All about EPS to some...

Other than the EPS stories (to DJIM),  there was no dominating noise to explain the market stability and rise today.   As a whole,  this market shrugged off the morning weakness and closed the day near the high.   This is quite remarkable given the weakness we had toward yesterday's late day session.    Technically, we dipped south of SPX 840 intraday, but it’s only bearish if it closes there.   Mkt closed SPX 850, right in the middle of the range we‘ve focused, sort of the battle ground these days.    As we have mentioned the last couple of Journals,  we seemed to be range bound until something catalyst that can drive us higher, or lower.  

The market players are attempting to say such things as, (Briefingcom)…Another factor keeping a lid on rallies right now is that this earnings season is shaping up to be essentially a lot of white noise….Moreover, while the unexpectedly high number of current quarter beats might normally be seen as a positive catalyst for the market, what is keeping a damper on most earnings-fueled rallies is that: 1) stocks already have had extended runs into their reports, and 2) as is typical in a recession, these bottom-line beats are most often enabled by aggressive cost-cutting rather than stronger than expected demand.  

Here at DJIM, we are not looking for another substantial rally, we just want to see the market break this range.   Yesterday before the open (Forum), we noted their was ‘broad’ corporate trends that we felt might give the market a boost.    Considering,  the previous close was ugly, a day with no catalysts and some EPS stories (CC's) during the trading day , we somehow closed at SPX850.  We think earning are playing a quiet backdoor role.    Do you have a better explanation?.  This premise has some credence following AMC reactions to MSFT, AMZN.   Of course, barring any “stress test” negative cataylst, we think the market may abate the “ selling the news(eps)” and surprise many by breaking over 860!.

As far as individual/ stocks, we couldn’t be more pleased with the action LVS  WYNN.  Both continued the squeeze potential we alluded to and were up another 10% early while the overall market lagged.  We also had a nice 3+ move from alerted PENN ,  a “Racino” off earnings, besides the earnings we liked it fit because it fits into the Gaming play.


On the negative side, we’re sorry to see our favorite commodity group since late March disappoint.  NUE, RS, and STLD all moved lower as the concern of the health of this industry lingers.   The ag-chem sec wasn’t so rosy either as POT, did not inspire much confidence either after its report.    This basically gave us the confirmation that you'd never know how this market will respond to certain report/guidance.   On the other hand,  we had a couple of well received statements from the likes of AAPL EQIX.    We were actually quite surprised to see EQIX have such a strong reaction which is very different to last quarter's reaction to a similar report.

Banks, again,  were leaders late carrying the market tape into the green.  We commented BLK  might be gaving reason for optimism later.  It broke out with another 4+ points add on late and  WFC, JPM, GS, STT, (PNC, CS  earnings noted)... just a few on our list that performed exceptionally well.    If the market players can let out a breath, a  sigh of relief on the stress tests, the XLF breaking $11  will cause a nice break to the upside.   The Futures are pointing to a lower open (low 840's), but we think this will change by open.  Euro markets may give signals to market direction early on.

Tomorrow,  we'll get a glance of the criteria that's being used in the all important "stress test".   This is definitely going to be interesting as investors would see for themselves how some of their favourite companies will fare in the test.

AMC, we've had some nice reactions to the corporate trends for Nasdaq tech- linked MSFT, AMZN, JNPR SYNA and even in a financial link, AXP (huge expense cuts).    Unfortunately,  we also had the news that Chrysler is nearing an announcement to file for Chap 11. This should be overshadowed and relate more to sub groups.   The trend lately seems to be favouring the EPS stories in our eyes.    So far, we had quite a few market leaders that showed decent eps reaction, in our view AAPL is not 'selling on news' typical as others seem to be calling it because a stock doesn't jump 10-20%.    This is definitely a high contrast to what happened last quarter as most of the companies were taken down hard after their earning report.  That was selling the news.

At DJIM,  we have been doing some quick trading here and there last few days.   However, we are still waiting patiently for this market to make a major move.    The probability, at this point, still favours an up move as oppose to a down move as 840 seems pretty formidable this week.

Earning coming into focus...

In the premarket newsflow,  OECD  raised the economy outlook for U.S (alert posted).  This is the first time they've done it in 2 years.   This is actually a direct forecast contrast of what World Bank said a couple of days ago, which we stated we had problems with and it would go away once/if digested properly.   Regardless who's right and who's wrong, we always feel that it's up to the market to decide the outcome.   In the econ. data dept.,  we had a unexpected big surprise Durable Goods #  that further excited the market in the early going.   Although the market ended up giving up most of its gains, we'd still like to point out a few positives.

Earnings do matter! Tech giant ORCL came out with better than expected report last night and the stock/ sector was greeted with some positive reaction.   Despite the late day weakness, both ORCL and JBL (another one reported eps last night) held up most of the gains by the close.   The responsible culprit for today's late day weakness is the FOMC statement or better, the lack of it in regards to more purchases which caused a $USD lift off and commods' took it on the chin.    Still,  you can say that everything they decided during the meeting was pretty much expected.   The bottom line is that we are back at SPX 900 w/ 50MA crossing 200MA.   Buyers are present,  just more discriminating with purchase prices than in the previous months of the rally.    As more and more companies line up to release earnings, we are feeling more confident about buying on the dips, (STEC another perfect 9ema move today).   Given the weakness we've endured the last week and half,  some of the plays on our watchlist are no longer in the "overbought" category.

Looking at various sectors on our shadowlist link,  there's no doubt that some of the strong ones came from Steels (most up 5% early) + Tech  area,  as well as some China  plays.  In fact, overall breadth is superb today with only a few red names on our entire watchlist. http://finviz.com/screener.ashx?v=141&t=AAPL,ADY,AKS,ARUN,ASIA,BIDU,BWY,CVLT,DDRX,EBS,EJ,EQIX,FCX,FSLR,GMCR,GNK,GS,GYMB,HES,HOT,ICE,JPM,JOYG,JRCC,LVS,MA,MOS,MYGN,NEU,OIH,PENN,POT,PWRD,RIMM,RVBD,SAFM,SCHN,STAR,STEC,STP,TSL,WFC,WMS,WYNN,WLT,X,&ta=0&p=w&o=-change

Before the actual earnings season starts in full force sometime in July (now we have May ending reports), our trading strategy is simple.  So called "technical weakness" continues to be a buying opportunity to us,  just as we noted this week if we approached 880SPX.    We just don't see a major breakdown to a much lower level without some major negative catalysts coming into EPS.   Given the recent positive earning trend and econ. data points,  the probability of a breakdown is even less likely.   Right now, we are still in a process of working through some overbought levels since March and it's likely to continue over the next couple of weeks.   This shouldn't concern new standout EPS plays coming.  

In the meantime,  enjoy the good trading action that still exists out there,  you just have to be selecive or just tune in to the soap opera as one congressman is smearing Bernanke with a cover up, while another Senator is confessing his adultress- marriage cover up all at the same time.  Oh, what a country!

Shadowlist

 List below.  Previous link on left side of site did not support this many stocks.