No man's land...

Tug of war lasted for about a couple of hours before the market finally made up its mind and ended the day higher.    This is definitely nothing to be cheered for as most of us feel we are merely rebounding from yesterday's nasty selloff.   Short term trading range is likely.  Some levels to watch...SPX 826, 800, 752 support; 848, 860 resistance on upside.

Shall we even rebound at all for an extended time?   Currently, many of the cards are held by the government to decide the outcome of the big three auto companies.    In fact,  much of today's optimism was directly from the hope that a deal will be reached and money will be granted to the auto makers.     We feel that even with the infusion of all those billions into the auto makers, given the current economic condition,  we are only delaying the inevitable.      Basically, assuming these auto makers do get their wish next week,  we are only going to get more turmoil (pain) from the sector down the road.

Originally, we were hoping that a restructuring of the auto makers +  Citi bailout can potentially give us the bottom that we seek and need.     As of this moment,  the theory is still up in the air and verdict is still out there.     Therefore,  after today's rebound,  we are literally stuck in a position that we need to see further movement before we can make an intelligent trade.   Lots of negative tech headlines after the close to dampen today's move.    Until this market changes its recent way of trading,  we are going to fade the move with a downward bias.    It means that we are more eager to go short on strength than buying on weakness, except for a few recent DJIM plays that we'd buy on dips.     But, consecutive down days would most likely get us on the long side and short up bursts would be a better shorting opportunity, in our opinion.

This week,  we have one of the most important economic indicator to be released, employment report.    Market can flip flop between now and then but,  we think the job report can set a pretty big tone for the entire month.    ADP number will be glared over Wednesday as well.   Assuming the accelerated downward economic trend continues,  how would you like to end the year with?    Bunch of beaten down assets or lots of cash?    Unfortunately there's really no in between alternatives.    These days, you are either in control of your financial situation or the market controls you.     The idea of a Santa Claus rally is fading fast as long as this market clings onto the hope of a quick turnaround.

Encouraging...

It's pretty clear why the market reverse from the gap down and finished on an encouraging note.  Last week we were saying the market is 'shrugging' off bad news,  we expected this to change early this week as the whales came back.  They did and drove the market down nearly 10% in a single day.   But, as of today,  we can say the market is shrugging off bad news once again and this cannot be ignored at this time of the year.   Also, we can't ignore that the Financials are also making a quick recovery off a few bad days, following a nice run in the prior week.  This needs to stick to go forward!.

The morning had a slew of tech disappointments that led to the gap down.   What happened next was RIMM's negative preliminary 3Q results were being shrugged off as it reversed at the bell from a bad premkt.   Seemingly, the buy side had been quicker to discount the bad news than the sell side!.   Basically, the street was already very cautious.   RIMM’s fundamentals are still strong, and very few large cap tech names can claim growth of this magnitude.   As we watched this positive action, we felt it was important to post that CSCO/Chambers were having a conference starting at 10am as it could be a turning point for the market.   One glance back at the intraday charts and you can see CSCO was starting to move during the conference,  leading the market higher.   Chambers said that trends thus far in the Q are consistent with the assumptions management made when setting guidance November 5th,  signaling business is tracking to plan, albeit a weak plan.    This was enough to set the Semi's in the SOX off as the best performers in tech land.

So,  if we stick to the premise that the majority of days lately the market is discounting , shrugging off bad news and therefore is not being driven by negative headlines, including ADP and manufacturing  data in the morning, later the beige book notes in the afternoon.    So, we ask what is the market trading off??. 

Simple.. we flashed SPX support/ resistance levels before the open..."Some levels to watch...SPX 826, 800, 752 support; 848, 860 resistance on upside ."   Once 848 was broken,  860 was the next level to watch.  It was evident late in the day a battle was underway for this front and a break was very possible.  Finishing at 871, up 22 was well North and gives potential for an early good start tomorrow.    Treasuries, not only equities rallied into the close.   Also helping the mkt is the fact that the government is willing to come in and buy mortgage backed securities as well as bonds with longer duration which is forcing fixed income portfolio managers to purchase longer duration bonds.   Another big positive,  yet not finalized is the Treasury is considering a plan to halt the slide in home prices and UK gov't announced a plan whereby struggling homeowners can demand a 2 yr "mortgage holiday" backed by taxpayers.  These are the good headlines and market is reacting in a positive manner.

Weighing and not to be forgotten on the market is still the Auto Washington Aid unanswered questions.   We also have the retailers reporting November sales Wed night and Thurs morning (the releases could also include some color on Black Friday trends).   Jobs numbers for Nov due out this Friday, consensus on  right now is for a loss of 325K jobs..GS is saying 400K +as of today

In an almost perfect Santa Claus rally world,  we'll get these data figures 'shrugged off'!.   Do you believe in Santa Claus?

Anyone in Citadel?

Well, guess if you are rich enough to have an investment portfolio held with Citadel, chances are you wouldn't be the type trading the market yourself and hence, reading our journal.    Good thing, for us that is!  There was news that one of the most successful hedge fund, run by Kenny Griffin, is currently down 47% YTD, and 13% in November alone.     This is just freakishly amazing.    Sure,  it's much tougher to run a multi billion dollar fund than a million dollar portfolio.     But come on,  if your $20 billion+ portfolio was cut in half in one year,  what the heck is the point of even being in existence?

Okay,  it's a little harsh on Citadel, but this is actually a general point we are tying to make here.   In fact, the entire hedge fund industry is going through some tremendous pain during the last little while.    We have some sources with our local Toronto hedge fund boys and according to our inside source, the best funds is down about 60%.    Granted, alot of funds here, north of the border that is, are heavy on commodity stuff but it is incredible stuff when you think how these "professionals" suppose to know better.    What happened to the hedging part in a hedgfund?  So, if you are bummed out from a small or break even performance the past while, don't be.   On the contrary, pad yourself on the back on the job well done to preserve your precious capital.

Today's action was a little predictable ahead of tomorrow's job report.   Nobody wants to be caught with too many long positions with potentially a nasty job report on the horizon.  Thus, an end day retreat for the market, before thankfully a late attempt to get back to 850 SPX that just failed to hit the mark.  Some are calling for a 400-500k number tomorrow.   Still, we are reserving our opinion on the expectation of street reaction,  it's really anyone's guess.    However, we think a bad report will paint a very gloomy trading environment going forward as reality will sink in.  It seems it must week after week.   By the way, did anyone see the collapse in oil/gas price today?    Ok, it isn't anything new, but the fact there's no support whatsoever in the crude at this point on a technical basis it seems.   We think it is more of a supply issue now.   No Opec country or big oil producer are willing to cut the production.   Basically, once you have turned on the hose (money flowing), it's hard to turn it off.

Our choice of plays have becoming very narrow and limited these days.   Most of the EPS plays have pretty much lost their lust and a new eps season is still sometimes away.     The biggest thing on the agenda is still the automakers' bailout deal.     Believe it or not, we feel that we will only see a "true" bottom if GM fails.   Why we think that?    Because if the big three fail,  we'll most likely have a pretty good view of how this market reacts.    Yes, it's gonna be bad for economy, for employment, politics and everyone.    It will be a true test to see how this market responds to what we think is the ultimate doomsday scenario for this year.     It just can't get any worse.

Ok, fingers are crossed for the job report tomorrow.   More importantly, the type of report will give us a clearer picture of trading in the last three week of the year.

DJIM #49 2008

A few things from last week Journal focus showed it's colors by Friday!.

"Shrugging off"….what better indicator of shrugging off bad news than what we witnessed Friday after the brutal employment number, yet market rebounded strongly.  Sells off are becoming shorter in duration.    A teflon market is seemingly here.   The market had reasons to go to bed and not get up, Economic data was horrendous last week…ISM, factory orders, ADP and endless EPS wrecks, outlook cuts in RIMM leading a pack of NOK AMD PALM ISIL SWKS TSM WFR XRTX  etc.   Add a bankruptcy news from PPC and at least 5 more defaults, credt mkts still trouble (Cali, NY/NJ),  geo -political tension(India) and the never ending Automaker debacle weighted in,  yet the market lived!.     Okay, it wasn’t all bad news, we had plenty of good stuff such as MBA/ mortgages numbers showing a huge refi boom , banks/gov’t interventions all over the world,  a potential gigantic and radical cash infusion in the U.K,  a strong USD and low Oil despite all the FED print work and more fed/ Bernanke positive announcements/ quantitative easing.   CSCO implied trends so far are consistent with guidance was a mid week positive.

In conclusion,  everything is deterioating from eco- news to EPS outlooks..but stocks held the previous week gains pretty well.   We have to think year end melt up possibility….basically we have to be openminded late in the year it seems or we may miss some substantial gains.

"Financials"…..there was one positive early Friday and many times it’s a tale of things to come.  During the early morning beating,   XLF (financials),   thus many brokerage and Financial stocks were OUT-performing.    We also had the Insurers  acting great,   HIG,  given out by a member led the way into a squeeze that lasted the day and probably into Monday!.    We keep harping to keep an eye on the financials and this is even true for day to day action trends, not just long term.    If they are doing well in a bad market day like Friday,  the market will most likely do well at some point intraday.    Friday proved this.   So always keep an eye on what's working and what's not,  even in bad markets as it may be a signal of things to come.    There is also news reports that the life insurance industry could receive relief from state regulators when it comes to capital, also a positive.

"Beaten down stocks"...one glance at HIG and other SPX leaders for the week lead to one way of thinking,  HIG +78%, CIT +51%, PFG +34%, PRU +28%, CTX +28%, LEN+28%, PLD +26%, LNC +23%, SHLD +23%, KBH +21%, BBBY +20%, BSX +20%, XL +19%, TIF +19%, DHI+17%, THC +16%, ODP +15%, LSI +15%, CI +15%, SNDK +15%.

It is time to look at beaten stocks,   particularly in the SPX that can have great gains in days-hours,  if we are in a melt up holiday ensuing market.   So, watch for news that may seem irrelevant.    Any other day in the EPS world, you'd look at HIG's EPS headline and let it pass,  but we have stocks at such beaten values the chances of a squeeze are great.   If we are in such an environment, start using the Forum to throw out a few names, some may turn out great like HIG, others may not.  We are responsible for own decisions if to chase the dollar store stocks (cheapies) or not.

"Oil".... sooner than later this will be a great opportunity,  even if it oil goes to $60.   That's a 50% gain.  We haven`t been at these prices since January 2005.   The money to be made won't be in in individual stocks.  Oil rig stats are declining day by day going forward.   Let's look at the ETF's instead.   Last week we had a question about the 3X ETF`s ERX-ERY on forum and said they are not going to follow OIL price,  but the R2K energy stocks component.   Well,  we saw more as we were monitoring their action.   One look at Fridays action and you can see why these can be powerful movers and have nothing to do with the price of OIL.   The rebound in say ERX went with the market rebound, Russell2002-SPX,  not the price of oil which basically stayed at the lows of the day, while ERX went from 26 to 32.70 by close.    Simply,  not only will these ETFs move with the indices such as the Russell small cap indices, but when energy-oil stocks also lead the way, these ETF`s will have even greater moves as they often move the SPX all by themselves in the past because of the weight of them in the index.    Basically, these ETFs can move in various ways…an index move, an index move led by energy and of course can move when oil finally spikes.   You have to think being so much under 200MA in oil is not going to last forever and this "risky" overnight hold maybe the way to play intraday.  DIG/ DUG are the 2x ETF's.

Into the trading week....."SPY"....Levels to watch on SPX futures , 855-850 on the downside and 875-900 on the upside.   Stocks worldwide should be playing some catch up to our markets overnight.  We also have some more Obama noise on a massive public spending program hitting the rounds and the apparent progress this weekend in regards to the Automakers.  Plus, stimulus/ cuts in China / India.   We should test 900 SPX resistance early on.  Under the terms of the agreement being discussed, $14-15B would be taken from the $25B worth of appropriated “green” funds sitting at the DOE to bridge the industry through early ‘09, when a more comprehensive restructuring package will be considered.   Also, not much Eco data this week to worry about,  this should ease concerns of buying into the market.

Change in dynamic? or.....

In a typical "shrug off the bad news.. (more slashing in guidances..AOU,MMM, MET), and propell on good new...eg..(reports that November hedge fund declines slowed vs. October, giving hope that the industry's forced selling may be abating,  a slew of market ‘bears’  making some sanguine comments...Heebner, Fleckenstein, Ritholtz, Birinyi),  we rallied again today.    It seems market is craving for good news while bears do what they can to hide from the action for now.    The biggest "good news" lifted the infrastructure group, (stocks here on list include FLR, VMI,  along with steel and few others, had the biggest gains for the day.   This is all thanks to the new administration's proposed infrastructure program.    By the way, the new program is supposed to be the biggest since the 50s.   In addition, the hope that an Auto bailout deal will be reached added to the enthusiasm.....Into the trading week...... We also have some more Obama noise on a massive public spending program hitting the rounds and the apparent progress this weekend in regards to the Automakers.).     It may be time to let these infrastructure stocks, including steels to consolidate to buy later or short shortly.    There is also the big tech infrastructure play now creeping in as Obama spoke of Web expansion this time helping the CSCO's along.

So,  with market's late ability to shrug off every piece of bad economic news, why would anyone even consider shorting this market?.    How about because we've gone too far, too fast.  This move brings technical analysis to the forefront some more...SPX note later here.

Well,  unless anyone thinks we are NOT back into the beginning of an economic boom soon, there's about every reason to short this market.    The afterhour news lately just hasn't been friendly for the bull, either.   Tonight we have TXN, NSM, ALTR, BRCM, FDX all warning for the coming quarter.    Can we 'shrug' this off tomorrow,  it would seem improbable as we near 930 SPX, but stranger things have happened this year.    This would be impressive if it occurs!.    Basically, the infrastructure program may be all that,  but it isn't going to help those white collar workers who prefer to work inside the office.    Frankly, the rally we've been getting lately is bit of a challenge to categorize.  Positive is we do have real buyers coming off the sidelines, not only short squeezes paving the way and we have seen some unwinding of the safety flight.   But, confidence is still an issue as nobody wants to get shot in the foot by chasing too far.

We know things move fast, and the next thing you know,  we can be testing SPX 930 (50ma, next vital level),  than 950 and SPX 1000 successively.    It can happen in a matter of days, not weeks.    This actually gives us a pretty good range to work with.    Essentially,  we feel that we may be going (stuck) into ranged trading for the next while until something major happens.    From SPX 780 to SPX 1000 is what we are looking at.    Right now,  as we set eyes on mid 900s, we think it may prudent to have the short side itch.    Currently, we are still monitoring the Financial sector, as much as anything else.    The less drama and more stability we get from the sector, the more likelihood that we may have seen the bottom last month.

Plays like HIG,... may give us some quick points here and there,  but, we may start to do some more position trading in the near term,  in addition to trading the index ETFs.   This is all assuming that market doesn't collapse with VIX gunning for 80+ any time soon.

CHK,  with the cold weather upon us, Oil lifting off $40, hedgies taking a potential break, it might be time to look at some energy stocks once again.  We opened a position in CHK instead of the pure Shale plays based on some good news from them in that they could be fully funded for '09/'10 and thus an overweight from JPM.

...a pulse in commodities

Once again the market did the unthinkable 'early on'.    It rallied off more slashing of guidance/ bad news all around, predominately in the tech sector (which led higher).    But, as soon as the SPX closed in on previous days high of 918,  reality sank in or more importantly the 'technical' trade rolled in.    It was just unsustainable off a big move in the previous session , improbable to shrug off more bad news immediately.   SPX bounced off 886 (its 30MA) almost back to 900,  we'd look at this as support in tomorrow's trade and anticipate some Automaker news.

Despite, the closing numbers, it just didn't look like sellers were taking control, more like just buyers petering out after a nice multi day rally.   Basically, it didn't look scary, probably due to no one really wanting be ahead of a pending Auto deal.   The decline can also be attributed to......Treasury yields approach 0%…..Treasuries rose, pushing rates on the three-month bill negative for the first time….The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001 (Bloomberg).

Meanwhile,  back at DJIM's ranch our early focus (alert) turned to the E&P's off some positive drilling results on the heels of CHK's liquidity plan from previous day and it continued throughout the day.   We all remember the great, but somewhat short lived trade (3 months) off the Haynesville Shale stocks.   CHK is the dominant name here with smaller caps like HK, GDP, CRK, XCO, GMXR.    Almost all bubbled up as names moved off each others results as in the past.    The broader tape was rather flat as most commodities were down or flat.   This included par performance from bigger energy names which subdued these moves somewhat.  It wasn't the perfect storm,  we hope for a widespread oily move tomorrow to help these Shales along.

Of course,  the biggest moves can be seen in the 'beaten down' under $10 stocks, which comprises almost all shipping stocks.    The moves can be attributed to one piece of news from a single company citing there has been a pick up in activity in Asia re Iron Ore, Coal, Copper, Steel.   Also, bulk shipping rates had rose for 1st time in 14 days have caused some exuberance.   Unfortunately, we keep reading negative headlines at same time,... Nippon Yusen K.K., Japan’s largest shipping line by sales, cut its fleet expansion plan by up to 60 vessels as slowing economic growth curbs demand for transporting steelmaking commodities including coal and iron ore.   We just can't get excited for a turnaround here, just yet,  it is strictly your own decision to trade these intraday at this juncture.

Anyways,   the commodity stocks are showing a pulse,  one look at NUE's (steel) action off guidance today is telling that maybe the market has priced in more than enough bad news heading into 2009.

Comfy mode?

Compared to some of the crazy moves that took place merely a couple of weeks ago,  this week's action has been been nice and tame.   Yes, we still have the back and forth gyration, but it's nothing like the wild wild stuff we were used to.   It's contained so far this week in a range.   Change of pace and change of scenery?    Perhaps, lets just enjoy it while it lasts.

Today's dominant news is again on the auto bailout deal.   What else is new, eh?    Frankly, not many people really believe this deal will really help the big three if this recession persists for a while.   However, if the deal doesn't get passed,  the big three would face immediate liquidation process which will definitely put the fear into the economy and this market.    So this temporary dosage of life saving deal is a pretty big deal if anyone still wants a calm Christmas.    Basically, the bottom line is that if the auto industry collapses before year end,  we would have lots and lots of nerve wrecking folks out there which is not good for this country.    Beyond this saga,  there is a tradable market to peruse.

From the trading side,  we have basically carried the same theme for the past few days.   About a week ago, we noted the change in dynamic in this market where bad news gets absorbed and it was no different today.   Stocks warning of coming quarter is "no longer" a surprise,  but an expected exercise.  So for all the corporations out there,  now is the time to warn and get it out of the way.   In fact, some stocks actually seem to enjoy a boost in stock price after they lower the guidance and come clean with the market.    We think there are two reasons for this behaviour.    One, the estimates that companies provide are much better than the estimates people fear.    We should not even bother looking at the estimate from on Financial pages as most of those are just "pipe dream numbers" from a year ago.   With the way most, if not all of the stocks got sold off during the past few months, you get bottom fisher/ value players to stepping in for some buying.    Two, we simply have the deceased activity from hedge fund selling.    Remember, much of the recent panic from this market was created by hedge fund liquidation.    We have to believe at some point that the process will eventually stop or slows down dramatically.   We are seeing some of this now take place.

Aside from the better psychology of recent market activity,  we have been getting the most bang for the buck from the commodity sector.    Oh geez, not again, you say!    The truth is, we have to play what's working from the market and it has a pulse now.    If you have seen the recent production cutting annoucement from the likes of NUE, MOS.. and yet those companies still manage to go up after the news, you know that we are either at the bottom or have seen the bottom.    The fact the drilling results are getting a lot of market participants excited on our past Shale plays also make us believe some plays are just so eye catchingly attractive at this stage.    One thing you have to remind yourself though, just because some of these plays have gone up quite a few points, it does not mean they will come all the way down to the recent bottom for you to buy some.   It just doesn't work that way.   If those plays have seen the bottom, it simply means you would NOT have a chance to buy HK at $9 or CHK at $11 or NEU at $26 etc.    Trade rationally, and not with a stubborn mind.    Yes, we would feel more comfortable playing the entire infrastructure theme related stocks at a cheaper price levels,  but it just doesn't mean we'd wait for a 20 to 30% pullback now.

Into the trading day, we said a perfect storm may be brewing for the energy sector.    The SPX, bigger names got involved helping the Shales along. Of the top 10 stocks contributing the most to the SPX on the upside today, 70% are energy (XOM, CVX, OXY, COP, DVN, APA, CHK all among top 10 contributors to SPX. One of the best ways to monitor this component is through the OSX,  (PHLX Euro Style Oil SVC. INDEX).

Energy/materials/commodities equities very strong today.  The last few days a lot of talk around the Obama infrastructure, combined w/some hope that China’s gov’t spending plans, has helped drive a lot of the commodity names.  The Baltic Dry Index (dry bulk shipping stocks) has climbed for the last 3 days.   As for Steel  names,  the decline in Chinese net exports is a positive for U.S steel producers. (NUE)

Market at this moment, is still very fragile and we are definitely not out of the woods yet.   We are hoping this market would go sideways for a long while to repair the technicals before we can get a meaningful rally.    We are not sure what can potentially drive this market higher and it's not that important at this point.    There seem to be more trading opportunities that are manageable with our trading strategy these days and we are taking advantage of that.     Remember, we can deal with a recession, but we cannot deal with a collapse of the system.     With worst of the crisis behind us seemingly,  it may not be that bad of a market to trade along with.

So what we do at DJIM is look for plays that are trading at recent high, not year high as in previous years, and adding them to our list.   Over the next little while, you'll likely see our shadowlist get many of the old names back on it .  

Technically,  885.85 (886) was held again on the SPX and 925/ 930 is the upside resistance.  The direction of your trade should be glued to these levels.

Sliced and diced...

SPX 885 was sliced and diced and by the look at the Futures ES (SPX)...870 was minced and 850 was shredded. That's a lot of support taken out in hours, no matter how bad the Auto Bill rejection seems overnight.     We've focused on SPX as an important reading of late,..."Technically, 885.85 (886) was held again on the SPX and 925/ 930 is the upside resistance. The direction of your trade should be glued to these levels"....and said at 2pm the market may start looking ahead soon with the Senate problems and Financial earnings on the way.       Considering we're off about 700 off DJIA since the alert, the market not only looked ahead soon after,  but may have just got ahead of itself.    Simply, a chance for a Friday short covering bounce exists, maybe to 850-860 as Friday's have brought on rallies almost every week lately.   Still,  we would probably trade nothing,  maybe some indices ETF's and just sit quietly into the weekend.   It's been a good week with the Energy sector here, maybe some of you shorted (or just got out of stocks) at 885 and wake up to a nice surprise.    No need to be reckless now,   just wait for the next headline, hopefully something positive.

Away from this Auto debacle,   the market was on fumes unable to go higher, buyers were not chasing any longer and short covering part of rally seemed to end.    The psychology turned sour with Financials, which peaked Monday, took over headlines as their own executives opened their mouths.    One was BLK's Fink saying Q4 earnings for financials will be 'horrific and shockingly bad".    Later, it was JPM's CEO, saying it had a terrible November and December also looked bleak.    Is this something new?.    At this point as far as the Financials are concerned, nothing is new or surprising.    It's not a coincidence that negative headlines always happen at support or good news at resistance.    There's usually catalysts to bring the indices to R/S levels and bust them,  unfortunately today it came at support with CEO's blab, failed rescue plan, an ex- Nasdaq Chairman Madoff,  head of a multi billion hedge fund involvement in a giant Ponzi scheme.    The latter is probably quite damaging as investor confidence may be rattled once again.  Who can you trust on Wall Street,  if not a 70 year old who can pass for a Mall Santa this season.    Guess, his suit will have pinstripes instead.    So...we have all this negative news out there that may not be "shrugged off" as all the recent negative headlines have been....let's wait it out

DJIM #50, 2008

Which story is more interesting over the weekend?. Is it the, "We don't know how we gonna bail out the auto industry from White house", story or "Bernard Madoff scamming off potentially $50 billion dollar from various high profile investors". You be the judge! While both stories can get some endless discussion from all levels of investment community, it is in our opinion a draw between the two and unfortunately makes for 'life reality' TV for so many. Behind these scenes is a tradable market and we only need to concentrate there.

Wait a minute! Doesn't the auto bailout story seem more urgent and 100 times more significant than anything else at this moment? Oh yes definitely, but based on the way markets been behaving lately, we aren't sure if it actually matters much or at all. The market was back to shrugging off setbacks as we all saw..."a chance for a Friday short covering bounce, maybe to 850-860". The bounce almost reclaimed 885 SPX broken level from previous trading day at one point. As noted in Alerts late last week, sells off are shorter in duration and can trap a few Bears.

Our point is, despite some "worrisome" chain of events surrounding the whole Auto debacle, the stock market is taking the whole thing quite well. Still, there's a high probability that parts of auto industry will fail two or three months from now despite any short term injection. Yet it seems this market has "sort of" priced in the worst case scenario. This is in addition to a number of really bad economic/ earning reports we have witnessed last couple of weeks. Basically, market has rather taking ALL of the bad news really well.

When we speak of the market, we usually mean the SPX and COMP, and DOW to a lesser extent. If you look at some of the individual plays, there actually has been a pretty good rally going on. Look at all of the steels, oil/gas, shippers, agri. and every major infrastructure play. Sure, not every play has gained the same kind of long momentum, but there's enough of a list out there that can make some traders smile.

We have to pay some specific attention to various sectors when we approach the current market.  Why are BDI rate (Dry bulk rates) going up?   Note*..this weekend, Baltic Dry index is getting more press for its "record" rise amid speculation Chinese steelmakers have been importing more iron ore to take advantage of a collapse in shipping costs. (DRYS EXM TBSI GNK ).   Why are all of the steel companies going up despite lowered guidance/production from just about every U.S stock?.   We talked about the Chinese export figures/ Obama plans playing a role here and so FLR doesn't go down that much after a Goldman downgrade.   Why are people so excited about the recent Haynesville drill results?   We can attempt to answer all of these questions with an educated answer, but instead we feel it's probably better just to point out the obvious. These sectors are in a RALLY mode as commodity stocks are showing a "Pulse"

As we have been saying in the past week, we feel that the trading dynamic has changed some what. It has changed from some very panicky and volatile environment to a much more stabilized and oversold environment. These psychological changes work well now that the hedge fund liquidation seems to have subsided for time being.

So, we have a rally and we may continue to get pushed up right through the end of year. Our trading plan has been simple and that is to trade what's currently working with the market. We are trading long on Gas/ Oil (weather is helping also), some steels and even a couple of shippers here and there.

Early in the week, we have GS/MS reporting and we feel a lot of downside news may also have been priced in the stock prices already. It's reaction will be critical to a year end rally. Of course, we have to see it to believe it starting Tuesday morning when GS reports.

As we said heading into December 4th trading,.."In an almost perfect Santa Claus rally world, we'll get these data figures 'shrugged off'!. Do you believe in Santa Claus?"

So far for this year, we do believe!. We're seeing all setbacks shrugged off.

..duck flying shoes, maybe...but GS, GE, FED

..all in one day for the market?

A quick round- up into the trading day(s) before all the shoe throwing begins.   The question is how will the market react to the plethora of news events starting in the premkt and lasting long into the week.   As far as today’s trade,  it was mostly a sitting on your hands kind of market before tomorrow.   This was no surprise as quiet days are pretty well the norm ahead of `big` catalysts.   Crude-commodities continued to outperform early on dollar weakness, but crude swung $6 later in the day and was the main reason for the weaker market.   We highlighted shipping  names going into the day on news of a revival/ charter prices up threefold in a week and they held their own most of the day after gapping ~15%.   CMP,  we tossed out again and it caught about 3 points afterwards,  if we get a good market we expect more from this chem play as mother nature is starting to play havoc this winter.   On the technical side,  we put a lot of emphasis last week on bounces from 850-860 on the SPX.   It seemed we got program trading kicking in around 330pm today as the SPX spiked from ~850.    So, support seems to be here.   This was the only glimpse of institutional trading all day, it was mostly a sitting and waiting game all day.

GS,  earnings are on the mound first and all eyes will be set here.  CC at 11am.   The immediate trading action will be something to behold with wild fluctuations that will continue into the first hours of the regular trading day.   The reaction is what we’re all waiting for as it will signal if the market is truly looking forward.   The financials again were one of the weakest groups today and have been on sale since they peaked on December 8th.   GS, like many other brokerage stocks have had ½ of their gains wiped away since the rally started Nov 21.   If the market wants to react favourably, it can cook in any bad earnings outlook into these 50% declines in the past week and move forward! .

GE’ s, full outlook is tomorrow as well and it’s being ignored with GS, FED taking the headlines,  but it can carry a big stick to the markets direction.

FED  decision is in the afternoon and you have to expect the volatility to continue afterwards.   The FED has been aggressive over the financial crisis and a reasonable chance exits we go to zero..ZIRP,  but it is more likely a 50bp ease step 1 to ZIRP taking place later.   The statement will be scrutinized and we’ll likely hear again the FED has sufficient tools at it’s disposal to achieve it’s goals and nothing more.

If this wasn’t enough,  we have lots more market moving possibilities to deal with later in the week.  We’ll save those for later.   Tomorrow’s approach has to centre around the SPX and the levels of importance (Resistance /Support).    Which direction we trade will be focused around these important levels.   Don’t hurt yourself analyzing GS, FED reports, the market will lead you in either direction.   It’s going to be an interesting day.

...3 'ducks' in a row

GS, FED, GE….the market got more than a ugly gaudy sweater for XMAS this year from these 3 behemoths in their own right!.   Most importantly,  the FED did pretty well what we pleaded for in the middle of November…”What is going to ‘zero’ and what may save the market is a zero interest rate policy for as long as it needs to be….The FED has to make a statement to go to zero for as long as it takes”.   

It took the market more than a few minutes to digest what was really said as it acted like a deer in the headlights.  Even though,  we said it was reasonable to go to zero the night before,  it was still a pleasant shock of sorts as the FED finally got somewhat ahead of the curve.     At the end of the day, it seemed like XMAS for many as the market applauded in action and words.    Here's the of the decision and statement...

1) will target a RANGE (not an explicit target) for the fed funds rate of 0-0.25% (expectations were for a cut to 0.5%); 2) comments on the economy signal a further weakening; 3) inflation no longer a concern;4) they say that rates will probably. stay at "exceptionally low levels of the federal funds rate for some time"; 5) the Fed reits that they are purchasing MBS and agency debt and will increase these purchases as conditions warrant; 6) Fed reits they are looking at buying longer-term Treasury securities; 7) Fed reits the TALF will kick off early in '09 (which should help consumer financing markets); 8) was a unanimous decision.

Yes, Santa has a helicopter, not a sleigh!.    As far as GS & GE,  let`s just say they were stocking stuffers
Both were received positively,  GS just by surviving and GE by reaffirming.

An integral part of our Journals is to prepare all of us for the next trading session.    By releasing the last Journal the night before,  we set out the importance of the day which revolved around the SPX levels and news items.   You know a move will happen in either direction as these items get their release.   We followed up in Alerts and Forum as the day progressed as to what we were eyeing as crtical levels,  stocks (financials insurers-major indices ETF`s) to go after if a level broken.   ..."Now that GS seems to have survived, looking at 885+ break to add a few ETF relating to major indices and some financials like JPM`…Depends if the financials go and we rally, insurers will piggy back , HIG probably has the shorts all over it again, so move could be nice...we wouldnt play it alone as of now.., 16.50 is a wall to watch ..KIE is the Insurer ETF …..FED has gone all out on this it seems, mkt should like,,,901 50ma SPX next important level. 2:31pm.

Simply, by being prepared to watch certain technical levels and what sec'/ stocks would benefit most or not,  we all should have had a nice day.    SPX financial up 11% inc. a nice move by JPM, 885 level melt up..etc.

By trading day’s end,  we broke through a key technical level the S&P cash of 901 and finished at 913,  a close above the 50 ma for the first time since the beginning of September.  This did and should bring out many a traders-investor who require such levels to wash the market with money.  It`s just a safer trade for many if we stand above the 50ma as some nervousness dissipates here.  Let`s just hold it now, a small pullback in the morning and than a push higher would be the positive action to bring more in.   There was real buying in the move to go with short covering, most importantly it seems forced selling is pretty well gone at end of day.  But, we`re not out of the woods in the short term as in this week as we have some unfinished business.  Quick rundown of major catalysts being watched in this last full trading week of the year: 1) autos resolution in Washington; 2) OPEC meeting 12/17 w/ a cut of at least 2MM BPD expected); 3) MS earnings on Wed; 4) earnings Thurs, ORCL, RIMM; 6) SPX indexes-Nasdaq 100 rebalancing, quad witch to close the week.

Going forward,  the  Broker-Financials-Insurers  are definitely beneficiaries of the the FED decision.  But, we also have because of the larger than expected cut & reiteration of buying agencies/MBC/etc equalling a dollar bearish.   This brings the whole commodity picture into the framework of what we are going to be trading further.   The timing could not have been better as we've been on this dog's tale lately anyway.   In our view,  the action even though mentioned late today as heavy commodity ruled,  we did not see this materialize to the degree we expected.    For one thing, most Ag's-Chem stocks (POT MOS)  were already moving before the decision on the back of a Merrill Lynch upgrade.  CMP , continued it's 2 day move after the announcement.    What surprised many was that Oil and its'/ sector was no flaring up.    We think this totally b/c of the sell the news headline out earlier that Saudi Arabia is calling for a 2mbd before the OPEC meeting.   Crude should move with a significantly weaker dollar sooner than later.

May as well be an up day...

The index may show that we pulled back some after yesterday's big rally, but as we said a pullback would be healthy, mostly to digest the previous days surge.   The truth is,  other than a couple of big techs, most of the stocks we care about all ended in green (mostly commodity equity) as the $USD got whipped again.    In fact,  SPX started below 900 and fought its way higher through out most of the day, until literally, the last few minutes.  This is actually just fine with us as we held 900 SPX  cash / 50MA.  Call this support  now,  therefore watch for sellers and profit takers if breached.

The big tell,  once again,  came off the earning reaction from Morgan Stanley.    Based on its number, you'd think the stock should trade down to ten bucks.    But, of course with the example from GS from previous day,    MS had to rally from negative territory and shake off its early weakness and end in positive territory based on our remarks about 'going forward'  before GS earnings.    This is exactly what seems to be happening.     If you have been buying in the financial area the past 2 days,  you cannot fault yourself for cashing out some (as the 50% decline is being filled we noted as a possibility before earnings of the brokers).    Even though the trade/setup calls for higher prices,  it's never wrong to take profit in a bear market.    As far as Insurers  go, there is a SP ratings change coming tomorrow morning and we'd be keep a closer eye on a play like HIG,  which may be affected in either direction.

The trend these days is definitely looking higher, but we need a further push here soon.   We aren't sure what may the ultimate resistance for this particular run and we can only use previous resistance area as a gauge to plan our trades accordingly.   We basically have 9200 to 9400 Dow and 918+ to 950 SPX as the next area of resistance.    Right now, last weeks high of 918+ got walled today and so is the battle line.  The good thing about this particular run-up so far, is that we aren't get those 900+ point rally in a five hour kind of deal.    This rally, not only is fairly broad based,  led by financials,  we feel that it also give us plenty of time to buy on dip and cash out appropriately. 

Still, we may need a 'new catalyst'  to move forward it seems, 918 has to fall soon or Bears will use this failure as a reason to call an end to this rally.

Speaking of plays, as you can tell,  we have been heavily trading the financials during the last couple of days.   Keep in mind, we are trading the financial heavily not because they give the most bang for the buck.   We trade it because it has the best probability for a profitable trade and many agree that they are the main reason for this rally.    Fed's rate cut along with GS/MS earning reaction are enough to give these battered financials a decent run.     Of course, when the index creep higher, many other plays tag along as well.   

We are somewhat surprised by the strength of many 'Steel stocks lately.  But, we really shouldn't be as we discussed this phenomenon occurring from the industry that was left for dead just a few months ago.  Once again, it was because of results/ guidance that is below expectations.  "HUH"?.   CMC is the latest domestic minimill steel company (NUE and STLD last week) to see its shares head higher.  Of course, our big steel winner at DJIM from this year, X is the other play here.

The only sector that stands out as questionable is obviously "oil related" stuff.     Yes, US dollar is being trashed thanks to the thrashing of the USD.  Crude price seems like it just wants to go down no matter what.    We are mostly staying clear of the oil group and even the gas/coal group that may get affected by the drop in oil price.    Basically, there's enough obvious plays out there that you don't need to risk for any uncertain plays.  This reaction following the FED decision and ensuing USD fall is making many a trader scratch their heads.  At approx. $37, many a companies will have too halt production to some degree here in Canada for sure.   Right now, no matter what OPEC does,  demand is just not there.

It's been a pretty good week so far and we are counting on an even better finish to give us traders a nice Christmas bonus.

..Santa rally needs a booster

It seems we just finished discussing how there is always news in the direction of resistance/ support (R/S) to break either one.   Well, we did actually about 885 SPX just a few days ago and than the FED decision broke that R and today was payback as we crossed 50MA support while sitting around it thanks to an ill timed SP outlook cut on GE.   Just when GE didn’t throw a shoe out at the market by reaffirming, someone else throws a stinky shoe and shows GE does carry a ‘big stick’ in respect to the market direction.  

Once again with no ‘new catalyst’,  the market couldn’t even reach 918 this time (911 high) and it was time for the Bears to declare a victory as in an end to this rally by close.   In our view,  this GE headline will be forgotten and life will move on very shortly.    A bigger nag on the market might have been Washington’s comments on the Auto bailout…oh yeah, remember that one?.    Well, this bailout stuff may just be the ‘new catalyst’ on freaky Friday where it’s almost been a given to hear good news the past month.    We pointed this out before last Fridays trade and we got a rally early in the morning.   In preparation of such an event tomorrow,  we don’t look at ‘small break'  of support as anything to be very discouraged about just yet, as we have potential positive news flow as a possibility to finish the week above 50MA.    Even though support was crossed,  it is only natural for sellers/ profit taking to come if we breach those levels.    The sellers/ profit takers, of course, as expected all over the ‘recent winners’ , especially in the commodity space as the dollar strengthened and stopped its consecutive days drop.   One survivor and maybe an important gauge on the markets health is GS.    Fortunately, the breach of support wasn’t extreme as we didn’t close that much below it.   Considering, we’ve been in a tight range, we probably have a few supports in different traders eyes, some maybe looking at 885 (held at close) as that was the break point in both directions the past few weeks.   Of course, all of this is dependent and could be worthless talk if we get ‘negative news overnight/ pre-market.

Anyways..that’s lead into trading day, it’s very simple.    There is no need to discuss any sectors or specific stocks in detail as they will only follow the news flow.   A few headlines heading into the day such as the Ag-Chem (IPI, POT) negative or RIMM, ORCL positive reports  will hinge on the big picture, most likely.

* Don't freak when you see a very low Oil tomorrow ( in JAN crude), it will be a very high Oil compartively on Monday.  It has to do with expirations with FEB crude becoming the new front month.

DJIM #51, 2008

Seemingly going into this Christmas trading week,  no one is getting overly excited.   Same can also be said for retailers and consumers it seems.   As far as trading goes,  maybe the Santa rally has come and gone sometime last week.    In addition,  as far as policymakers are concerned, as soon as the holiday is over,  it's back to business in dealing with the headache(s).   Friday's bailout of the big 3 does not mean Bankruptcy has been avoided for all.    The market reacted knowing this mess is far from being cleaned up by not getting overly excited.    This was not that 'new catalyst'  the market needs to go forward.

It certainly has been a tough trading year.   If you have survived thus far with little to no damage,  we say there's a pretty good chance that you have survived the worst.    However, it's certainly no guarantee that things will get any easier in the New Year.   At least,  for the better,  we are all prepared to deal with anything that may be thrown at us in the future.   Last week,  we had a little taste of a Bear rally that lasted all but a few days.    Although,  we'd hoped for a little longer run, the rally was still nonetheless constructive.   What does that mean?    It means that with the decreased volatility, suggested by VIX, rallies, however short in duration are actually playable.    We found some pretty good opportunities in Financials and a few material stocks that gave us some nice gains leading into final stretch of 2008.   The key with a Bear market rally is that we should never get carried away with one.

At the end of the last weeks trading, we are actually back to the level where we started the week.  Lately,  with the handling off all the bad news by the market,  we are quiet confident that we may see another push the next few days when volume is light as most institutional traders (whales) have packed it in for the year.    We have seen the short term high, which is 918 and change on the SPX and we'll play it accordingly.   Still, just because the idea of playing on the long side remains,  it doesn't mean that we will be doing any sort of loading up for a potential move.

As far as plays go, we are very comfortable with the financials for the time being and maybe a tech or two here and there.   GS,  once again on Friday, despite downgrades finished marginally green which we may be a sign of a healthy market into the end of 2008.    This is a short trading week and we'll try to make it as pleasant as possible.   This means that we'll let the play come to us as oppose to mindlessly chasing potential setups.  Bottom line,  Christmas is near and lets all try to have a stress free holiday.  

It's promising to be a quiet week, although with this market anything is possible and so we're sticking around...

..somewhat lucky

..or just good?

The worst possible scenario on an expected low volume day is a rash of negative headlines.    Stocks/ Sectors plummet as buyers are nowhere in sight and sellers will relieve themselves of their shares almost at any price.    At end of the day,  we simply got exaggerated moves to the downside because of the low volume.     If it wasn't for the fact we don't want to carry many different positions over the holidays, it might prove to have been an excellent opportunity to open positions in beat up sectors like the Shales (downgrade sec, by RJ).    The negative headlines running the day...very negative data regarding Asian trade metrics, a negative outlook on Alcoa and a bunch of downgrades to the commodity/ industrial sectors.     Throw in an astounding Oil price,  a declining Dry Bulk Index (3rd day in a row) and you have what looks like a fallout occurring from the initial excitement of the US/ China initiatives of spending.   Oh yeah,  commercial real estate headlines also weighted in on the the market, particularly on life insurers because of portfolio concerns.    The short covering here lately (eg,HIG) has abated on new concerns, clearly.   Bank/ brokers space also felt this and besides JPM, most were down 3-7%.    Toss in a Tech mess led by AAPL, more Retail,  Auto bailout concerns and you have to say we were lucky to come out 60 and 16 points down on the DJIA/SPX, respectively.   We were simply down across the board and final tallies in the major indices are looking quite lucky to escape bigger overall declines.

Speaking of the SPX,  we bounced off support at 855 and resistance is now the 50ma at about 900.

If there is an opportunity till the end of the year,  we think it may come from the 'sale' of the commodity/ industrial equities and so we'd watch this space more closely than any other.

Markets close at 1pm Wednesday and our next Journal will lead into Friday's trading day.  Considering how fast we recovered late in the day, we're still going to be around just in case this week ain't a complete wash on the trading front.  Anything is possible.

Happy Holidays to all our friends and your families.

D&J