A cautionary breakout..

No matter what happens during the day, it's always the close that paints the picture(chart).  You can say that today's breakout isn't very convincing, and some might even view it as negative.   So what?   The market got within striking range of 1000 as we got the rip we proposed reasons at length the past few days.  In the short term it's probably best we didn’t hit and/ or hurdle 1K.  It’s only recently we have had chatter coming from firms on SPX 1K, you can go back to March 23rd, when we said raising capital through equity deals for banks-brokers would be a clincher to drive this market to SPX 1K.   How do you think GS and the market to got to where they are now?.  It's been a domino effect.

All in all,  “The Premise” …, trading methodology, we’ve laid out to this day since late March hasn’t derailed, but to tell you the truth, we're in no hurry to hurdle this level as we've come so far..so fast!.  

“Okay. SPX1000. We are going there this year and probably even 1100 …”
http://www.djimstocks.com/djim-journal-09/2009/4/30/the-premise.html

Approaching a level such as SPX 1K was inconceivable just weeks ago, it will always get people a little anxious and a little nervous.  Don’t forget we almost climbed 30 SPX points off 969 in a very short period of time (as in a few trading hours).   Taking profit when this magical SPX 1k approaches is probably as natural a thing to do as anything.   It is sort of funny though.  We spent much of the morning in such an enthusiastic mood that we swear we might be able to see a SPX 1K print sometime today.  Toward the end, it was quiet evident that we aren't going to see SPX 1k just yet, scepticism arose and selling took indices and many plays way off their intraday high.  Still, it was highly correlated around the SPY/ index ETF’s /SPX futs as damage was minimal to many we’ve been covering.  First support moves up to Mondays high.  You can clearly see we hit up against May June trendline of peaks (red line) in the chart below.

There's no need to put too much thought into this action. There's no need to extrapolate anything beyond the fact we had a cautious push.   All we know at this point is that we have some tremendous underlying bids that are supporting this market.  This is the kind of support which will carry this market through SPX 1000, sooner or later.  If we didn't hit this magical level today, we'll perhaps try it tomorrow or next week.  The point is, what happened today is still a very positive further down the road, but if we try this SPX1k break too soon after today, we might have a bigger reversal in store for the short term.

Many of our plays did well overall today.  Recent plays for this Q going forward like AAPL ATHR and JDAS broke out of recent trading range and held pretty well on the sell off.  Other plays are setting up nicely on our watchlist. We added AMSC to our watchlist and we also started a small position off its surprisingly good report.  There seems to be one thing in common these days, many of the plays that get great earning reaction are also heavily shorted.   Look at GMCR today, the much anticipated report did not beat the expectation by a wide margin in our opinion, but the stock still gained a respectable amount(after down as much as 10% in ah).  It is just impressive.  We are feeling that there's money out there that are willing to chase performers (momentum).  The mood among the investing community is much different than what we are used to a few months back.  It feels like there's a lot more risk taking these days as some great earning reaction are up on "okay" reports.   One thing is for certain it’s hard to read at this point what type of reaction we'll get after a call.   A great beat number/ guidance eg like WDC has a muted reaction due to this being expected.   Also, one underlying problem we saw today was the NAZZY really lagging and this probably hurt by the close.   The cause was some terrible -20% earnings were weighing on the index stemming from previous nights reports (AKAM, SYMC, we also have SYNA AH’s tonight).  Also YHOO didn’t help at all.  Euro’ earnings  were much better and hopefully help the mood there and spread here. ( Sony TSM ALU).

We have to understand that what's brought us to this point is the combination of corporate earnings and economic data.  The reason why there's buying/bid at such a "high" level indicates the kind of optimistic view that's carried and shared by many investors.  Here’s a stat on Performance Anxiety (PA), for the week ending the July 29th , we had the biggest equity inflows since 2007 of 4.2 bln.(1.5bln previous week).  Until the day perhaps this economy recovery and corporate earning recovery hit a road block or turn sour, market's sentiment should not change.   We know that in order to reverse the market sentiment, it doesn't simply take one hour of selling or one specific event to do it.   We'll have plenty of warning signs flashing in front of us then.   Right now, all the signals we are seeing suggest a further improvement from the economy and corporate activity in our view.  As long as the majority of the market participants are on the same page, we are feeling confident that we'd at least see a higher market level from this point.

Bottom line, earning reports are starting to get interesting and hopefully the SPX 1K noise quiets and the market can concentrate on stock picking going forward.  We can almost promise you come 'Labor day', it will be tougher trekking going forward for awhile (unless some economic revelation occurs) and only strong earnings stocks will be standing straight, most likely.  We are pretty much done with the big reports and smaller stuff will take over the radar screen.  We are still waiting for a blockbuster one to come.