Even the most die hard bears have to consider today's weakness as nothing but a healthy pullback. In the big picture, we trade this tape higher as long as the bullet points hold in our, “The Premise”. New members may find it here, http://www.djimstocks.com/djim-journal-09/2009/4/30/the-premise.html.
The pace of this run-up, we feel is going to be slower than what we have seen since March. This is good news!?. It gives us opportunity to re-enter positions we've cashed out. Today's was a good day to get into some of the positions, excluding commodity linked equities for now. Right now, it's not about timing the perfect dip. It's about buying on big dips, coupled with low volume in a rising market. As noted in the last hour of trading, we felt the selling had almost abated in banks-brokers this week. Also, we felt the broad tape on low volume was not at risk / limited damage and could turn because of this. A nice squeeze into the close ensued to frustrate the shorts some more. This close may have some follow through in the morning, it should withstand commodity-resources weakness if it continues. You see, banks-brokers, tech, crude-energy can carry the tape without many commodity links.
The commods got some bit nasty action today, but as we said we had to an excuse to take profits after Mondays melt up to ~950 after a 3-4 day move in the group. Everyone here at DJIM had time to exit Tuesday or at worst at the bell today in one piece as we warned of USD strength to hit commodity linked stocks. The USD had its biggest 1-day gain since January and the CRX followed suit with the largest sell off in a month. We have seen this action many times over since we started trading commodity stocks. The big up-moves are almost guaranteed to be followed by a meaningful pullback, so it’s always prudent to take profits. Of course, if you went 'long' late March when we said the inflation trade is on, you’re laughing holding through to now. It just hurts to see nice gains over days evaporate in an hour or two, most times like today 7-10% across the board. The key is that the entire commodity group has moved up, week after week in a pretty consistent fashion and we‘ll re-initiate sooner than later. We simply have to accept the volatility in the group as a fact and as well as an everlasting opportunity. Fr now, we need to recover our commodity index $CRX to above ~635 or get a further dip to consider the high beta commodity linked stocks again. List includes, Coals (ANR, MEE, JRCC, WLT), Steels (X,RS, SCHN), Ag- Chem (MOS, POT), Solars (FSLR TSL STP), Copper (FCX), Shippers (GNK). We think the BDI (dry bulk) index might have peaked, (Intraday day note), so we’ll see if this spreads weakness / weighs on the sector next few days.
The most interesting group out there today is the Banks- Brokers. It has been under- performing the market during last couple of days, but we might be close to a move. It may have started late today. Without the participation of financials, it's hard to see this market getting anywhere close to SPX 1000. For now, we simply have to believe that the financial group will move up soon barring bad sound (noise) bites.
Chinese stocks have been particularly strong lately and we simply have to contribute the strength to their economy and as well as the optimism in Asia. In addition, many of the China plays have come out with some stellar earnings to back up their move. We wouldn't be hesitant to buy stuff like EJ, CTRP, SNDA, CYOU etc. when opportunity presents itself. Techs, are also a group we'd consider favourably on buying the dips.
Bottom line, if commodity stocks take a further breather, we have other sectors to trade. We have plenty of plays (earning), BWY EBS ASIA outperformed today, others held up nicely covering a wide range of sectors. As we’ve discussed heading into summer, we will have groups to trade/ rotate.