..pulling in the reigns on Dasher, Dancer, Prancer....

Mid - December, we noted..

“Right now, last weeks high of 918+ got walled today and so is the battle line……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.”

What happened after was the market grinded slowly back down to a low 857 SPX a couple of times,  the latest hit on 857 just this Monday.   That pretty well puts the rally this week into perspective as we hit 910.    That’s over 50 pts in a matter of hours and with 918 within striking distance,  we felt it was time to go back into cash and just keep an eye on things.    The strategy here since last week went to script with the E&P’s (and Financials/ brokers , GS making multi week highs led leading the way.    Simply, we all can afford now to jump off Santa’s sleigh after jacking it for a joyride and sit back and watch if we break 918.   We still need a “new catalyst” ,  in our view, a low attendance holiday trade is not it.    Also, as we’ve pointed in the past the corporate ‘ bad’ news always seems to have a gag order in place over the holidays.   We don’t want to wake up come Friday or Monday and get surprised with a negative PR at this point. 

Yeah....trust and confidence is just not there for the market participants and we'd like to begin the year off trading on the right foot.

DJIM #1, 2009

Wow, we can't believe we are starting our 4th year as DJIMSTOCKS.com with many of you following the markets with us for 6+ years now.   We thank you for your patronage.   It's no secret that many internet stock bloggers come and go as time progresses.    It is either due to the constant changing environments or just a lack of persistency, commitment or consistency in results.    As tough as last year ended,  we can’t forget the first half of the year and commodity rush we had here which included a call on Coals by DJIM #4  week of 2008 and the discovery of stocks like (PCX ANR JRCC MEE CLF ) before they went on to 100% +gains while credit crisis was taking Bear Stearns down just a month later.     We also introduced the Haynesville Shale play  in May before most ever heard of it,  stocks like GDP GMXR HK XCO CRK  all went 100%++  soon after.    Fortunately here at DJIM as we enter our 4th year,  we are every bit passionate about trading now as we were day one and will continue to look for opportunities for all of us to make nice profits in 2009 .    Sure, many traders, including us,  may get discouraged by the poor trading environment from time to time and lack of spectacular trading results.    However,  isn't this what trading is all about?    You win some and you lose some.   There's good times and also bad times.    Going through this trading period like the last few months made our good winning periods that much special and is proof it is best to be ahead of the herd and realize you don‘t need opportunities day in and day out.  We all could have or should have probably just packed it in after the Coals and Shale play periods and called it a year.    There are people who trade to get rich and then there are those who trade to make a living.    For us,  we fall in the latter camp.    Seriously, once you get passed a point where you can live a comfortable life from all the profits accumulated from trading, why still risk it?    Well, we often ask ourselves the same question,  but the answer is always the same.     Nothing else provides us the similar kind of mental and emotional excitement on a daily basis, other than trading!     So, we'll be here for a long long time.

Okay, onto the current trading scene!    Have we started this trading year with a bang or did everyone else think last Friday's action belonged in 2006 instead?     Basically, we had a three day rally that carried us into some unchartered territory.     This is particularly scary.     Okay, for all we know, we may start this new week with some very bullish enthusiasm due to last weeks break of 918 SPX and it could take us to 1k SPX and 10k Dow at least.    Sure,  hypothetically it can happen,  but the odds are still very slim that it will.     This leads us to believe that the recent rally on very very light attendance-volume can only beg sellers to come out and lock in some juicy profit or re-position short.    Why not?   If we were fund managers away on holiday and come back Monday morning,  we'd find a lot of our beaten down positions 20%+ higher than a week ago.     It doesn't take a dummy to know what to do at that point.     Simply put,  what happened during last week's trading should be discarded by the majority as the price action and volume are just not correlated in any way.      We feel many stocks have run up "uncontested"!     It means that many stocks are trading at a level where many sellers would be comfortable selling.   If what we suspect comes to fruition, there will be lack of sufficient bids to keep the market at this level.    Sooner than later, we will pullback.     We are favouring either shorting or staying on the sideline at this point.  One thing we will probably do more of in 2009 is shorting,  we believe we will see SPX go back down to low 800 at some point during the year.

News flow was non existent last week, but it will get busier in the coming week … 2) auto sales for December on Monday, BOE will be making a rate decision,  first central bank meeting of '09 on Thursday, US jobs report for the month of December, retail sales for the month of Dec on Thursday, Madoff scandal review. 

The market is also anticipating lots of Washington in the New Year, including the stimulus package which probably got sidetracked  (in time for inauguration) already this weekend with the withdrawal of the Commerce nomination.   This is the kind of news stuff we don`t want to be wake up to come Monday if overly long. 

Earning season is also about to start and there's no telling how the companies will guide and how investors will react this Q.  It may be different than last Q when everything bad was getting priced in,  it seemed.    We have lots of tension in the Middle East and that's probably causing the oil/gas to get some heavy attention lately, but since when does a war of any magnitude somehow trickle negativity into the market in some form.     Again, we have a lot of facts at our hand and it's up to the market to decide what to do when they get back from holiday tomorrow.     Once the direction is established,  we'd act quick to take advantage of the momentum.     For now, we’d be nervous on any current long trade.

Sober up time coming?

Those coming back to the market and now finding the SPX up nearly 20% (from 11/20) didn’t help the market sober up from it’s holiday cheer.   Despite new potential tax cuts of 300bln + , we still opened weak and finished in the red.  (We had a test of 918-919SPX early and rebounded).   The market was generally flat tape with exuberance for bargain shopping evident throughout our previously shadow-listed commodity stocks.   Again, we saw beaten down prices of Shippers, coal, solars get eaten up, while the E & P Shales continued their merry way with Oil climbing closer to $50 ( some of this  also b/c of a XOM for CHK rumor).   All this with a strong $USD should have brought commodity equities down as it did with the price of gold.   Instead, we just got more and more buying of equities on sale from 2008 inventory as those coming late are seemingly chasing ahead of any news from Washington.

At his point,  it seems best not to fight the positive tape, even geopolitical tensions are being ignored as markets worldwide keep rising.   But,  we think it is just a matter of time before analysts get back to their desks and start cutting many sectors/ equities on valuation such as the Solars, Shippers to bring them back to reality.   AMC, MOS (Chem-AG’) reported and should trade down sector, but AH’s is no indication of that happening.  We’d say wait for firms to have a say and than see the reaction.   Based on below-consensus 2Q:F09 and EPS and the negative near-term EPS implications of planned production cuts, profit taking should occur.  Persistent weak customer demand is seen and the company is reducing its potash production by up to one million tonnes in the second half of F2009 and reieterated its willingness to further reduce phosphate production up to one million tonnes through F2009.  

We think a sobriety test from the holiday mode is just around the corner and we’re looking for short candidates in the sectors above. 

Volume still not back to normal levels.

Where's the next resistance?

Second day into the trading week, market again exhibited some very strong action.   Overall, today's volume is better than the last few trading days, but the late day sell- off to finish 935SPX may suggest some more downside in the morning.   The question though, still remains, are we due for a pullback?    Up to this point, some of the individual plays have been going through one of the best run-ups during last three months.    If last week was not a holiday week,  then this would've been easily considered the best rally since summer.   The rally has been working pretty well in unison with the recovery in treasuries for some reason.  Overall,  we are seeing a return to risk within all the markets which bodes well heading forward.

Here's the problem for those who want to chase though.    The volume has been below normal and price action has been literally straight up.    Yes, you can point out the fact that today's volume is much improved and price action held up pretty well.    However, we did note some weakness in crude price (tried to rally to ~50 again, but maybe is hitting a wall here)...commodity stocks, a weaker USD and a pullback in treasuries in tandem as the day progressed.   Watch if this combo continues to halt this melt -up.    If this market wants a chance to see SPX 1000, (there is not much resistance above),  we better pullback some and build a tough support.    This is a tricky week as this is officially the start of the "earning warning" period.  We've had a bunch of small  tech names warn already this week, but the semi's/ hardware were probably best actors today.  So, it's the bigger names that we'll determine course.  Thsi may become the resistance if a noteworthy co' reports one.   As far as reaction so far to earnings,  we saw a quick 8% drop (high 44's) in MOS from pre-mkt prices, yet it recovered.   After this watching action,  we can't say this is going to be a repeat of last Q when stocks earnings were priced in and even a bad report made a stock go up, ( notably Steel stocks ).  We're simply not convinced by MOS's bounce action, just yet.

It's also much too soon to believe the idea that "market is discarding all the bad news" because we really haven't had any bad news 2-3 trading days into the 2009.

Right now,  with the way market behaviour last couple of days,  we can't discount the possibility that it'd go even higher without a meaningful pullback and the premise of not fighting the tape may still hold.  However, given the high probability of an immediate pullback, we are definitely not comfortable chasing anything again on strength.  The only notable strong ones with a good setup out there are the insurance co. like HIG PRU.  This class performing well probably because credit market performance has improved and further measures could be taken in an effort to further bolster credit markets and/or just a bunch short covering as we are seeing the past few days all over the market.   They actually had a pretty good base since the last breakout and we feel there might be some more upside if this market holds up.

Bottom line, it can be frustrating sometimes when the market isn't behaving the way according to your gut feeling.     Therefore, it's even more important now to trade off the facts than any emotional swing.

..complacency hurts

Sometimes it’s better to be a little early than late.   The premise at DJIM of ‘ bad news’, gag off come New Year and therefore establishing short positions paid off handsomely today,  despite a few days of nail biting, head scratching as this melt up continued without any real Bank stocks involvement.     As we said, it’s important to trade on facts and not emotional swings as in chasing the lot.    We had plenty of crucial facts to the markets fate for the day and alerted them into the open.    Fortunately, the market had the ‘sobriety’ test and it was even better than expected in the form of a meltdown of 3% across the broad indices as volumes start to come back.    Not only was SPX918 humbled, 900 a big mark came into focus and luckily held up at close for now.   We don’t think it will hold this week as more bad facts to be wake up to might be around the corner .  This is something we said at the end of last week, we don’t want!.  Surprises !.  Some will say today was profit taking...yeah, it was..... but it came with realization and fear once again that it simply sucks out there in the real world and therefore not just simple profit taking.

Coming into the trading day,  we highlighted/ underlined on site that we were seeing a tandem  at work with Oil seemingly hitting a 50 wall and weakness appearing in commodity equities into the previous days close.   Crude fell over 10% today and it took those equities/ commod`sectors...  Ships, coals etc. to the shed and will continue to if crude is becoming bearish once again.    As far as the broad market,  a frightening ADP number followed by the timely INTC news answered our journal title of where the next resistance is…..This is a tricky week as this is officially the start of the "earning warning" period.  We've had a bunch of small  tech names warn already this week, but the semi's/ hardware were probably best actors today.  So, it's the bigger names that we'll determine course.  This may become the resistance if a noteworthy co' reports one.

The reason we alerted the ADP, INTC (we don’t very often release such events) is we thought they were noteworthy because the market had become “COMPLACENT’ in thinking everything is priced into the market,  including economic and corporate news after the last Q.      Don’t forget INTC already cut from 10.1bln in November to 9.3 and now to 8.2.   That’s a big shift and we will see more of this, so those ignoring and becoming complacent are going to get hit down the road if they don’t smarten up.    This was a cold shower awakening that it could get even nastier.    Despite all the lowered guidance from co’s and analysts,  we still think the numbers may get worse than anyone thinks.

The only positive was MON and a huge squeeze as analysts had become quite bearish on the company lately.   We want to point out this has little to do with rest of sector and eventually the crude factor if bearish will knock the other Ag-chem stocks down.   Around 40c of the difference in estimates from the street were glyphosphate profits and MON biggest competitor is Dupont.   This report has little to do with how bad MOS’s really was.

Right now,  the focus has to be to close 900SPX+ for any bullish sentiment to remain short term.  The fear we had going into this weak has been put back in quite a few today that had become complacent.  The effects are they will now be waiting for more ‘bad news’ and this market may have a hard time fighting back beacuse of it…Obama inauguration or not.

Dull but constructive...

Now that the market injected a bit of reality into investors' minds,  we can finally move away from the holiday cheer and onto 2009.    Today's action was quite good,  given the 3% slide yesterday and WMT noise.  It didn't look so good pre-mkt in the futures.   At this point,  we should not be too negative nor too positive as we all wait for the reaction to the BLS # in the morning.    Big news like the corporate warning from major companies or big economic report can dictate the direction of the market for the day,  but overall,  we are still very much in a range bound trading.

The most recent run -up was off the back of holiday with low volume.    It was obvious that the market had to top out after the overzealous melt up.    Now that we had the catalyst to sell down the market yesterday,  we turn our eyes on support levels.    So far,  SPX 900, which is strong support seems to be holding.    As far as many individual plays go,  the action is also suggesting this market is no longer a one way ticket.    Have people noticed the dramatic decline in volatility lately?    It means that stocks will no longer go up or down 10% and followed by another 10% move on a daily basis.   This is what we talked endlessly about in November as a que to a bottoming process.    What we witnessed back in November is truly historical in a sense that it's just hard to repeat that kind of volatility or action, without some earth shattering catalyst.    So, as far as trading is concerned,  we may have to deal/ accept lower than last three month's average kind of volume going forward.

We have often said in the past, "we(traders) can deal with a recession, but not a crisis".    Trading in a recessionary environment simply means we have to lower our expectation on the result.   It also means we have deal with a prolonged range bound trading environment.    This is just fine by us as money can still be made.

Plays wise,  we are continuing our EPS theme related plays as well as all the familiar commodity names.    APOL, an education service play, came out with a pretty good report tonight and stock is up 7% AH's.    Given its past performance follow thorughs,  there may be more upside tomorrow.    This one is also at the new 52 week high and it's getting attention because the fact that many unemployed people are going to need new training to get into different industry.   This is why we had APEI  (not very liquid)  as a play here before all this recession talk hit hard, so keep an eye on it.  STRA  fits as well.  

Oil/Gas/E&P  names exhibited some strength today,  it's probably not a bad idea to take position these days on dips when the spot price is taking a bloodbath.   There might be something in the stimulus for energy production, this may be partly reason for the constructive action today in this area.    We also bought a little MON  today because it feels it would give it a one more nice burst when the consolidation is done with following the huge squeeze.  Also,  it is definitely in a league of it's own as far as this sec's earnings are concerned, so far.

Bottom line,  job report is tomorrow and there's a good possibility that a bad report is already cooked into yesterday's decline following the precursor ADP#.    Again,  this market feels very technical and if we gap or burst below SPX 900 in the early morning,  look for 888 (50ma)area for next support.  It's more crucial than 900.   If that happens, we'd be buyers at that level.    Traders were just too nervous to commit ahead of possibly the worst employment report in years,  which brings in the possibility of a move up if it isn't any worse than maybe the ~700k whisper number.    If any exuberance is shown in any direction, there's many ETF's to trade on the major indices,  including 2x,  if individual plays / sec's don't stand out clearly as possible movers.

DJIM #2 2009

The market continues its zig and zag ways with 5 trading days left to zig it’s way back up before Inauguration.   For all those previously thinking of an Inaug’ rally of sorts may have received the best possibility of one because of the mkts 4+% slide last week.   We couldn’t have a Santa rally immediately turn into a Inaug’ rally,  so maybe last weeks zag presented this opportunity.   As expected here mid-week,  SPX slid through 900 on what was a very dull trading day with a close right at the more crucial 888 / 50ma.   After what seemed like weeks of discussion regarding the jobs report,  it was basically shrugged off by traders come Friday.   Barring any bad weekend news,  it will be critical to watch if we can regain strength from this support level early on.   Clearly,  the focus has changed as ‘bad news’ has been sold off, a shift from what we saw last Q.    Right now the broad market feeling is this is purely a Bear Market rally we have experienced as any strength now has created a selling opportunity for many it seems.   Some of the moves have been too great in many a beaten stock and sector and those holding are realizing it’s best these 20-30% individual stocks gains are taken off the table before it's too late.

The focus turns to earnings reports this week,  we also have potential M&A activity with MS-C providing a backdrop to the Inaug’ talk.   During the most recent kick up the banks were missing auspiciously from the rally and as we always say , anything worthwhile needs them to work as well.   The M&A noise may provide some juice, at least that’s what we will be monitoring for as well.   Unfortunately, there is bad noise from UBS/Deutsche side to mute this to start the week.

Until we see more,  we remain neutral heading into this trading week.   The questions are arising as to the sustainability of this rally and many an answer will probably present itself this week with earnings the key factor.   If there is no more shrugging off bad news here, we’ll have a failed rally on our hands and will turn quite bearish.   So, watch for guidance and the market reaction to the results.    It’s a simple start to a busy news flow week and we‘ll know if what we saw last week was just a pause or another failed rally.

No cigar...

With the way financials-banks got obliterated and energy/ materials related got dumped, there was just no way the market could've held the 50ma of SPX 887 after the open.     At this point, we all have to agree that this market is nothing but a challenge to read.   There is practically nothing left of the Santa rally.   Anytime there appears to be a decent run-up, you'd think that there'd be some support underneath the rally afterwards and we'd be able to trade again from there.    Unfortunately, these days, support means nothing.    The next major support of SPX 860 is something we'll be watching for,  the selling was overdone in a lot of respects on lower volume than last week giving a chance for a bargain hunting bounce sooner or later.    In truth, nobody really knows where we can exactly bounce from.    This, after all, is still very much a bear market.    So, no matter how we approach things, we have to bear in mind that we are trading in a bear market in scope of everything we do.

Other than financials' horrible day, commodity stocks also got slaughtered today.    The weakening of crude brought down all of the plays on our watchlist, even with Natgas (1 of 19 in CRB index) being the lone gainer,  the E&P's got hit anyway.   To top off things off,  there was a bearish USDA report for corn futures which basically brought down the strongest group a day or 2 ago (Ag-Chem).    Well,  there's no strength out there other than APOL  which appears to be holding on due to it's business.

Right now,  we are staying mostly neutral.    We like to see if there's a bounce at SPX 860.   This is the week before Obama's inauguration and we are "hoping" market would calm down somewhat heading toward the end of week.    Basically, something has to be done to stop the slide in these financial names.   Why?  The downturn of these financial names is usually associated with credit crunch and that very worry can crumble this market,  just like in November.    But, the playing field is different so you'd figure they can do something worthwhile, once in awhile, but no cigar!     As far as plays go, we are looking for some stabilization in the commodity sector and than nibble some familiar Shale names  (Natgas, cold snap coming into weekend) and maybe others on these big pullbacks.   We are not trying to be aggressive here and perhaps it's the best strategy when times are uncertain.

Bottom line,  small and light trades on stuff we know best is the way to go these days.   We are constantly keeping our radar up on earnings mover such as APOL.   But honestly,  we don't expect many earnings movers this season at all.  

AA, came in with expectedly weak earnings AMC, (most base metals already took a dive into report). Overall weakness in commods' will likely still see a follow through early on with the dollar/ crude aiding again.

..choppy slop

Not much you can make of such a sloppy choppy day with the SPX in a tight 10-15 pt range.  A possible positive is this market may finally have some formidable support at 860,  it bounced many times here throughout the day.  But, we've been through this before recently at higher levels only to see a level such as the 50MA blown through easily.   So, the guard must remain up, choopy slop can turn to mud quite quickly!

Overall,  it seems everything that started this rally back on Nov 21 is screwing with the market in one way or another from the Geithner nomination (housekeeper) to the stimulus ( push back date) to TARP (revisions) all making some kind of negative noise.   Doesn't seem like much, but the market maybe adding all these things up and asking can you do anything right?.

We did see some of the bounces in the beaten down commodity stocks just discussed yesterday, energy was positive in the S&P leading to a higher $CRX/ CRB.  Still, this is mostly a one day up, one day down trade starting from overnight $USD/ crude prices and getting any thoughts of a strong position for more than 24-48hrs is almost useless.  Also, DOE inventory Wednesday to watch.

As far as what looked like a safe sector/earnings story (APOL) got Citron'd.    Not dwelling into the specifics of report,  only think this is maybe more than Citron can chew.   Most of their victims have been very small fish with little institutional support (basically unknown retail plays).   APOL is a much bigger fish with institutional interest at about 80% with 15-17 analysts doing coverage.  This is probably why the stock finished only 5% down on such a high vol. turnover. 

Anyways, patiance is needed here in the broad markets as this is either a low here and we start to bounce within this recent range or the market becomes mud soon.   A closer watch on Euro mkts now as a lead to trading here throughout the day,  their banks are muddying the waters, noted Deutsche Bank/ UBS the other day as negative noise.

C as in "Crumble"

You can also use the word "Collapse" or "Creamed" to describe today's ‘world’s’ market.   Besides European bank fears DB -9%, warned,  HSBC -8% capital fears.   In addition,  C (-23+%) , which is also the ticker symbol for today's big Culprit in US markets, Citigroup.    So, the way people have been interpreting Citi's restructuring come earnings is negative , everyone feeling that there's a very likelihood it's going under no matter what it does.    This is, at least true with the common stocks.    Basically,  Citi is the nucleus of market worries that caused Tuesday‘s chop, slop into a mudslide crashing through 860SPX.    Of course, we also had the dreadful retail sales number & failures, foreign  downgrade ratings , NT filing for chap 11.... to blame on the market decline.   It’s just becoming a flood of the ‘bad news’, we discussed at DJIM once the gag order came off in January.

Here's the truth!    We broke SPX 860 cleanly and we are now turning to SPX 820 for support with DJIA 8000 not far away.    It also confirms that the rally started in December was nothing more than a typical bear market rally as we’ve discussed recently.     Today's market action was pretty intense with uncertainty in Washington TARP-Stimulus-Geithner picking up steam and helping to sicken the markets.   There was no letting up of even a minor intraday bounce.    You can tell that institutions are selling heavy and putting a lid on every rally attempt.     Even watching from the sideline,  we can feel the intense selling pressure.     VIX, the volatility index, shot up to 50 and that's something we have to be very wary of.     Why?   Today's the first day in the last few weeks that looked a lot like a typical day in last November.     Coincidentally,  back in November, the market was all over the financial companies as fear of collapsing banking system runs rampant.    Today, to a lesser degree, same fear is back and action is just oh so similar.  Intraday swings are more likely to return in this environment..up and down.

There's no safe heaven out there.    We are also putting off "buy on weakness thesis" for now.   The market may rebound tomorrow,  but we are not playing cute this time.    JPM is set to report tomorrow and Citi is going to report the day after.    Market reaction on these two behemoths is very crucial.     Basically,  we feel SPX 820 hinges on the well being of these two earning events.   The best bet right now is continue to stay neutral and on the sideline.    This may be a "coward" way to approach this market , but we feel this is the best strategy when your own hard earned money is on the line with every trade here.     Regardless what happens though, we still like the way market resolved any issues with quick and decisive action in the past.    We may go much lower or stop right here, we'll know the answer within a couple of days.   By then,  we'd know what to expect from this market and which plays to look for.

A muddy start to the year (below)

....take off?

Not everything had a bad take-off in NYC today,  maybe if flight 1589 had used runway SPX 820 like Wall Street,  the miraculous event may not have happened at all.    To be completely honest and to put the rally into context,  we were glued to the unfolding events in the Hudson,  not the last 30 minutes of trading on the market!.    As we noted in Journal and early post, the level the watch for action around 820 unfolded later as the oversold market bounced hard off support at SPX (cash) 816-818.   Preparation is always key to trading.    If the market breaks a support level, you say 'oh well (chit)',  otherwise you have to be watching closely & continuosly as a trader to see if something materializes as it did today to profit.     Simply,  everything that had to be done trading was done by 3:30,  which included selling any intraday and/or old positions as this was nothing more than a short covering rally off way oversold levels.    This doesn’t mean this melt -up can’t continue tomorrow,  it just means it has done little so far to make one think it can last more than a few days.    Once SPX 50ema turned up Monday,  it was a very bearish sign to break that level as it finally had just 'turned up' in contrast to breaking support off a downward MA.    There will be lots of talk what turned the market today,  included is the dismissed idea of nationalizing Citigroup,  but it really doesn’t matter what noise helped,  other than realize it was ‘technical’ on all levels!.      We also had, (yesterdays Journal)…’Intraday swings are more likely to return in this environment…up and down”.   Well, the swings are back as witnessed and that just pounds in the fact we won’t be able to sustain a long term move upwards.    This is probably the time again to just watch the sectors/ stocks off our shadowlist and trade whatever is moving that day until (if) we get something to trade off earning reports or just trade the DJIA/SPX ETF’s off major support and resistance levels.

They're back!!...There is an ominous side to the current trading environment and that is hedge fund redemptions have not gone away!.   The headline read, “ Investors pulled close to a net $150bn from hedge funds last month in spite of moves by dozens of funds to halt or suspend redemptions; “We expected December hedge fund redemptions to be significant, but the results are still surprising ... twice the peak equity mutual fund outflows in September at $72bn,” .   This will continue to be an overhang into the market and you have to think any sustained rally will be shot down on more redemptions sooner than later.    As we said day 1 of what has turned into a daily saga, ‘Bernie the Ripper’ will cause investor confidence to shatter and it’s only natural money is now being pulled out of Hedgies hands.

On the bright side,  the recent overhang of the Washington stories... Stimulus, TARP etc got a boost yesterday.   The apple of our eyes was APOL   squeezing the juice out of Citron and its' report,  we spoke in detail of the fact,  we thought APOL was too big of a fish for Citron to hook and sink.   The stock was already performing well today ahead of the released stimulus plan and despite another Citron report on it,  it rocketed as the education part of plan was digested.    The bill was positive for-profit education services companies, with the group’s average rising 8%.  You can attribute the strength to investors’ excitement about the additional pricing power for companies if the bill is passed as is.   The stocks that outperformed the most are the ones with the highest exposure to private loans,  which are not federally backed and remain largely unavailable, such as ESI  (shadow list it) and add to APOL, STRA in this group.   Still, additional steps need to take place before it even gets approved,  but the markets exuberance cannot be contained if there is almost nothing else to trade sector wise.   We'll see.   Market doesn’t always trade on finalized facts,  just like it took all infrastructure stocks up recently without knowing which company will be the big winner or when the money will show up on the bottom line.

Have a good long weekend!.

DJIM #3, 2009

The entire nation, if not the world is in the mood to celebrate the inauguration of a new President of America.   Still, there's really not much to celebrate as far as the market goes.   Seems the Obama rally gets pushed back again and most speculation turned for one in the week ahead.   We've mentioned no such thing just because the market bounced Thursday/ Friday late, despite Financials in disarray.  Many have taken this as a sign that we'll get that rally.   We'll wait to see if one materializes before we'll start buying, in other words we're not positioned in equities for one over the weekend.    Unfortunately, this rally potential has been dampened over the long weekend because of UK banking turmoil.     Yes, we are talking about the expected 2nd banking rescue plan from the British government on heels of a massive loss from RBS (Royal Bank of Scotland).  This one (bailout) is supposed to be geared more for  'people',  but the losses Monday in these equities show the people don't see it that way!.  Full removal of bad assets off balance sheets  is needed and this didn't do it.   This pretty much directly puts the spotlight back onto the same problem here and last week did not end on a high note as far as the financial plays go.     In a way, the building crisis was sort of saved by this long weekend.  The global bank headlines remain ominous, simple as that!

One thing we have to agree is that as soon as Obama takes up the oval office, he'll be faced with daunting tasks immediately when it comes to the founding stone of our market,  financial industry.    Perhaps, we feel that the Bush administrations was deliberately leaving the whole agenda to the next administration.   No doubt, we feel that plans are in progress as to how the government will "help" the financial institutions, again.    This is a pretty dire situation and it needs to be resolved as quickly as they can to restore whatever the confidence investors have left for this market.     Strangely,  given the earning season well on its way, many of the corporate mis-guidance are taking a back seat to the current financial woes.    This, simply tells us how important it is to address the situation at hand,  particularly with Citigroup.

At DJIM,  we are maintaining our neutral stance with a slight bias to buy on weakness, just in case a rally does begin this week.   We are also always looking at crude price as a way to trade off some commodity plays.     As few as there are,  we are also making sure we don't miss an APOL kind of earning reaction and focus on the education services stocks with 50bln of stimulus announced for education.   This is a short and a historical week for America.   We are hoping that the new administration team will take a better approach to handling the market problems with proposals far more sweeping than has been considered before.  In any case,  we have to be prepared for lots of volatility in the next little while. 

Big earnings week ahead to focus on.  Big tech and GE.  See earnings link for names.

..puff the magic dragon..where you go?

In the middle of the latest rally as the market came to ~940 SPX,  we wrote in the first journal, (DJIM #1 2009), we believe we will see SPX go back down to low 800 at some point during the year.”.   Little did we think,  ‘later in the year’ would be 11 trading days later. 

Expectation was with a few hiccups 1000 SPX would be reached sometime at the end of first Q of 2009 and than a fall to 800, maybe 750 before all the Obama economics and gov’t intervention of 2008 would lead to a rally back to 1000 or higher later in the year.    Right now,  the only hope is all this has been sandwiched closer together and a rally, maybe not the yet expected later in the year,  but still one of significance as 800/ 750 present the low range of this range bound market we see (750-800 to 1000 SPX).   Unfortunately these levels are coming at a very nervous time with banks globally under heavy pressure (BKX down 20% and at levels not seen since the early '90s) and we‘re in the middle of earnings season that is expected to stink up the already stinky joint.   Financial co’s are now less than 10% of the SPX index
 
All this on inauguration day,  maybe at the end of the day it was a deserving welcome considering the new president’s first 'puff'  act just hours after taking office is to halt Guantanamo trials.. Come on, really, this is not what the market needs or wants to smoke after an already non-inspiring market speech earlier in the day.!

Yesterday, we said the building crisis was sort of saved by the long weekend, today there was nothing to save the financial collapse as we picked up just where left off on Friday.  There was no Obama magic dragon rally many had their sights on in blog land. at least.  There was only many unanswered questions as to what must or can be done to save the banks.    Please..if a relief rally (maybe imminent) occurs ,  don’t call it an Obama rally if it happens!.   We were just at 860SPX cash Sunday night as many moved ahead with their losing calls into inauguration,  only to be blown apart by global banking news soon after.   It will just be an oversold to lower range bounce, if we get one.   The giant headlines, news flow will continue to flow out of Washington and the U.K, the time to be short would have in anticipation of the gag coming off into 2009 from 900’s SPX and not now even if the headlines are ominous from the banking sector.    The magnitude of selling seen the past few days shouldn’t last.   It is best to be prepared for a bounce this week from these levels not seen since November.    The difference now to November is what seems to be a stronger credit market with spreads tighter and issuance stronger.  Iif this is truly a positive than stocks are close to buy range in this range bound market.   If there changes in the credit market going forward this year, say goodbye to this lower 750-800 PX range.

Also as we get closer to February and earnings from steel and solar names come before us, we’d look at any rally to short these sector equities.    In the meantime, we focus on this weeks big tech earnings and hope more are like IBM’s (good luck!),  GE is also on deck, it is worrisome this behemoth is being shorted to seemingly oblivion these past few trading days.

Coming around?..

After today's huge squeeee--ze,  it goes to show that this market still can dish out some amazing gains, despite the terrible economic and financial circumstance.  We have often said stability from the financial sector is not only crucial, but necessary for the market to stage any bounce/ rebound of any duration.  We not only surged past the SPX 820 level,  but we are looking to be on deck for the SPX 860 level.  The action is fast and furious this week stemming from volatility..“Intraday swings are more likely to return in this environment…up and down’. (before last Thursdays trading day).

However,  this volatility is still just fine for traders, sometimes even great, as we’ve all become more experienced as to how to deal with it after a crazy year, day after day of such.   If a trader did not take advantage of today's wild gain,  they're simply not prepared.   Anticipation is half the battle.   Here, at DJIM  we only threw out the word ‘rally’ about 10 times yesterday,  not calling for one, but being ready for one, which only matters ..lower buy range …banking selling shouldn’t last”….heading into the trading day, including, “ a relief rally (maybe imminent) occurs..”.   As we’ve discussed, preparation is key to any success as a trader.  We try to provide that with your pre- market journal. 

Today's financial action looked particularly well, especially from the likes of JPM  and GS. (led partly due to NTRS PNC  vs, SST  day before report).  Sentiment reversed for a day.   To avoid the speculative banks stocks (C,BAC etc.), you know these are two we favor to trade when we all see the sector moving.   In after hour news, following BAC 3pm insider buy headline,  JPM's CEO reportedly bought 500k worth of its stock at $22.95/shr.(11mln+).   This is definitely encouraging and confidence boosting kind of news the market is looking for, for one thing it was abating "Nationalization talk",  even though we’re not sure why JPM was thrown in so much with the dirty bath water (C,BAC) the day before.   In addition, the back to back good reports from IBM  and AAPL  today are shifting investors' sentiment from overly pessimistic to "not as pessimistic" and taking focus away from negatives in the market place.

We are hardly out of the woods yet.   But, it does feel like investors are looking for positive news catalyst to rally this market.    Can you imagine if some positive action from the government comes out with regard to the financial companies?    This is what we feel people are banking on today.   Sure, prior to today it was all doom and fear.    Perhaps today's sentiment is that it's just a matter of time before the good news hits the street.   Can investors change their feeling just like that overnight?   Well, what you see is what you get and we have to play by the market action.

Technically,  it just feels that it's going to be tough to challenge November's low this early in the year. Honestly, we don't know how it's going to play out if it gets there at any point.   The one thing we do know though is that as long as the financials hold their ground, this market has almost no chance of testing last year's SPX low.   We are still near the bottom of the range as oppose to the middle or top as discussed yesterday.     Right now, we'd like to see some consolidation of gains from today,especially from the market movers.  Include some profit taking early tomorrow.   We also don't mind some smaller plays getting a firmer footing,  but usually they catch up as oppose to lead this market,  this might be where the commodity equities show life.

For tomorrow, the best bet is for this market's heavy weight to stabilize and not display the wild gyrations we've seen the last few trading days.    We are hoping today action is NOT just a one day wonder and we return to doom and fear tomorrow.   Come on Obama and your team,  it's time to give this market's some much needed magic healing.   We also have some interesting reports to come out tomorrow including GOOG, MSFT and ESI (alert and a pre-run late into earnings), POT.   It will be a busy day!

dialing.....1-'(800)'-$SPX

Almost everything on the market today answered yesterdays “ coming around?” question.   All we wanted was to for the market to stabilize and not display the wild gyrations we’ve seen this short trading week.  Instead,  we got more of the same volatility answering the suspicion that Wednesdays bounce was nothing but short covering.    Despite some earning bright stars this week in IBM and AAPL after mkt close,  the mkt got stunk by an early wake up call from an unexpected source (MSFT).   

Talk about something getting in your cereal and causing a sale sign to go up on everything by the opening bell.   As bad as MSFT was,  you have to read over CNH’s  report (Alert sent out on machinery sec) to see how '09 is shaping up as for this sector.    Besides the big miss,  the company did not provide any 2009 EPS guidance,  which is a negative in our view and a sign of the uncertainty in 2009.    Negative follow through extended to CAT  (reports Monday), MTW, TEX and ag’ equipment like DE and pure infrastructure stocks like JEC, FLR got rattled from the bell as well.   Besides noting a short in the machinery sector,  we were jumping off and turning on Education stocks (ESI, APOL ) at their highs.   This is a place we’d usually be adding to positions in the past,  instead , we slanted to the downside thinking breaking out successfully in this environment maybe a useless proposition.   Of course,   we still like this safe sector and these earnings winners,  but we’ll wait for a pullback to come back long and attempt a breakout.  After holding all day during the market declines, they succumbed some finally into the close.

As far as the mid day rally, what rally really?.  It lasted 1 hour and probably was nothing more than another short covering attempt.    In a short covering rally, you don’t have “whales” buying.   There is no institutional buying Wednesday or today from what we are hearing.   A blink of hope was given by GS, JPM during a Financial slide of nearly 6% on the day.   Insurance firms took brunt of the punishment today.  

This is a confused market,  let’s hope GE doesn’t say something too negative going forward in the morning to add to the downward pressure coming from every sector today.    It’s very much a technical market, so keep eye on 800 SPX area as most important level now, we’re nowhere close to the 50ma .