DJIM #30 2009
Sunday, July 26, 2009 at 08:35AM Was a muted response (SPX up ~2pts.) to MSFT/AMZN earnings a surprise?. Not really!.
Reason being when you have such strong breadth (A/D-NYSE was still 3 to 1 positive), momentum, new PA suffering money coming in the previous day/ week, the market will not sell- off the next day! Friday’s trade was more of buyers taking a break than sellers being busy. Makes sense. If you just got in the market, you would not be selling Friday. Considering the action last week, an underlying bid should be present next week on any pullback as this type of buying pressure is not a one day, one week phenomenon that can't have legs. They might not be runway model legs, but there's still some leg left. Any pullback is a market 'breather' at this point after ~10% SPX in 2 weeks. The week was not without negatives. A positive is it seems any negative noise such as TXN, QCOM (expectations became too high), AXP reversed , Banks was met with dip buying. That is not enough downside risk to the market and therefore it was being bought by a prevailing underlying bid. First support now raised to 950- 956 and we could use the ‘7pt’ ladder from last week’s Journal as the next support from 950. Still note, this rally is a recovery fundamental one and not a technical one. Supports are only climbing day after day, so waiting for 2nd or 3rd support levels may be useless in the short term.
Something lost in the markets dissemination of corporate earning and thus rally was more global data points reaffirming our global Industrial Production recovery thesis. How could SP 500 companies be beating forecast by over 20% (its not all cost controls) if we’re in a recession and not in a recovery? …Hmmmm
Holding into earnings, just a reminder..we don’t hold into earning calls!. If you decided to stray from this rule because companies were beating/ raising G, you had cold water poured on you by Thursday with MSFT. This rule holds especially with small cap stocks that we may have loved last Q. You could be sleeping by a Riverbed come Friday morning if you held through for RVBD results.
Speaking of earnings, last week we peaked with Banks-Brokers, Tech earnings in a few ways. One is SPX made new highs and other is we peaked with the big important names. We now go into small mid caps season and the timing could not be better considering everything that took place. We recently said it will be small caps vs. big caps going forward and we believe this even more strongly now. Main reason now is the RUT (barely pacing SP). Also, short interest in small caps(RUT) is 3-4X that of SP500. There is room on the upside here even if market stalls ~1000 levels. The mid/ small caps can do some damage here, this fits right into the DJIM niche.
Earnings dates link updated.
Demi/ YourPersonalTrader
Correction: RUT now barely keeping pace with SP500 after Thursdays rip. Considering they are 'higher beta' stocks, we consider this still a lag in performance.