we feel that it's going to take a series of medium sized "whoosh" to maybe mark a bottom.  We discussed this possibility weeks ago that we just never get that capitulation, instead a slow bunch of burns!.  Since we are facing some issues here that are unprecedented in scale,  we ought to expect some very extraordinary action to end this crisis.     Yes, that means forget about reading up on past "crashes"!    Each crash or market bottom are very unique in their own ways and it's just silly to draw any parallelism in order to make a trading decision now.    Fundamentals, Technical Analysis may have been thrown out the window to a big degree.  These are extraordinary times and we may be writing some new chapters on both of those fronts.

Late last week, as global market crashed to earth,  U.S markets actually managed to outperform them.   Certainly,  this is not something we should be cheering for as it could mean that we have ways to catch up with the rest of the world.   Why should all countries be punished any more than the starters of all this.   We are just seeing equity markets catch up to the credit markets!.   So, who knows.   The mentality in the current trading environment is very toxic.    In the past week, we have seen some earning reports that aren't as bad as market would lead you to believe.    Regardless the quality of the reports, you'll be lucky if the stock gets a muted reaction.    Therefore, this earning quarter is almost a complete write-off up to this point.    It seems when investors mindset are set to a certain view,  it's just comical to even try to convince them otherwise.      The message is pretty loud and clear out there, everybody needs or wants to raise cash through the selling of equity.  We've all talked to relatives, friends, even industry associates, and the consensus is the same.     Things will get rocky in the coming months and you want have some cash to cope for any inconceivable events or simply, just out of the markets.      So, it's not that the market has not reached a cheap value,  it's just the fact that people are reallocating assets from equities to cash for whatever reasons.    This is definitely frustrating for those who invest/ trade equities for a living.

Of course,  all things will come to an end and even the "forced sell",  liquidating,  mutual fund redemptions and all of the selling action will come to an end at some point.     At this point,  you can say that we are closer to it than we were a week or two weeks ago.     However, the severity of the selling still has not slowed down a bit as of Friday.

In the coming week, we are going to have some busy stuff to deal with.    Economic events such as GDP report and  Fed meeting that will dominate that side of things.    We also have many earning reports to monitor just in case.    In addition, isn't the coming week the last week prior to the election?    Oh boy, and we just came off a week where we had some of the nastiest global assets selling.   Follow through melt-down?.   Big melt-up?,  remember,  neither confirms a bottom is in as we all witnessed recently.

..a new dynamic?

We can moan after back- to -back late day bouts of selling, we groan as well with the U.S markets flirting with October 10th lows at the close,  but what's the point anymore!.  If you're looking to buy or invest in this market, you're just looking for stability right now,  any stability to show a bottom before putting money to work.  You're through with moaning and groaning,  you're exhausted now.    Instead, you try to look for a silver lining here and there or maybe just an edge.  Recently, we've noted, the U.S markets are lagging the crashes in percentage terms seen all over the world markets and may need to get a dose of their own medicine.  In a Friday forum note , we said it wouldn't be a surprise if the outperforming U.S markets catch up to the action in Europe that day.   It did very late and yesterday it did as well.  This brings us to a new dynamic we may have get used and might not be a bad thing.  Personally, recall the days in the tech bubble coming into the offices BMO Nesbitt Burns, checking the Bloomberg machine and being dependent that day to overnight action overseas, particularly in Asia.   Whatever happened overnight,  we'd be following up on in the U.S markets for the most part.   It is very possible, we'll be entering this phase again with so much world turmoil underway that it's unlikely the U.S will lead a turn as another bubble completes it's burst in commodities.  We also have an incredible fascination with the Yen these days.

This morning the Asian markets, Europe are all up nicely and the U.S markets will follow and probably end the streak of back- to -back late day sell-offs.   Yes, that maybe premature to say, but sooner than later the bandwagon gets too crowded and we rally for more than part of a day.   Simply, the foreign markets are not following what happened here late Monday and finding their own reasons to rally.  The ducks may be lining perfectly, say we get a well behaved Yen, weaker USD, oil up and a technical reason such as flirting with Ocober 10th lows coming together all in one. 

If/ when we get the prospects for a multi- day move, we'd look to trade the ETF's relevant to the market indices instead of trying to pick out individual stocks, most likely.  Example,  it is probably much safer to go with say a SPY to trade the SPX than individual stocks...DIA, IWM etc.   For those with more risk in their blood risk there is the SDS 2X to short or long the SSO Ultra on the SPX.    As we always say look to high beta stocks in any rally,  but even now just to get your hands dirty and get your trading confidence back it may be easier to go with the very liquid ETF's. 

Anyways,  let's hope for that tumultuos Halloween week... as in a melt -up.  It won't hurt to get your fighting gloves on in anticipation of such a possibility.   Just always be on your toes for a sneaky jab...

..Melt- up..

The name of the game in this volatile environment is 2x ETF!.  Up and down!  Well folks, in spite the fact we got an extraordinary hearty gain today,  this was most likely more unhealthy action.   It is just another 6%++ intraday range,  not the -3% bottoming multi- day range we're looking for to get sidelined institutions or fundamental investors into the market.   It's still the wild, wild west and trading ETF's, especially the Ultra 2X`s is the way to go until some leadership is shown.   Let`s face it,  finding a winner that lasts a day or two is almost impossible these volatile days.   Most people will wonder, isn't it good that the market went up 10%?   Yes, getting the market to go up big in a bullish environment is good, but we`ve seen this movie before.   A huge relief bounce in a painful market environment should be considered somewhat of an evil.

What does it mean then?    It means that the downward pressure is being relieved for the time being.    But, the bottoming process will probably be prolonged.     Most traders we know, who are trading this market still, are only gunning for the very short duration of this uptick.    Today just happened to be a great day, if you went with the right set of ETFs.  The ones we prepped this morning, SDS Short, SSO long  up 20% with the underlying SPY were perfect.

Besides the `get your gloves`ready Journal,  we thought early in the day this might have fire power and alerted.   If this market managed to break through 870-( 880 SPX to be safer),  we might get a chance to do some serious damage to the upside.   After we pullbacked at 87.71 SPY,  it was set to go off when it reached this level again.    When the breakthrough came,  the rest is simply history.   Yes, today's gain probably made the history books too, but almost every day does such this month.     We have a Fed meeting tomorrow and a GDP report due out on Thursday and at some point we`ll get a pullback.   Instead of waiting for this,  it is only right to take profits near the close.    Both of these events (Fed and or GDP), can provide some very unstable action for the market.    As this market is approaching the previous resistance,  our money will be leaning toward the bearish side,  we may get some catch up money flowing in the morning,  but that will probably be hit by profit taking by Fed time.   It will be interesting to watch the post- Fed market action.

Lately,  due to the lackluster earning reaction and the volatility level of individual stock plays, we`ve decided to stick to ETFs until leadership emerges or say Oil shows signs of life.  Still, if Oil shows promise, we`d most likely trade the ETF (OIH) instead of individual plays.    Honestly, when market is swinging 6%+ in either direction on a daily basis,  the best plays to follow the trend  is the actual index ETF themselves.     The 2x ETFs, at this moment,  are our favourite.      The ones we currently track/trade include  SSO/SDS,  DDM/DXD,  QLD/QID,  DIG/DUG,  which are the pairings for  SPX,  Dow, QQQQ and Oil.     Hopefully,  when the volatility of this market comes down to a more reasonable level, we can begin to look at some individual stock plays.    For now, the name of this game is ETF.

Bottom line, it is still very very chaotic out there and regardless how you want to approach this market, "protection of capital", is still the number one priority.     There's no need to let the daily wild swings pressure you into making unwanted trading decisions.    Even for the most hardcore traders, it is ok to sit out for few days or weeks at a time.     We are not here to prove anything,  we are just here to make a living and give some sane direction in insane times.

..elastic market

We're keeping it short for today as nothing has really changed,  the market is showing it wants to go higher. It looked that way when we did an alert around 3:15, a pop followed almost immediately before a rip to the downside because of a 3:47 misunderstood GE headline that we noted as such (after- hours). You want to see itchy fingers, just look at the 2 stocks (EBS eps next week,  CMP) noted yesterday during this time frame. Nuts!. CMP report attached on site.

The futures have followed overnight as a noted possibility and the market is getting all the losses back. A lot of the focus is on the GDP, if you read the global economic report we put up on the weekend, you know what is going on and the expectations for GDP going forward.  If you look at the market levels, you have to think this has been getting priced during this mudslide.  We'll know soon enough.

We're getting those 'ducks' lining up the last few days, a softening YEN, a declining USD$ and a higher Oil and of course, the commodity stocks are moving upwards.

As long as the SPX stays above 925, we're in a pretty good position.

Tighter range..

If it wasn't for yesterday's GE hiccup, it would've been back to back strong closing days, excluding monster Tuesday!    This would've been impressive because these two days were built on top of the near 1k pt rally on Tuesday.     However, in spite the fact we've gained that many points,  we are all of a sudden facing the familiar resistance territory, again!.  Even, the 'triangle' on the SPX points to a probable top for the time being.   Yes, it feels like we've been here before.

So what's the smart trade here?   We are just thinking that point gains like we had from the previous three days need to be digested.    That means we are looking for some stability.     We definitely have come down to more of a normal hi- low range for 2 days now,  the market has not moved "too much" in either direction off the morning gap level.    Most of the plays on our list have closed near the opening price.     Even though you almost had to have some overnight positions to enjoy a day like today, the action is nonetheless encouraging.     Ok, here's the thing!    We aren't calling this latest move anymore special than the moves preceding it.    A move needs to be proven in order to be special and that is something we can only confirm in retrospect.    For now, we are doing little trades to fade the move as it approaches the previous resistance.    If for some reason, this market decides to break through the resistance, convincingly, we'd tag along for the ride too.   If you've been riding the 3 day move since Tuesday alerts, we'd definitely expect you to take profits and look to the potential resistance for a short.  If say Oil is down tomorrow,  you should look to short a few names that have made nice upside moves.

We can't believe the election is merely days away, we thought this process would never end.   This has to be on many investors' mind as to figure out "what if" scenario when the next administration takes over.   Right now,  we are hoping, and just hoping that the election and post election period will bring some stability to this market.     A somewhat rational and a calmer market will bring a lot of institutions/ fundamental investors back to this market.    Valuation is at the lowest in years and we firmly believe it's just a matter of time some people decide to take advantage of it.    As far as a long bear market and a severe recession talk go,  we feel nothing happens overnight.   It means that even this market goes into even long bearish mode,  we can still deal with it, as long as the market trades in a sensible fashion.

 Have a good weekend

DJIM #44 2008

Sometimes a little hope and a little superstition goes a long way it seems!.  Hopefully, many of us put on our fighting gloves and participated in the tumultuous Halloween week that we noted as a possibility before Tuesdays morning.  By weeks end,  the SPX gained 100 pts from the possible push rally we were alerting Tuesday, now comes the harder part in predicting where it may or may not go.   Was this just a pre election rally,  or do we continue for a post election run?.   There's going to be many scenarios played out in the media,  but we're staying away from making predictions today,  we'll just go with the flow as at this point we're facing a resistance area, a fight at 970 and the upside is not going to be another quick 10%.   We are looking at SPY 110/ SPX 1100,  if all stays on course as next area of importance.

What was spooky last week was as if we're in a muzzled quiet period as  'NO'  bad news hit the street prior to election day.   It's as if all the dislocations in the financial markets just went away.   Poof!..all gone!.  yeah, right..everything has worked so fast.   Anyways, that's our conspiracy theory for the day.lol....but, truthfully... honestly,  it's not too far- fetched, so we're thinking we'll get some bad news late in the week or next week.

If we are going to get side-lined money into the market,  we need to see stability and tighter low-hi trading will bring confidence back slowly.  This was probably the best aspect to the last 3 trading days and we hope it sticks.

A few things,  we'd concentrate on this week is earning reports based on last weeks performance.  Simply,  we expect a better reaction to good reports in this better environment,  we are using CMP, EMS as a basis for this.    Otherwise,  we'd stick to the ETF  trades we highlighted last week, below is a comparison a member sent us that shows the potential prices of the SSO, SDS  trades (long or short) with the SPX moving in either direction.   Remember, these are 2x!.

 

 **A few members had asked to keep the Halloween special to add-on to current subscriptions past the weekend,  we'll keep it on for members till election night.

Buckle up...

We've wanted the low- high ranges to recede, but we didn't expect everyone to line up at the Polls early today and give us a measly 155 range today.   The good thing is the daily charts on the major indices, including things like the NDX look they are a welcoming in a pop.   Generally , it looks like the market is gearing up for something, doesn't it?.   As far as today, it was a whole lot of nothing in terms of trading and there was just nothing meaningful in terms of corporate news.

We've all wondered at one point or another,  which President is good for this market?.    In truth,  a new President probably cannot determine the outcome of any market.    Why is that?   What someone promises is not exactly the same as what one is actually going to do for any particular issue.  Today, we saw a move in Solars,  but isn't it rather late to play an 'election' edge' the day before?.    We probably think so!.   At this point,  we have to stay very open- minded as to the longer term impact of a new President and a potentially new administration.    For now,  what everyone cares about is if we are going to have an immediate rally or a sell- off following the vote.     Does the election result even matter when it comes to this market?    There's no way of knowing what some of those big institution's managers are thinking at this moment.   We bet they are wondering the same about their comrades.   If anything,  it'll be more of a chain reaction as oppose to an unanimous consensus on one particular action.   Considering all the macro issues flowing,  this Presidential vote may play a larger role than what has historically occurred down the road.   The average 1-2 week performance market gains is about 1% following an election,  we get that in an hour these days.

Today, if anything, the little play EBS  made up for any of doldrums in the market.    Yes,  it isn't like the huge small cap winner in the past,  but it's really nice to have one in the current market condition that hits 20% in a few trading days.     We also have EMS  on the table and despite some boring action,  it has held well off the earning gap.    Right now, we are basically waiting for this market to make a move.    A lot of indices are showing a similar pattern and we think a breakout around this election, is likely.   It may be brief though.   Nobody is willing to put any huge bets on anything these days,  we just don't know if those crazy volatile are still just around the corner and/ or if some negative news will from the sky.   VIX (chart up yesterday) has gone down considerably the last few days, but it's still higher than any level in the previous 5 years.

Like most people, we'll be glued to tube to watch the progress of this election.    Lets just hope whatever happens , we can get some good action in the market post - election for an extended period of time.

..what now?

Congratulations, and our prayers are with you!.  Unfortunately, once the opening bell goes off,  reality will likely start to sink in and savoring the historic chapter written last night will not be an option for traders.  Investors won't be running checks to their brokerages and money managers won't be buying every Solar stock relating to a political platform note.  Isn`t more a question of what`s next in store for Healthcare and therefore Healthcare stocks than Solar under the Obama hand.    Things changed overnight,  but nothing has changed in the gloomy economic picture for the global markets.   Traders are a skeptical bunch,  including DJIM who exited the market to dryer pastures by noon.   Simply, we think the rally of the past 5 trading days left little immediate upside on the table in our view. 

The best ticket is to wait it and/ or weigh your trading prospects to the downside now.  The odds are bigger returns would be downside bets.     This prospect was only enhanced after viewing some lists more closely after the close and seeing some bloated and undeserved point gains that may be crying for a short.   This includes the high betas, MA, BIDU, GOOG ( also, we weren`t overly joyous with the AAPL, RIMM performance). The list also includes anything oil related stocks, including the E&P gas stocks because Oil is not going up 10% a day going forward.   The ETF`s here are OIH, TAN.

Basically, we all should have taken a victory lap with the recent market calls and individual stock picks here, so just take it easy now.   Sometimes you get caught up in the emotions of a rally and think you can do no wrong with your trades,  the best medicine for us is to go back and read recent Journals to keep it all in stride and not stray from the big picture, big cloud still over the market.

Welcome aboard, Obama!

Okay,  the message this market is trying to send today is probably not directed to the new President or anybody personally.   Still,  the immediate decline of the market post election should not be a surprise to anyone as the market has just got ahead of itself.   Hopefully, our trading actions Monday and mornings Journal led you right and you stayed dry and/ or took advantage of the slide in Solars and high betas noted.    Other than the pretty dramatic point decline,  what concerned us some was the stuff coming after the market close, in reality,  it really shouldn't be that much of a surprise after what we've seen this earnings season.   We have rate cuts in Europe Thursday to possibly guide a change of tone from today,  but we also have important Economic data looming here.

Alright,  lets discuss one thing at a time here.    Perhaps, some just took things for granted during the past 6 or 7 trading days and were in La-La land.   Prior to today, the market volatility had finally come down to a reasonable level,  but it's the average over a time frame that matters.   It hasn't been long enough to draw a conclusion, it simply hasn't receded long enough to bring money off the sidelines.    Maybe,  some market participants were naive to think that only really bad news can bring a market down so fast.    We thought Tuesday's rally was suspicious enough that we had to cash out everything by mid-day and potentially risk losing out some more gains.   As it turned out it was a good move.  "It may be brief though..".     Everybody knew that market needs to pullback some in order for it to be healthy over time,  but we were just somewhat puzzled over the "steadiness" of the move and were thinking maybe the markets nature had finally turned for a change, so we kept trading it till Tuesday.     Well,  today proved that we may be heading back toward the more volatile side of Mr. Market.   We'll see and deal with it, if it comes.    Frankly, even if this market pulls back toward SPX 930 level,  it still should be considered healthy action.     However, after some unhealthy earning news in after hour,  it's hard to say if we would simply go through any intermediate support level and challenge the previous low soon enough.    We say, keep your mind open and don't conclude anything yet.

Speaking of the unhealthy earning report,   Despite a solid Q, CSCO delivered a very gloomy outlook as guidance came down sharply.  New FQ209 guidance of down 5-10% y/y vs prior guidance up 8.5% y/y is a shock as it's well below any growth estimates.  Order growth abruptly slowed during Oct, falling 9% y/y vs 7% y/y growth in Aug.   Order growth slowed in nearly all customer segments and geographies with U.S the hardest hit.   For starters,  CSCO has not really mattered in this market for a long long time.  Why should it matter this time?  ,  Well, in a bull market, being conservative will never get you any points.  CSCO has always given conservative (honest) outlook and nobody really cared what they have to say when everything else is rosy as hell.   In a pessimistic environment,  when all signs point to a looming deep recession,  a conservative company sometimes gives the most accurate account of what may actually be happening or about to happen.   CSCO is a one of the biggest hardware companies out there and everyone in IT industry knows the importance of its role.     The forecasted revenue shortfall is simply huge for a company their size.   It means, that shortfall in revenue is going to affect hundreds, if not thousands of other business.    This basically foretells where this economy may go in the next few months.  You may just call CSCO, the crystal ball!

Bad news aside,  is there anything to look forward to in this market?   Well, we know what to avoid now and what's volatile to trade.    We are now back resorting to trade on dips,  as oppose to chasing potential highs.    Some of the EPS plays, we alerted during last couple of days showed some incredible strength despite the overall ugly action.   Currently,  MYGN  and EMS  remain our favourite and CMP, AGU  are secondary plays.     It feels like there isn't many institutions (hedge funds) involved in this market these days, so we have to be extremely careful calling a move without them.    When a stock is not being supported by big money, the increased volatility will simply drive many people insane.   So, take a smaller size and always be on defensive.

..Life support

One thing we addressed recently is the probability of U.S markets following the developments, market action abroad.   If you had this in the back of your mind,  you'd see the indicies here had a good chance of another -5% day as that's where the $TOP (U.K) headed after the huge and a very unexpected 1.5% cut.  The market there declined gradually all day after the rate announcement and after it's close the idea of a selling wave extending here was a high probability.

The drop on top of Wednesday's drop put the market on life support at SPX 900 after easily breaking the 930 area of interest.  It's a good thing we've been positioned away from what became a -100 SPX in 2 days and another good thing is how fast it occurred.   That's right,  if we're going to go higher anytime soon and break over 1000 SPX,  this is the way to do it.    Back up the train and load up the cargo and head North!.   If the market shakes off the job report and retail numbers,  it will be a very good sign.   We're not suggesting grabbing the first train,  we' re going to monitor till close and if the action is good, we'd probably buy (SPY/SSO/SSD short) to hold over the weekend in anticipation of something greater come Monday.   On the other hand, if we crack 900 hard,  we're going into coma with the market.    We'll give an alert today,  if our general tone changes from Tuesday. 

If you did this trade , you're probably covered and already gone for the weekend....lol...enjoy, just bring us back a gift!.."...your trading prospects to the downside now.  The odds are bigger returns would be downside bets.     This prospect was only enhanced after viewing some lists more closely after the close and seeing some bloated and undeserved point gains that may be crying for a short.   This includes the high betas, MA, BIDU, GOOG ( also, we weren`t overly joyous with the AAPL, RIMM performance), and any solar sector noted in alert, especially the FSLR, SPWRA.   The list also includes anything oil related stocks, including the E&P gas stocks because Oil is not going up 10% a day going forward.   The ETF`s here are OIH, TAN."

As far as individual stories,  we've pointed out the stocks of interest this week, when we say we'd buying on dips we are not talking about solars or anything else.  We're talking about names we are putting up here.   A good case was CMP  today as it smacked the 9EMA and rushed up 5 pts opposite of the weakening market.

DJIM #45 2008

Hopefully, the post election jitters are wrapping up.     If you remember,  right before the election, when the market was inching up in a steady fashion,  we felt it needed some sort of pullback in order to really build up a tradable rally.     Instead,  right after the election, we dropped nearly 1000 points on Dow and 120 pts off SPX to make a statement that this market is still every bit fragile as it was two or three weeks ago.    We think, this is fine with us traders!    What we meant is that as long as we don't get trapped in one of those nasty declines,  we'll play our game as we see it as this kind of volatility is manageable.

In case you haven't noticed,  we have been playing quite a few EPS plays.   It's a strange feeling considering it's been an awfully long time since we traded EPS plays and had any sane trading strategy fitting for more than an hour or two.   Call it home cooking.   Weird feeling these days, but thankfully the action, the characteristics of these plays are very familiar to us.    This is important.   Why you ask?    For the longest time, since August maybe, we really haven't had any earning plays reacting the way plays like EMS, MYGN, FSYS, FLR  or EBS  have.    Is this a change of mentality?   We hope so!    Remember,  October was filled with fear and pain.    There was no such thing as good news and no such thing as good value.     As the selling pressure winds down, or slows down for that matter,  a lot of plays start to emerge as pretty darn attractive.    When you have a couple of reports that do really stand out among the disappointing ones,   even the most patient investors will want to jump in for a bite.    Still, remember thousands of stocks beat numbers every Q,  it's not about quantity,  but quality.   It is not simply reading a headline number and thinking the stock is going to be a runaway or run or at all, for that matter.

Anyways,  Friday premkt alerts on FLR, FSYS, EBS  posted incredible results right off the bat and made you forget and not care about the rest of the market and the economic data.     We also alerted late for the indices and they propelled soon after into our wishful closing prices to buy SPY-SSO- SDS short and hold over the weekend.    Tonight, we are getting what we wanted by the futures, we have something greater come Monday as in a probable gap from news abroad...  "We're not suggesting grabbing the first train,  we' re going to monitor till close and if the action is good, we'd probably buy (SPY/SSO or SSD short) to hold over the weekend in anticipation of something greater come Monday.    Now , is this the train we spoke of?.   Not sure yet, just call it a ferry to the train station for now.   We may sell gap and re-position later on,  we need to see the overall tone early.

Back to EPS' stories....some examples,  stocks like CMP and FLR  have gone down like the rest of their peers because of the fear of a global slowdown.    For a while, all the material and industrial stocks were behaving as if everyone is going to face a Lehman crisis.    Well, we knew the probability of that happening is slim to none.    When the market find its footing, and when some of those companies report better than expected results,  we immediately get a valuation bounce as evidenced by many stocks.     This is just normal!    You shoot everything down first, and then you let these companies prove to YOU that which ones are worthy of buying back.     For other stocks like MYGN and EBS, they seem to be immune to an economic crisis as both of them are near their year high.    Are these stocks up because of an Obama win?   We think a combination of their strong earning report and a favourable new administration to their sector is causing the excitement.   As far as FSYS goes,  the report itself speaks louder than anything.    When approaching these eps plays, we are sticking to our old strategy.   If you miss the initial pop,  always get in aggressively on the first pullback.     If market condition proves to be worrisome,  add some bearish ETF to hedge the position.   Honestly,  we are still not overly comfortable committing very large sizes in these plays or holding too many at once, we have to be extremely comfortable with our choice in size and how many positions we are holding at any given time and/ or overnight.

Over the weekend,  China announced a $586 economic stimulus package which will be focused on infrastructure and social welfare.    This is particularly of interesting to us as the material companies will be positively impacted by this development over the next few years assuming China does what it promises.   We are feeling there'd be initial excitement the next day or two over this news.     We'd keep our eyes on companies like FLR, NUE, AGU.... basically most of these related companies have had good earning reports.   Right now,   we feel it's not the time to get too drawn down on the recession or financial crisis talk.     We know what state we are in now and we have to take advantage of the opportunities that are presented to us.