DJIM #27 2009

Ending this long weekend,  we hope everyone had a wonderful time with their family and friends.!

Heading into the long weekend,  the market was bombarded with some heavy selling on Thursday.   Finally,  a 'noise' headwind hit in the form of an unfavourable job report.    To us,  it felt like a combination of "end of window dressing/ profit taking",  hitting the mid week 930-935 interim top noted here, and just caution before earning season kind of selling to begin a  new month, a new quarter.   The job report provided a perfect excuse to sell down this market and is a cautionary bump in the recovery trade for now.   It’s only a cautious bump as the world’s economies are not held hostage by one U.S payroll data point.  The manufacturing output bounce is still the focus (PMI’s) with earnings around the corner to potentially carry weight for the recovery.

Technically,  we are slightly below the middle point of the recent trading range.    There's really no reason to get any emotional about this kind of volatile behaviour.   Let it play out!.  Mid week, we said downside is likely here and we’d welcome a correction part 2 and we could be testing 880-880.    We also discussed the recent resistance would be hard to break without any kind of major positive catalyst because this latest push was only holiday, Q mark up trading with little reason (catalyst) to push more than ~40 SPX points.   Simply,  the sell off should not have dampened any of our weekend activities.

Now that we closed below SPX 900,  market is likely smelling 888-880 and it will be time to start consider buying again.    Yup, this may sound like a strategy for dummies,  but who says this market isn't behaving like one big dummy?    In fact,  the more you try to extrapolate the market action into something else,  the more likely you'd get burned.    What happens three or six months from now isn't going to translate into how this market will behave the next few days.   We see a lot of traders using hypothetical data that's a few months away to trade the current market in short term.   It just doesn't mix.    Given so many unknowns still with this market,  we have nothing to rely on except the past data.    The upcoming earning season will provide a good reason to go long or short, but there's absolutely no indication now on how the reports will come out or what the reaction will be.   Based on the last quarters reports/guidance,  we remain optimistic, but that's as far as it goes.     Seeing is believing in this game and we can afford to wait.    As we have been saying in many earning quarters before,  any sell-off prior to the season usually represents an opportunity.    In this case,  we have a few advantages as well.   First,  the SPX 880 has shown to be a strong support during the last couple of months.   Second,  many of our favourite plays are strong earning plays and that's the reason they are on our shadowlist in the first place.   If a company can turn a good report when the economy was in a big shamble supposedly, then we have to be optimistic on the names 3 months later when the economy signalled more recovery.     If the jitteriness of this market gives us opportunity to buy stuff like STEC, DDRX, GMCR etc... on the cheap, before their earnings , we'll be there!. 

It's pretty risky to chase on strength these days near ‘R’ levels, but it could be a joy to buy on  ‘S’ dips again,  as long as you stay with the quality stuff.    Also,  some caution/ avoid long on the commodity linked stocks entering this week as much will be made about a recovery trade hiccup this week due to Thursday’s data,  this on top of decoupling action from China PMI last we week noted.   Ideally,  remain selective now and/or wait for new stock names to emerge from reports.   This way you can avoid daily market gyrations accompanied by noise.   Next couple of weeks will be interesting as potential pre-announcements or market jitters may give us some surprising opportunities.    Bottom line is that we wouldn't be shying away when either setup occurs.