...How'd we get here?

‘Here“…is seemingly nowhere as we sit below SPX1K again and many jumping on the train last week are asking this question.   Before the 1st trading day of August, we discussed a break of SPX 1K was inevitable after painting a Bullish outside month to conclude July.   Once we accomplished this feat in short time, we immediately warned that an overshoot spike would be the beginning of a reversal if 1014 was hit and the market would “blow off some premium steam”.   Since Fridays intraday high spike to todays low..(26 pts < 3% has been blown off).   Today as the SPX futs touched down to 990/ 993 Cash important support, we were in danger of this reversal continuing to next 982S and than even 970S later on.   Simply,  we feel stops are laid out just below 990 and this would induce a further drop.   We’re watching this level closely this week,  today’s volume was quite low in all probability awaiting FOMC.   FOMC, not much is expected,  still it should swing the market either way just because we sit at support.

The Friday SPX failure to close over 1014 is reminding us of the June attempt to get over 950.  A break to SPX 956 and than a close of 944.  We think the trade going forward may resemble the aftermath of that day.  Have a look at the daily.

What’s important to understand for future reference are some points to recognize as a trader to be a head of the curve.   Once we broke SPX1K, we titled a journal “ PMI= SPX1= Market too Giddy”.  That day global PMI pushed the market higher as all of a sudden these PMI’s were the holy grail as seemingly every  Johnny come lately’ was coming in bullish.   We wondered if this investor was really that behind the curve and now the smart money would begin to sell off to them over SPX1 (Aug 4).   This relates to the overall bullish sentiment getting too high, thus too giddy.   Other bearish points we have discussed recently are the mid/ small caps earnings winners not going higher which signals a short term top for us and most recently the failure of the COMP all leads to our cry here…’we want broad particpation’ and we’re not getting it.   Also our NYSE A/ D line is turning.

A few earning plays from this Q did look good today.  FIRE  continues to make new highs,  PWRD  made a nice one day reversal after selling off on excellent earnings.  EJ  beating on top of Aug range ahead of EPS.  ABVT, consolidating, flat lining well since EPS.  SXCI  and even STEC  is starting to shake off the offering.    But as noted yesterday, breakouts are a concern and just as we noted TBI  breakout was vulnerable as it gave it all back.   We’ll feel much more comfortable with our niche once this action stops. We also added some TXIC  today due to earnings, China and business related make the float even that more attractive to go higher.    Anyways, today a few more of our niche plays are looking better, hopefully a sign of things to come.

Today,  financials down 3% with banks down 5% being the weakest sub group, we have Tech doing nothing since MSFT earnings and Commods  needing a well deserved rest all intertwining here.   Not simple to figure out we need someone to pick up the slack.  

Anything but conventional....

So far,  it's been concluded that 2009 isn't a normal trading year.    Unlike last year, where everyone seemed to be on the same page, this year nobody seems to agree on anything concrete for more than a day.     One thing we all have to admit and respect though, is that the market took a gigantic turn from a low of SPX 666 to what we are now at SPX 1025.     We can disagree on many aspects of the recent economic development, corporate development and policy development.     What we all have to agree though is that the public (investment) has one sided agreed that things are improving.   Investment community has been voicing their opinion through  buying and more buying of riskier assets (equities) and that's how we got to this point today.

Strangely, it's still a sceptical vision for some people (bears).    Since we can’t predict what's going to happen the next six months to a year of trading , that conclusion remains up in the air, but we cannot DENY what's happened the last six months.    If people still think it's just a conspiracy by the government and a bunch of big brokerage firm’s artificially propping this market higher, then those people seriously need to check their heads.    Politely, simply that’s our interpretation of those people who have misread the market during last six months.

Ok, having traded this market on the long side during the past few months, we do admit that things aren't easily interpretable from time to time.    In other words, this hasn't been a conventional bull market.     How?   The market itself has consistently beat our expectation and surprised even the most optimistic bulls.    It's a good thing, right?    Well, unless you are a new bull that was born at the beginning of 2009, this might be one of those sweetest year you'll ever encounter.    For those seasoned traders that have "seen it all", we feel the market has outperformed most of them.    For DJIM traders,  we trade and live in a world of probabilities.    We enter a trade often in a high probability scenario and hope to profit from it.    If the trading scenario offers a low probability, we simply wait for better opportunity.    This is our conventional way of trading and why earnings plays work either immediately or simply, sooner than later.    However, what if the market offers nothing but low probability trades and often those trades work out wonderfully?    Well, welcome to 2009!.     Having traded as many years as we have, we just have to say that this year is nothing like the other years.   In other so- so bull years, we'd have done ten times better than we'd have done this year up till now.    Of course,  we may be a bit hard on ourselves, but the whole point we are trying to make here is that this ISN"T a conventional trading year.     It's been a slow and cautious adjustment as well always still full of hesitation and tentativeness.    We simply do not want to throw away all of our previous "know how" experience in order to adjust to the current trading mentality where garbage bin stocks have worked.   This will probably be a repeat of where Joe- Schmo thinks he’s a trader now until the day comes they are taught a ruthless lesson or two to take them where they started from.   We know, down the road, this market will eventually return to the normal mode and our knowledge and experience will apply greatly.    Discipline and consisitency is still our main strength at DJIM, even if it means foregoing some of the "seemingly easy" profit here and there.

Back to this market, we concluded yesterday's Journal that we’d concentrate on individual stocks and let the broad market to what it needs to do at new 2009 highs.  A stock we alerted late last week and said yesterday it should be on top of your trading list,  BCRX  stole the show with a huge lift, we really didn’t even notice SPX action all afternoon thanks to it.   Even though we closed flat,  it's really not that big of a deal considering the week we just had and the fact this is the week people go away for one last break in the summer.    Some other plays on our list such as SWM SXCI HGSI ABVT  from this Q and those from last Q STEC EBS EQIX... exhibited some nice strength through out the day.    Other plays have been firming up the setup as well as noted yesterday.   Overall, we thought it's a pretty good day.   As the market inches higher, we are in the buy on strength mode.  Tomorrow is that 5000 household CCI # to watch for possible market direction , even though we don’t really consider a eco data point.