DJIM #4, 2009

One thing is for sure, time is flying by!   It's just amazing that we're already four weeks into a new trading year.   So far, this new year hasn't offered many surprises, but rather, confirmed many people's suspicions.     Yes, we are referring to the still woeful credit crunch, yet recovering one and bad to worse corporate earnings.   The market just finished absorbing a lot of bad news last week, yet surprised many by it's neutral finish to the week.   We played both sides of the market last week, alerting long HK  at 17.5, ESI  into earnings and short a CAT  from 37's and APOL at new highs.  As we noted at the beginning of the year, we'll be entertaining more short trades during the year as we expect another year of many ups and downs.

At this juncture,   the market stands at around 8k Dow and 830 SPX and we only have to wonder what is going to happen, short term wise.     Over the last few days,  we have developed a thesis, as far as DJIM trading goes that is.   If you go back as far as last March, when our beloved government policy makers started intervening with our free market aggressively (Bear Stearns still ring the bell?), there was one clear trend.   The trend is that EVERY time the government made a huge announcement, whether it's the rescue of financial institutions, or a big stimulus package announcement, or cash injection into certain key company... there was only ONE market reaction.     Yes, market rallies!     Of course, you can always argue that every market rally followed by a major government announcement ended up in a failure, eventually.    However, every rally, regardless the time frame, always presented us with some tradable opportunities on the long side.    The rallies in the past 12 months have varied in taste.    Some lasted a mere a day or two while others lasted a few weeks or more.    In any case,  we feel a rally may be at hand when our new policy making team makes the next (or rather their first) round of announcements.   Simply, this market needs a 'catalyst'!.   Keep in mind come February a $200bln ABS TALF  is also to be launched, even this may provide a boost as its' very significant to auto sales.

Here's our reasonings.    We feel that last week was critical in terms of psychological shift in trading.   For the first couple of days, it felt that market was ready to puke everything below whatever the support we had since last November.    The sentiment was so bad in financial industry that some suggest one or two major financial institutions would fail by the end of last week.    Oh yes, it did feel that bad.    Instead, we held and attention is definitely turning to the hope of a government bailout from our new administration.   Sure, you can argue endlessly on the new stimulus package or any initiatives taken by the government as inadequate or simply non-functioning.    However, we are not here to debate this.    We are simply using the past experience to gauge our own trading strategy.     Also from last week,  MSFT and GE were big tells on how resilient this market is acting.     Yes,  both reports spelled trouble that could affect thousands of companies and our economy as a whole.    Instead,  market took the news rather well.     One should only look at the action of the financial institutions.     We have said a million times before and we'd say it again.   If this market were to make it to new low, the financials would have to be leaders and take the whole market down.    The opposite is also true if we want to rally.     So, the conclusion we get is that this market had a chance to take us down last week,  it failed to do so on some pretty heavy volume.   Inevitably, we could be looking at a rebound coming up.    This may be a short rebound and a failed one, but the trade is buy on weakness and sell into rally at this point in time.    I  In all fairness,  we also have to point out that this is nothing but a short term trading thesis and ~940SPX is all we can expect at best.   A lot can be achieved in 100SPX pts.   What happens a month or even a few weeks from now is anyone's guess,  fortunately we don't have to worry about it now.

Bottom line,  we are trading on the thesis that the next major government announcement will kick start a potential rally.    We'll play on the long side and use weakness to add some selective positions here and there.   We are keeping our total position size rather small (if holding overninght) to avoid any unwanted risk.

Deflating

With some Asian markets closed (light futures trade) and a relieved (squeezing bank sector), European market led to the US markets flying out of the gate.    A sugar coated open and nothing else.   Unfortunately,  as the previous 7 trading days indicated a breakout over 850 high or 800 low on the PSX is proving to be insurmountable for the Bulls and Bears, respectively.    A 'catalyst'  is deeply needed as the Bull and Bear and their two man saw grind this market into woodchips and sawdust.   At his point ETF traders of the eg. SPY are getting blown to pieces if they are not quick to act.    Any move is not sustainable even for a few hours,  direction changes constantly.    While this battle or better put,  lack of conviction  on both sides plays out , we wait for catalyst.   Financials couldn’t  keep up to the European squeeze and Crude peaked ~48 and fizzled away gains by close for most of those components as well.    In the meantime,  we’ll continue to be selective and hopefully put a few more points on the scorecard in individual plays/ sectors.    Example of going long education stocks and than shorting at their highs when we said it was not probable for them to breakout.   Today,  you were laughing if you kept tight the ESI down to 110 from 130, APOL to 79 from high 80’s in a just a few days.  Now that they have pull-backed,  we start thinking long again with these names.     The premise of shorting  CAT as a machinery sector play last week proved to be a premkt highlight story off earnings with the stock sinking to a $30 low.

The 850+ is looking to be a tough task to the upside, (simply the bulls failed today), maybe even 840 is too much as todays move just petered out,  even with better eco data.   The thousands of jobs cuts in household names hit home, if they hadn't yet.   Somehow when you see high profile corporations slash jobs in the thousands practically all at one,  it rings worse to many than a non payroll number or creeping up unemployment rate in percentage terms month after month.

No direction,  no conviction,  maybe until more headlines hit speculating on the TARP II/"bad bank/ stimulus.   Earnings still setting a negative tone (CAT latest),  as we hit the busiest stretch of announcements.

Waiting for signal...

Over the weekend, our rally thesis was that we are waiting for something to happen from Washington and it looks like market is exactly playing into our thesis.    AMC, we are getting headlines hitting of a 'catalyst'..  TARP II/"bad bank"/ stimulus.    Once again, market crept up and held up despite a barrage of not so rosy reports from many steel makers and AXP.     Market is currently giving this message,  'we already knew this and what else is new'?    The fact many bad reports didn't take stocks down gives us reason to believe that market is discounting the past quarter in many ways, and perhaps next quarter as well.   Perhaps, all the chips are with Washington now and nothing else seems to matter for the time being.   How long will this last?.    Yes, from the reports alone,  it feels that none of the companies are worthy of investment.    Yet,  stocks still managed to inch out a gain,  most importantly pushing the indices close enough to 850SPX to know that with any positive news and this may finally be broken after multiple attempts, maybe even the next day.      You can call it short covering, or bottom fishing, or value buying.    Whatever the case, the mass panic selling action b/c of a disappointing report seems to be non existent these days.   Signals of a further bottoming?    We'll reserve the answer for another few months.

Again, markets being lifted slightly by the the financial sector.    There's a high degree of expectation that the new administration will do something about the 'bad assets'!    It is a very reasonable and logical assumption and there's a high probability that it will happen.     Tomorrow, we also have a FOMC meeting which will shed some 'FED' light for the next little while.    In addition,  the new administration is busy lobbying for its $825 billion stimulus plan.    Regardless how the result comes out..bad bank..stimulus,  we feel these will be positive developments for this market.    For the short term, it does feel that our policy makers are putting a stop to any potential market slide.     Right now, nobody seems to want to get caught short this market.

We at DJIM here are playing exactly like what we said in our journal.    We are using pretty much any weakness to buy some of the 'quality' stuff out there.    This includes some of the financials like NTRS, PBCT, JPM, GS...  some of the selective commods as well.    

There were a bunch of steel reports  today and most of the companies reacted well 'today',  even though we can guarantee firms will slash targets and EPS expectations starting tomorrow and it will be interesting to watch how these stocks act a week from now.  That will be telling, participation in a upside move with the broad market if one happens, is usually not.    X,  may just get over break even by Q2 after a nice size operating loss to be in Q1.   Also,  BTU's  report gave the entire coal sector a boost,  but this co' is more diverse than most we follow and has one of the best operational teams.   Not all are of the same mold to go through a tough 2009.    To top it off,  the slide in crude price did not seem to have much effect on its components or the market.  Both OIH and XLE hardly moved.

Solars, notes in Comments-alert section.

All of these are giving market participants reasons to breath some confidence back into this market.    SPX is most likely to be ~850 area overnight and we believe the next major resistance is not till its 50 ema which is around 870 or so.     It is not that far away so we have to get ready for a potential move toward that area and possibly beyond.

..still just a ripple

The ripple effect of closing and basing the previous week from 800 lows manifested into a rally today that finally shredded the 850SPX mark, finishing at 875 level.  Last time the market had a win streak of 4 up days was when Santa was motoring out of town for a New Year’s party that led to 944SPX.   That pretty well puts in perspective what a dreaded January it’s been for the markets as this current move needs another 50% (70 pts.) or so just to reach this year’s high!.  On the other hand, we’ve had a pretty good month here at DJIM while the market had negative returns,  we’ve been pretty selective and most recent ideas tacked on nice gains today,  just overnight,  FSLR added on 6-7 pts to highs, SPWR was up 7% at highs, NTRS play has gone from $54-55 to 61,  joining JPM GS as the financial plays here and CHK could have been caught for 5-6% in a few intraday hours.    When there’s a broad rally,  everything practically moves.   The reason we’re pointing these plays out is despite the markets celebratory mood,  it was time to cash in some chips.    Considering the market has been whipsawing most indices ETF traders to bits lately,  it’s prudent to take some profits at this point and wait for the next buzz word to materialize…a headline buzz while the markets pullbacks a tad in overextended names and consolidates some.   (A negative headline that could slow down things is the Republicans stance today on the stimulus).    At least, that is the hope for the rest of week..consolidation!    Afterwards,  we can pick up where we left off in picking up back the names that have worked this month, albeit the Financial Generals or EPS sector/ plays.    Nevertheless,  it was essential to break 850 to have any short term possibilities of going higher and we should just be happy about that.    The mood has changed, even though today’s rally was due to talk (CNBC) of “Bad Bank” in the near future,  it has put to rest “Nationalization” talk it seems.    The original problem in Europe after their latest plan was that it didn’t do enough in taking away the toxic assets and bank stocks reacted poorly initially.    We noted this back than in a Journal.   The tone is different here and the markets are believing these toxics will go away and are showing they want this clear slate of sorts.

The steel sector joined in the fun despite EPS, $ targets being lowered, but as we said what will you do for me next week.   The FED light today,  for whatever reason strengthened the $USD immediately and commodities may feel a pinch tomorrow.  Steels names due to 2 day gains may feel more pressure than others.   Already, Shippers will definitely face stress with DRYS covenants issues released AMC.   

So heading into tomorrows trade besides all the above,   we’ll keep monitoring (pray;) for a good EPS story,  we are also looking at energy names (nat gas inventory at 1030, est -180), the OIH/$OSX are leading on the heels of not the price of crude , but refining (refiners) margins.   Even if the financials slow,  maybe the energy names can pick up the slack and hold the 50 day moving avg of ~867SPX.

Wall of worries...

Usually, we use the phrase "climbing a wall of worries" to describe a healthy upward rally in a bull market. Right now, we are wondering if the phrase is also sort of fitting in todays environment. ` Looking at the action today,  it just felt that yesterday's bull move never actually happened.   Frustrating for those who are looking for more upside?   Yes!   Is it healthy though?   Given the reasons for sell off today, (profit taking, weak earnings, bad eco data globally, Washington not so clear (stimulus, Bad Bank), we think it is healthy and legitimate, as much as the move yesterday is legit.   It doesn't make much sense now, doesn't it?   Well, it actually makes perfect sense in a distressed bear market.

For starter, the reasons for getting a rally from late last week is the " bad bank idea+ stimulus pckg". If both ideas are called into question today, then this was the perfect time to lock in profits.    We have to say though many equity plays we follow are currently trading at a much higher level than they were a couple of days ago.    Using the doubt and cast of shadow on policy makers indecision to lock in some profit was the them.  Complete absence of buyers today.   As far as some of the financial issues are concerned,  we let go quite a bit yesterday as with everything into the strength as discussed in Journal.  After 4 consecutive green days, you know the odds are against you if you hold too long in this trading environment.    As far as the commodity sector goes, it was pinched as discussed (USD$ continued strength after FED), but the damage isn't nearly as bad as the indices suggests,  the Financials were just  ripe for a knockdown thanks to negative headlines and Obama’s critique of Wall Street later in the day.

The trick in this market environment is that it's almost always better off to buy on weakness as oppose to chasing the strength.   Today, you can almost buy anything at a way more appealing price than yesterday, especially with the financials.   This market is currently being led by the financials, in either direction.   The financials, are currently being led by belief whether government will do something to help them survive.   Ultimately, market participants can only do so much in determining the course of this very crucial industry. We feel, whatever the course of action the government takes on the financial industry,  it can only help. The only thing we traders can do at this point, is to avoid any unwanted risk by not playing those risky entities like Citi or their European ADR equals.

Technically, even though we broke the just shredded and important 850 SPX level, it doesn't necessarily mean that were go straight to 820 SPX, the next support, right away.   If it does, we'd be very surprised and we'd be on the buying end aggressively.   Some commods’ like Energy Shale plays (CHK HK GDP) showed some unusual strength today, despite weakness spread throughout the services (HAL SII) and the domestic integrateds (COP  HES MUR),  so we are keeping a closer eye on them.   Tomorrow is the last trading day of the month and we hope we close the week off on a better note.  GDP number on deck.

DJIM #5 2009

It seems every push for the market upwards is a hard grind, while every push is just a slippery and easy fall.   The latest bringing the SPX to 820 levels down from 870’s taking only 2 days and a few hours.   As of close, we are 8.6% down on SPX for 2009!.    A few factors attributed to the decline,  starting with the Washington partisan battle lines surrounding the stimulus, which we noted,  as a possible slowdown in the works.   Second, the ‘FED light’ was a dimmer as in deflation risks and a half ass commitment to purchasing of treasury (long term).  One look at the charts below and you can see to the minute where the slide in Commods’ (CRX) went hand in hand with a higher UUP(USD$) and the broad market declines for the rest of the week (at the FOMC decision/ statement). 

Next we got a GDP when digested showed a surprise in the build of inventories highlighting FED`s deflation concerns and finally the `bad bank` optimism was abated by the same culprits (CNBC) that reported we`d have a solution in the upcoming week.  Throw in more realization this earning period that earning power is taking a beating in the U.S and you have a market flirting with Inauguration day lows.  Since the media emphasis is on Obama`s first 100 days, we worry about what the next 80+ days will do to the market!.   At the end of 100 days,  it just might be too late..actually,  it maybe too late if something is not put down and liked by the market this week ahead as we can only bounce off 800 so many times before exhaustion takes over amongst traders.  One negative headline at this crucial point and down we go.  The only thing we can say heading into the trading week is stay put, as on the sidelines, and just follow the Washington headlines to go long or short.   As technical as this trading may seem, it is really Poli-trading with Washington the focus!.

Stag 'nation'

This market, as of late, has become very stagnant in determining a course of action.    Well, this same stagnation can be applied to the government policy makers leading the way.    If you connect the two dots, what it means is that what's happening out there in the market is directly what's happening in Washington.    Since we don't have any inside sources, or anyone who's even remotely close to the circle of people that make the almighty decision for American economy and country, we can only speculate that things are just not as smooth going behind closed doors.     Of course,  they aren't debating on some silly agenda, after all, it's the all important stimulus package as well as a crucial bank bailout plan.    Lets give them some time, shall we?.

Nope!  The more time they are given, chances are, the more likelyhood that nothing will ever get done on time.   It is how things typically work with any government.    Basically, when solving a crisis, and yes we are having a crisis, it's better to hammer things when it's hot.    You can argue that it takes time to perfect a plan to help the economy or banking sector.    Well, we weren't born yesterday and we know that there's no such thing as a perfect plan.     Chances are, even a great plan that was designed in the first place would turn (revised) out to be much much less after many differences in opinion among different policy makers who supposedly represent nothing but the people they are elected for.     In this probably once in a life time economic crisis and banking crisis,  nobody really knows what's the best course of action.    We feel in essence, time is really the thing that can eventually cure the mess and help to recover things.    What we do want to see at this point, is some action from the government.      It's been two weeks since the inaugration and people just want to see some action.     The more time the government waits, the more doubters will come out and start pointing fingers.    As a result, we as consumers will lose confidence in just about everything.     Well, it doesn't take a genius to know what happens then to the market.

Indecies today may show that Naz is supposedly doing "better" than the rest and there's hope in the market somewhere.    Don't be fooled!    We are lucky that many financial institutions did not get rolled over today.    Many of the Dow components, and heavy hitters such as MMM, WMT, CAT, even PG are trading at recent lows.    Sure,  the RUT closed green along with the COMP (we don't care for MSFT, INTC leading), but the all important SPX was still flattish.    If government doesn't do anything or does something that disappoints the market with regard to the financial sector, we WILL test last November lows and chances are, we'd set a new low.    

Right now, we can't see things beyond a two to three day horizon.   It isn't because the technicals don't work or the fundamentals aren't there.    All balls are in Washington's court right now and anything they say or imply or do will affect the market in a great way.     Hypothetically, some form of decision and major annoucement will come from the policy makers within next two weeks.   We just don't know to expect at this point.    Lets be honest here, we all hope market likes what they hear.     This is a very important task for the new administration and it can be viewed as a first test for Mr. Obama as well.   

Trading plan wise, we are sticking to last week's buy on extreme weakness.   So far, we are merely sticking to some selective and quality financials and education services stocks.    If you happened to nab some NTRS, GS, JPM PBCT ESI (nch) APOL  on the cheap,  then you've done alright lately.  Short side, recently we eyed machinery (still getting killed) and than steels (most back at pre-earnings prices) stocks as problems. 

The overall strategy remains that you have to limit your total position size and not let it get out of hand.   Be picky.  Making profitable trades is one thing,  but making risky and greedy trades are something else.

One positive, gone unnoticed, the JPMorgan PMI global manufacturing  rose for the first time in a year!.

..Better than feared..

A better than feared mentality is quietly emerging as January readings are improving in many parts of the globe.  Unfortunately, we can't really do anything about it until Washington makes some positive noise.   Oh well, life goes on and one highlight emerged at DJIM premarket, MYGN.

MYGN,   something must be in the genes for this biotech to produce another strong Q!  Once again, we alerted this shadow-listed stock highlighting that even if it gapped it had room to roam and did ever.  After being 74-75 at premkt alert it gapped to $77--78 and by noon it was eyeing $85.   No matter your entry in the morning,  MYGN should have been a good friend to DJIM members once again.  EPS of .43 beat the street consensus .32 handily, excellent sequential revenue growth as well.   Estimates will be raised here and targets should follow.  On a day where no leadership emerged in a rally, MYGN clearly stood out.   We will continue to trade MYGN,  but after such a robust day, we'll wait for a pullback to trade it again, just like last Q.

Speaking of no leadership in a rally of 140 points!.  No financials, no familiar high beta tech.  We received a few emails, read some trading blogs and heard the same question of where were the financials-banks, most notably.  This led many to question and ask how did indexes move so much.   It`s quite simple,  if you just look at the recent declines of the SP Finacials-Banks, down 27% and  38% respectively and you understand they don`t always follow or lead.    It`s not a question of is this rally day sustainable because all are clearly waiting for Washington,  we realize breaking 850 is most likely not doable without a positive Washington spin.   Today, PNC,  brought the regional banks and the sec down, we also had questions arising about BAC`s credit levels and dilutive equity sales to the gov`t.  This space is clearly underperforming all year and so did today!.   Today's move was ETF and Options driven,  not by any one stock!.   Throw in some broad short covering and nothing stands out.   This is why this move was a head scratcher to many when you look at stocks individually and see miniscule gains. 

A few market bullet points,

Washington, it’s a sector in itself now.  Geithner interview, words of a very aggressive, quick stance on  fiscal stimulus and Republicans alternative plan that would include a corporate tax cut helped the market.  Neither is very meaningful and enough to move the market like it did.   We just think a push higher to protect 8000 was starting when we tossed out the SPY chart yesterday.

Shippers,  we noted this sec late last week, we gained more interest today off the Baltic Dry Index advancing another 4.5% to over 1,100.  Iron ore-China noise flow the reason. 

USD$ was selling off across the board.  Big pullback.  We recently put up charts of UUP-$CRX correlation.  At this point bumps in the dollar and you begin to look to trade some commodity stocks-sectors.   Many steel stocks acted right.   Industrial related stocks performed well off some of the sec earnings..UPS one of them.

Resistance=  around 850SPX

Eco data, including yesterdays note on the PMI, better than feared data flowed some more (pending home sales beat, but with price falls)

CSCO  tonight, market never seems to do well (afternoon of) as a precursor to a big tech report last few Q`s.

Joy and Pain...

Yes, that pretty well sums up the order of the trading day.   It started out with some positive bias thanks to a couple of not so bad economic reports (ISM) and other things.  The other things being the BDI and material sector (China PMI#).   Market was able to run up to SPX 850 before things started to get rolled over around mid day.   Buyers just never chased the rally and we failed once again at 850SPX. The positive news soon was overwhelmed by bad news, what else is new?(earnings hitting the food stocks, uncertainty in Washington and BAC “nationalization?”, all played a role in the late day swoon.

Financials, we had some interesting stuff going on today as names like GS/MS are going the opposite way of BAC.   It just feels like these mega financial behemoths are going to have a tough time compared to the simpler and less complicated ones.   Bank of America, its stock action, is following Citi's path closely these days. This is not good.   It definitely adds that more pressure to those who are drafting up the next bank bailout plan.   Right now, nobody really knows what or when or how anything will be done with regard to these financial companies and their toxic assets. One thing looking more likely though, is that the equity holders will take a big hit whatever Washington has up it‘s sleeve.   We want to stay clear of this sector for the most part, but we will be looking at dip opportunities on the GS/MS/NTRS.

BDI, oh my! ...You either love it or hate it depending on the side of the trade you are on. We were fortunate enough to add GNK  to our books since we alerted a rotation watch on Jan 30th for the sector as the BDI reached October highs.   This was a significant level and timely as the Index has exploded since.   Yesterday, we alerted a follow through- spill over day is a high possibility and today it all paid off nicely by the opening bell.    All of the material stocks all went up on the analogy that if BDI is up (besides China PMI), then the demand for many basic material has to be up as well.   At this point, it's just way to cute to even think that way.   There's just no actual data which says demand for iron ore, or phosphate or any other basic material is getting stronger from Asia.Part of it is because of the end of holidays in Asian and also because of setting up for pricing.   It’s a murky picture in regards to the politics involved.   If the demand is for real, there will be plenty of opportunities to get back in down the road.    We feel today's a good day to cash out stuff in this uncertain broad environment and the fact BDI is up 90% just this year alone.

AMC, we had a couple of interesting reports that will grab market's attention tomorrow. CSCO' s report isn't too bad , but its April guidance is rather disappointing. It will undoubtedly affect tech sector in general, but we feel the effect may be somewhat muted. None of the big tech names have in fact said good things about next quarter and they all have traded off their lows.

Visa also reported some decent numbers and stock is up in a healthy amount in after hour with MA  in tow.  Since MA reports in morning, V’s fate still lies there to a certain degree,  but if you went with our alert,  you'll probably take nice gains off by report time.

Bottom line, all of these earning reports will lead to the most important economic reports of the month on Friday, the job report.   We can only imagine the report will be a bad or but how big of a surprise is anyone's guess.   We have cashed out most things today as we came to SPX 850 and we’ll be looking to rebuild our positions soon enough if 825 holds. Keep in mind, there's never a rush to build position these days and we only intend to buy stuff at the time and price we want.  Usually this means buy on DIPS to sell into strength and resistance like today as we continue to be range bound.   Bear market is, after all, a buyer's market.

Hopefully,  we will not have to re-test SPX850 like the South Korean grandmother that has failed her driving test “771” times.   She’s been trying everyday since ‘95!

...catalysts coming your way..

Early morning was a continuation of yesterdays pain as we hit our very short term support in the ~825 area,  but than we reversed nicely and it was joy all over again in WallStreetville.   As we discussed recently,  this market is making meat out of the ETF SPY , SPX cash traders as they bounce off the walls in a confined rubber room.    At least, the room is padded and small (800-850SPX) and you really can’t hurt yourself in such tight quarters, but what it is doing,  is driving many up the wall as they complain about not making money in this rocky environment.    We have a remedy here at DJIM and that is simply be selective/ timely in individual equities/ sectors and that will be your medicine.    All you have to do is search back and go over the stocks we ‘ve played in ‘09 and you’ll clearly see if you’re picky and timely, you can be having a very good 5 weeks or so.   Lastly for all those out there feeling like they are in a grinder,  today’s upside move maybe an indication that this rocky road may turn out to be a thing of the past as catalysts are on their way.    If you think it’s the jobs report tomorrow were talking about, you’re mistaken.   Unless, it’s an incredibly worse than anticipated or surprisingly good,  it shouldn't matter much as there is much more on the horizon!.    Right now, the focus is entirely on early next week and the reason for the reversal today to knock your head at 850 a few times again (financials leading..GS, MS, NTRS show the buy dip scenario into good news we just discussed again yesterday).   Next week can be described as a do or die for the market!.    A treasury plan will be unveiled for banks and a fiscal stimulus for the economy, most likely.    We also have a TALF for the consumer coming this month.   The HUGE question is if these ‘catalysts’ will be sufficient enough and make investors happy.   If it does, a move over 850 will see covering and buy stops kick in and not just in the wimpy manner we’ve been seeing lately on any rally that eventually peters out a few hours or a day(s) later.    This will be a significant move as finally investors have some clarity and grow to feel this market may be rehabilitated eventually.   The biggest drag remains (confidence) and these catalysts can cure it all and bring investors back into equities finally.    Here’s the scary part, if the above outcome is not achieved, say hello or is goodbye to 800 and new lows all around,  but let’s not dwell on that.

In review…As far as those stocks traded long here in 2009, names we’ve concentrated on, all had a pretty good day.    It seems Oil related trade components have been a non issue of late, yet in the energy space we have CHK, HK  breaking recent highs.    In the financial- bad bank, we have some 'good bank' in playing reversals in GS, JPM, NTRS, PCBT  (defensive).   Recently, we’ve been timely on the shippers and favor GNK  as holding a DRYS overnight is not an option here.    Part of leaning to the GNK is it’s ability to move faster than the rest, but remember that works both ways.    In Solar, we favor FSLR  and it hit a new recent high $150 today as it heads into earnings in a few weeks.    Remember, we went Solar recently because of European guidance in the sector and it's connection to FSLR (Phoenix solar).   We have the Education services stocks, ESI, APOL  flirting with highs after being brought into the loop here a few weeks back.     We have MYGN, once again as an earning play, biotech pill.    Yesterday, prior to earnings coming out we, yes..we who never hold into earnings in the glory earnings days leaned the other way and thought there was a good chance V  and a beneficiary (MA ) to good report might be defensive enough to put out better numbers and roar.    This reasoning goes back to MYGN, ESI, APOL being defensive and producing quality reports and big moves afterwards, even some squeezes after reporting.   Today, we had an intruder and unfamiliar name around here pop up, we'd preferred GEOY  didn’t pop nearly 2 bucks to its day high after alert,  but we’ll take it and think this stock will make some headlines as soon as it clears some more regulatory hurdles in the future and comes on more screens.   This one will take some time, but it could be one like EBS from recent past we said could be tucked away for sunnier days, but with some more risk.     We’re liking commods’ more these days, but aren’t sold on the steels, coals just yet for more than a day here or there.   Still, with any rally in the space,  you have a bunch of names that go as part of a group move off our shadow-list.   Right now, the Ag-chem's are moving in anticipation of a very important week ahead,  which includes critical USDA data,  so we’ve got our trading eye on the MON, CMP & POT  like Michael Phelps.

So the point is simple, no matter how rocky the market seems,  there are opportunities day after day and you just have stay patient and selective till a true course appears.

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.

Holding pattern..

Sitting on the dock of the bay…wasting time was the theme to today’s trade.    Tomorrow, if you’re not careful it’s gonna be more than ships rolling away, it will be your ‘chips’.     Any positives from todays trade like staying around 870 will be irrelevant tomorrow,  so there’s no reason to dwell on today’s holding pattern.      Still as far as today,  we had the Ag’s chem stocks POT, MON MOS  start to rollover ahead of tomorrows USDA # following the run into it.     The coals seem to have short covering occurring, WLT ANR JRCC BTU.    The recent run on the commods’ is not only the BDI,  but the PMI index we highlighted as a positive early last week.     The financials, specifically the life insurers (HIG ) led on reports the TARP will opened up to them.     Recent plays here like GNK MYGN GEOY  all hit new recent highs during the day.  In the broad market, we need a healthy close above 869(50Ma)-870,  today did nothing.    It’s was all a waiting game with light volume for tomorrow and we leaned to the short side SPY, long SDS  for the broad market in case the mood turns negative (premkt) before the announcements.   Just in case the market decides it didn’t get any positive clues today.   It may be disappointed by the time it wakes up and/or trades in Europe is our thinking, we didn't exactly hear anything great ourselves.    Afterwards, we expect nothing  less than a volatile trading session.   The possibility that nothing will change and everything remains the same is high.   The hoopla is Super Bowl out of hand,  the expectations seem to be too high and usually the game disappoints.     Unfortunately, nobody really knows what they want or what is the right solution.     Geithner will make his big bank bailout speech tomorrow @ 11amET .   He’ll have all day to 'sell the plan ' with numerous interviews.    Hopefully, Geithner gives a better presentation than Paulson did not so long ago.   Unfortunately, there is no magic pill and we fear if not enough is done on the toxic assets, we’ll have an unhappy market.    A bad bank with private investors providing much of the capital is not a cure, but maybe an expanded TALF plays a role here as well.    As it stands now,  we’re not sure which part of the rumoured plan can change the sentiment to a positive bias.   If the plan is just an overview and lacking major details, clarity, we won’t have a happy market.  

SELL, SELL, is something Geithner will have to do,  if not,  the market will SELL SELL for him.   We’ll update during the day as events unfold.

..let the dust settle

Tonight the shock and awe of the financial rescue plan is still very prevalent.   Fortunately,  we were prepared and will not harp and/ or dwell on the subject.    Simply, everything we feared… "..if not enough is done on the toxic assets, we’ll have an unhappy market….if the plan is just an overview and lacking major details, clarity, we won’t have a happy market.”   Honestly, it seems like a bad dream we wrote out that happened right before eyes today!.    The repercussions of today’s events will be the trading theme as long as nothing is tweaked or changed.    Right now,  as it stands,  it is doomed to fail.    We’ve seen this before from Paulson and it’s inevitable here because there are a lot of unhappy campers.    This is what we actually can look forward to (hopefully) to present us a big upside day in the future.   The words ‘mark- to- market’,   even if it seems to be the last thing on Geithner’s mind judging by one part of the plan may eventually be heard again.    If you we ever hear those words speculated on or something on the asset guarantees front, we’d almost guarantee a day opposite of today.    

As traders,  we pack our packs after nearly a 50 point move in the SPX and wait for the market to digest the loss, wait for the dust to settle  in this case.   Simply, we cash in the profits and look forward to other opportunities.    We pointed out the overnight support at 852 or so and after it got busted another 25 pts was shaved off, incredibly, we are at 827 which is isn’t all that bad considering where the November lows are.  Basically, we have progressed even though it may not feel that way looking at the damage tonight.

On days like this, you simply see follow through in sectors as they run side by side with SPX tape.  The financials get crunched (notably, regional banks took it on the chin and the Insurers got flooded by being surprisingly excluded from the Plan so far), the energies followed,  the coal names as well.   As far as the shippers, we warned enough despite trading the upside and today’s lesson is even if the BDI is up 8%, there are other things to watch and consider.   In this case capesize/ panamex rates plummeted 20% midday and a morning negative WSJ article led to big profit taking.   The USDA report was neutral, many AG names got taken down (DE AG), but the Ag-chem/ fertilizer names here like POT MOS MON outperformed.   CF’s results AMC are positive for the sec’, but we already knew that from MON’s earnings at the beginning of the Q.

It is best to let the dust settle now and watch for details, structural changes to the plan to evolve over time.  Also, important is to listen to the ‘Credit Markets'  noise off this plan,  today the bias was weaker and the equity markets followed.

Be wary of rebounds...

If the markets rally last week was due to the hope of a "clear and detailed financial rescue plan",  then the element of supporting such a rally is on life support.    As traders,  we have to be absolutely clear on this part.    Things are going to get very murky from Washington in the coming days and weeks.     Right now, nobody knows what sort of program or options Geithner and the boys are exploring.  Unfortunately, judging by yesterday debacle,  neither do they!.   All we know, work is being done on a solution that may or may not materialize any time soon.    There might be the surprises we want,  but you can't trade on that hope.   At this juncture,  traders will remain focused on newsflow from D.C as earnings season comes to an end.    As time moves on, we feel traders will come back to the economic side of things, as well as corporate earning outlooks.

Market inched up a bit on the firming of financial stocks.    At this point we're very wary of any rally that is led by the financials.    After all,  aren't these institutions the reason we are below 8000 DJIA in first place?    Technically,  SPX 820 (big level) has been the support and the trend is either going to stall around here or drift lower to even more notable support near 800.    This means that unless there's a surprise and positive announcement with regard to the financial rescue plan,  we aren't going to hope for a rally any time soon.     Given the uncertainty of this financial plan,  we feel there's currently no point trading some of our favourite financial names like GS MS JPM NTRS.    They all had a pretty good move prior to Tuesday and we feel it might be prudent to let them work off the gain and establish good support somewhere.

In other areas, we feel commodities still present us with some compelling trading opportunities going forward.    Sure, when market tumbles few hundred points, nothing survives.    We are looking to establish positions in some of the stronger sectors.   Ags, natural gas, coal and some oil names are attractive given the price level.    The key right now, is to let the price come to us and establish our position incrementally.

In tech land,  RIMM  said although subscriber count will exceed expectations significantly, revenue will be near the mid point of guidance, margin and earnings at the lower end of the guidance and the stock got hammered.   We used the intraday opportunity to flipped a few shares and that's about all there is today to trade in our circle.     This one may be company specific as quite a few firms came out and said RIMM did the same in last year Q,  but you have to remain cautious due to the economy trend and so it may affect some of the other growth oriented names too.

Bottom line, we have a long weekend coming up and it's going to be interesting to see how traders wrap up the week.    Things don't look too optimistic at this moment and extra caution is needed when pulling a long trade.

Kibbles n' Bits

Coincidentally or not,  the night CNBC is about to air a 2hr special, 'House of Cards',  the root of the credit crisis,  word spreads the Obama administration is working on a plan to subsidize mtg payments causing the bleeding market to wildly shoot up off the SPX February lows (806) in the last 40 minutes of trading.    Besides curbing foreclosures this of course would help stop bank write downs.    It is just amazing this plan idea is just coming around now after months and months of doing nothing for the housing- mortgage- banks- toxic assets circle of market troubles.    Whatever the details, whatever the arguments for if this is enough or not,  it is something finally and that is all that matters.    As far as the special,  strongly recommend watching it,  if you missed it tonight.   It will leave you bewildered at Wall Street's role and probably question if these guys deserve a penny of your bailout money!

As far as the markets volatility,  it is clear Geithner's failures will continue to make the shorts nervous.   What do we mean??.    Simply,  the door is wide open for 'Clarity and Details' , like we got today off Geithner`s recent shortcomings.   When the door is this open,  it leads to only one thing and that is a rush out the door.    Not a rush into it, as in new buyers coming in (conviction buying), but shorts covering their latest set up shorts!.    As we said,  we covered our positions in the SDS near the close Tuesday and were not short the broad market today because of the possible surprise factors abound.   At the close,  despite market pain throughout the day,  today our SDS positions would have been a few dollars lower than at Tuesdays close.   Just a reminder lesson in taking profits in this market,  it is never too early,  especially when it revolves around a big move day.... "The words, mark- to- market` …   If you we ever hear those words speculated on or something on the asset guarantees front, we`d almost guarantee a day opposite of today.     Today,  we got noise that clearly falls in this loop and we expect more to come in pieces.    They will continue to feed this dog of a market in kibbles n' bits.    Still, as we said above this was not conviction buying,  so it`s not a clear to pile in.    We`ll see tomorrow if the banks can follow through as they are the main beneficiaries to trade off such noise.    Still it was good to see a close above 820SPX and V shape bounce. ( a few Hammers on daily charts)

If the market can hold into the afternoon,  we may see some short covering late in the day.  This may  be spurred by a Presidents day gift rumour or just the fear of one piece from the Geithner puzzle over the long weekend.   Have a good one..