Dull but constructive...

Now that the market injected a bit of reality into investors' minds,  we can finally move away from the holiday cheer and onto 2009.    Today's action was quite good,  given the 3% slide yesterday and WMT noise.  It didn't look so good pre-mkt in the futures.   At this point,  we should not be too negative nor too positive as we all wait for the reaction to the BLS # in the morning.    Big news like the corporate warning from major companies or big economic report can dictate the direction of the market for the day,  but overall,  we are still very much in a range bound trading.

The most recent run -up was off the back of holiday with low volume.    It was obvious that the market had to top out after the overzealous melt up.    Now that we had the catalyst to sell down the market yesterday,  we turn our eyes on support levels.    So far,  SPX 900, which is strong support seems to be holding.    As far as many individual plays go,  the action is also suggesting this market is no longer a one way ticket.    Have people noticed the dramatic decline in volatility lately?    It means that stocks will no longer go up or down 10% and followed by another 10% move on a daily basis.   This is what we talked endlessly about in November as a que to a bottoming process.    What we witnessed back in November is truly historical in a sense that it's just hard to repeat that kind of volatility or action, without some earth shattering catalyst.    So, as far as trading is concerned,  we may have to deal/ accept lower than last three month's average kind of volume going forward.

We have often said in the past, "we(traders) can deal with a recession, but not a crisis".    Trading in a recessionary environment simply means we have to lower our expectation on the result.   It also means we have deal with a prolonged range bound trading environment.    This is just fine by us as money can still be made.

Plays wise,  we are continuing our EPS theme related plays as well as all the familiar commodity names.    APOL, an education service play, came out with a pretty good report tonight and stock is up 7% AH's.    Given its past performance follow thorughs,  there may be more upside tomorrow.    This one is also at the new 52 week high and it's getting attention because the fact that many unemployed people are going to need new training to get into different industry.   This is why we had APEI  (not very liquid)  as a play here before all this recession talk hit hard, so keep an eye on it.  STRA  fits as well.  

Oil/Gas/E&P  names exhibited some strength today,  it's probably not a bad idea to take position these days on dips when the spot price is taking a bloodbath.   There might be something in the stimulus for energy production, this may be partly reason for the constructive action today in this area.    We also bought a little MON  today because it feels it would give it a one more nice burst when the consolidation is done with following the huge squeeze.  Also,  it is definitely in a league of it's own as far as this sec's earnings are concerned, so far.

Bottom line,  job report is tomorrow and there's a good possibility that a bad report is already cooked into yesterday's decline following the precursor ADP#.    Again,  this market feels very technical and if we gap or burst below SPX 900 in the early morning,  look for 888 (50ma)area for next support.  It's more crucial than 900.   If that happens, we'd be buyers at that level.    Traders were just too nervous to commit ahead of possibly the worst employment report in years,  which brings in the possibility of a move up if it isn't any worse than maybe the ~700k whisper number.    If any exuberance is shown in any direction, there's many ETF's to trade on the major indices,  including 2x,  if individual plays / sec's don't stand out clearly as possible movers.

No cigar...

With the way financials-banks got obliterated and energy/ materials related got dumped, there was just no way the market could've held the 50ma of SPX 887 after the open.     At this point, we all have to agree that this market is nothing but a challenge to read.   There is practically nothing left of the Santa rally.   Anytime there appears to be a decent run-up, you'd think that there'd be some support underneath the rally afterwards and we'd be able to trade again from there.    Unfortunately, these days, support means nothing.    The next major support of SPX 860 is something we'll be watching for,  the selling was overdone in a lot of respects on lower volume than last week giving a chance for a bargain hunting bounce sooner or later.    In truth, nobody really knows where we can exactly bounce from.    This, after all, is still very much a bear market.    So, no matter how we approach things, we have to bear in mind that we are trading in a bear market in scope of everything we do.

Other than financials' horrible day, commodity stocks also got slaughtered today.    The weakening of crude brought down all of the plays on our watchlist, even with Natgas (1 of 19 in CRB index) being the lone gainer,  the E&P's got hit anyway.   To top off things off,  there was a bearish USDA report for corn futures which basically brought down the strongest group a day or 2 ago (Ag-Chem).    Well,  there's no strength out there other than APOL  which appears to be holding on due to it's business.

Right now,  we are staying mostly neutral.    We like to see if there's a bounce at SPX 860.   This is the week before Obama's inauguration and we are "hoping" market would calm down somewhat heading toward the end of week.    Basically, something has to be done to stop the slide in these financial names.   Why?  The downturn of these financial names is usually associated with credit crunch and that very worry can crumble this market,  just like in November.    But, the playing field is different so you'd figure they can do something worthwhile, once in awhile, but no cigar!     As far as plays go, we are looking for some stabilization in the commodity sector and than nibble some familiar Shale names  (Natgas, cold snap coming into weekend) and maybe others on these big pullbacks.   We are not trying to be aggressive here and perhaps it's the best strategy when times are uncertain.

Bottom line,  small and light trades on stuff we know best is the way to go these days.   We are constantly keeping our radar up on earnings mover such as APOL.   But honestly,  we don't expect many earnings movers this season at all.  

AA, came in with expectedly weak earnings AMC, (most base metals already took a dive into report). Overall weakness in commods' will likely still see a follow through early on with the dollar/ crude aiding again.

....take off?

Not everything had a bad take-off in NYC today,  maybe if flight 1589 had used runway SPX 820 like Wall Street,  the miraculous event may not have happened at all.    To be completely honest and to put the rally into context,  we were glued to the unfolding events in the Hudson,  not the last 30 minutes of trading on the market!.    As we noted in Journal and early post, the level the watch for action around 820 unfolded later as the oversold market bounced hard off support at SPX (cash) 816-818.   Preparation is always key to trading.    If the market breaks a support level, you say 'oh well (chit)',  otherwise you have to be watching closely & continuosly as a trader to see if something materializes as it did today to profit.     Simply,  everything that had to be done trading was done by 3:30,  which included selling any intraday and/or old positions as this was nothing more than a short covering rally off way oversold levels.    This doesn’t mean this melt -up can’t continue tomorrow,  it just means it has done little so far to make one think it can last more than a few days.    Once SPX 50ema turned up Monday,  it was a very bearish sign to break that level as it finally had just 'turned up' in contrast to breaking support off a downward MA.    There will be lots of talk what turned the market today,  included is the dismissed idea of nationalizing Citigroup,  but it really doesn’t matter what noise helped,  other than realize it was ‘technical’ on all levels!.      We also had, (yesterdays Journal)…’Intraday swings are more likely to return in this environment…up and down”.   Well, the swings are back as witnessed and that just pounds in the fact we won’t be able to sustain a long term move upwards.    This is probably the time again to just watch the sectors/ stocks off our shadowlist and trade whatever is moving that day until (if) we get something to trade off earning reports or just trade the DJIA/SPX ETF’s off major support and resistance levels.

They're back!!...There is an ominous side to the current trading environment and that is hedge fund redemptions have not gone away!.   The headline read, “ Investors pulled close to a net $150bn from hedge funds last month in spite of moves by dozens of funds to halt or suspend redemptions; “We expected December hedge fund redemptions to be significant, but the results are still surprising ... twice the peak equity mutual fund outflows in September at $72bn,” .   This will continue to be an overhang into the market and you have to think any sustained rally will be shot down on more redemptions sooner than later.    As we said day 1 of what has turned into a daily saga, ‘Bernie the Ripper’ will cause investor confidence to shatter and it’s only natural money is now being pulled out of Hedgies hands.

On the bright side,  the recent overhang of the Washington stories... Stimulus, TARP etc got a boost yesterday.   The apple of our eyes was APOL   squeezing the juice out of Citron and its' report,  we spoke in detail of the fact,  we thought APOL was too big of a fish for Citron to hook and sink.   The stock was already performing well today ahead of the released stimulus plan and despite another Citron report on it,  it rocketed as the education part of plan was digested.    The bill was positive for-profit education services companies, with the group’s average rising 8%.  You can attribute the strength to investors’ excitement about the additional pricing power for companies if the bill is passed as is.   The stocks that outperformed the most are the ones with the highest exposure to private loans,  which are not federally backed and remain largely unavailable, such as ESI  (shadow list it) and add to APOL, STRA in this group.   Still, additional steps need to take place before it even gets approved,  but the markets exuberance cannot be contained if there is almost nothing else to trade sector wise.   We'll see.   Market doesn’t always trade on finalized facts,  just like it took all infrastructure stocks up recently without knowing which company will be the big winner or when the money will show up on the bottom line.

Have a good long weekend!.