DJIM #6 2009

Over the weekend,  we couldn't help but think about one thing.    No, we aren't thinking about the stimulus package or the financial rescue plan.    Both events are important in the greater scope of things.  For now, the only thing on our mind is "how much more can this market go up?    Events, along with stock action, have unfolded in a dramatic fashion.    All we could remember is that things were turned into a pretty worrisome state last weekend and we seemed to climbed out of it towards the end of this week.    The focal attention, is still straight from D.C.    From the look of it,  it's a done deal with regard to the stimulus package and financial rescue plan (conference delayed now for Tuesday).    Maybe they still need to iron out some finer details, but the biggest announcement(s) since Obama's inaugration will come out way in a matter of days.  Anyways, Friday we had a 25PSX move busting 850 as 'catalysts coming your way'  played out like a pre earnings move in a stock.    A significant potential breakout (see chart below) is evident below.

A while ago,  we had hoped that the announcements would provide us a trade to the upside.   It was proven that buying on any weakness, in pretty much any sector, would be rewarding.    Although, we mostly focused on some financials and some selective commods, the trading thesis was still greatly executed.    The big question now, is if we have had enough of a gain from these "catalysts" due to Fridays 25pts move.     Right now,  we are sitting at a level where we can either go up to near the SPX 900 level or pull back toward the SPX 830 area.    In either case,  profitable trades can be had if we called right.    In the back of our minds,  we still have this "sell on news" feeling towards this week.    Bear this in mind, we are not going to position ourself for a decline, yet.   We'd want this market to take the first step before we act.   We discussed this before in regards to Europe, a bailout of the financials did not have enough toxic assets removed and the market hated this.   We fear the same here, but maybe they've learned here from Europe's mistakes.

Commodity plays,  if you paid attention to many familiar plays on our watchlist, you'd notice that many if not most of them are trading at or close to recent highs.   In fact, many of them are trading near three or even four months high.    This definitely had alot to do with the latest  BDI index  move and the news that Chinese are stockpiling the raw material.  The question is this real??   This stockpiling may only be for pricing negotations and make for a volatile month ahead in the sector(s).   Whether we entered a new commodity boom (we doubt it).   Presently, even the experts have not determined if this a recovery or short covering rally.    The shippers are fearful that that there could be a recovery, they are rushing to the freight markets to hedge their exposure until they can sign physical contracts.   One thing we do admit though, many of the plays we track don't look nearly as dangerous as they were a couple of months ago.   On pullbacks, we'd definitely be looking at getting back into some.    Many of these companies have reported their recent quarter and some have even guided for further periods.   Outlook is unanimously grim, but the market does not seem to let them go.    You can say whatever about the future of these cyclical business,  but their stocks are very much in play.

Financials ,  this is probably the most controversial group to trade and they carry enough of a weight to tilt the market direction one way or the other.    Up to now, we have only been playing some of the "quality" ones and things will stay that way for a while.  This is besides the HIG  we alerted Friday thinking it was way oversold considering the jolt it can get from any financial stimuli talk or action.   Right now, just like many commod plays, things have gotten a little extended ahead of the Geithner plan.    A sell on news reaction is more likely with this group compared to others because some will disagree on the effect of the plan.    Just call up Meredith Whitney and she'll tell you why!

Techs , lately, just about every major tech report showed some major weakness in their business.   Yet, almost all of the reaction have been rather positive.    This sector is a pretty dead beat sector and there isn't alot of excitement to trade most plays these days.    We are, however, willing to give some "icon" names such as RIMM  AAPL GOOG AMZN a place on our watchlist.    They are still considered beta stocks and their post earning reaction have been by far the best in the sector.

Bottom line,  the coming week is pretty much a pivotal week from both Washington and market.    We will try to keep our heads clear and watch for clue as to where this market wants to lean.    Initial trades will be small until a trend is established.   These days, you just can not be more careful because of the violent nature of things.