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!

Global Rip..

As an overnight Global market rip flowed into Europe (most exchanges up 2%),  U.S markets had no choice but to follow.  We were actually quite relieved that 1060 proved to be technically troublesome as this is the top of the ‘range bound/ holding pattern (1038-1060) noted yesterday.  The reason is simple, we don’t want the market to get out of hand before the market has a true read on earnings and cause a sell-off on ‘good earnings news’ down the road.   Either way, up or down we go later,  the strong impetus for the market will be earnings and not Aussie interest hikes, talk of 2nd stimulus talk as was the case today.   The real money is not going to chase the market to new highs on a relief rally,  early afternoon,  we had evidence of this as how easily the market can sell off without conviction buying coming in.  

Most importantly in DJIM land,  this relief rally played out perfectly bouncing 40pts from Friday’s gap support levels to unwind positions and make short lived trades.  After seeing the benign G7 statement this weekend in respect to the USD, we entered the week saying look for a USD weakness trade.  It is incredible to see what has ensued as all focus is on FX with Gold ripping,  Aussie / Canadian dollars at highs etc.  

As far as sec’s, strength was broad based.  Our China’ listed stocks, such as HMIN EJ BIDU  were strong.  One of our few retail stocks, TIF  made a nice run to NCH.

As reports start to trickle out this week, the market will begin to get a read on things and start to get a feel for how to position itself, either for upside or downside.   Every report from PBG today to COST tomorrow morning to AA after hours will be dissected by the real money to begin a feel for what lies ahead.

..Tales(s) of the tape

It’s what’s inside that counts, the saying goes!.  You can apply this to the market today.  On the surface the market grazed (off only 3.5 SPX pts) above the 1060-58 gap of October 8th,  yet the underlying market was terrible with widespread deterioration.

Weekend`s edition, we said stick to ‘bigger names’ ..small caps lagging action.  Yesterday…avoid (high beta cheap-outperformers) micro-mid-small caps.  Unfortunately, what we want to avoid is mostly what our DJIM trading list is comprised of.   Today, the selling continued and got aggressive with many of the EPS out performers being rocked…ININ, HMIN, FUQI, TXIC, TRIT, BIDU, WYNN, STEC, AONE  etc.  Some were new earning report related, others sector realted (China), some IPOs.   In the broad market, the TRAN breakdown has the SOX as a partner.    Also, even though we've avoided commodity linked stocks recently, we can't help but notice the damage done in sub groups like steel today.   This type of selling is reminiscent of the days when HF`s dumped at the end of a month(s) in 07-08. As we said yesterday, they are locking in profits as fiscal year end for many is Oct-Nov.   While the selling seems to have abated on the surface, buyers are hesitant to step up until the market finds its support level.  You should as well, if your time horizon for a trade is more than a day.   If you can flip intraday, some names will provide a trade, possibly even tomorrow after their beatings.   A stock like WYNN  that is $20 off highs and has ability to squeeze at anytime is starting to look attractive even as a longer term hold possibility, other smaller beat up names don't have the same characteristics yet.

Also from yesterday…"…be careful jumping into excellent reports with both feet immediately.  Wait for reaction to confirm buyers will still eat up growth stocks".     Today, we alerted a stock with a cautionary…'see if it catches on'.    What we see clearly now from this stock and others is even small caps are going to have a hard time catching a bid from an EPS report in this current environment.  The 'sell on the news' is spreading and we again caution about getting in on a stock early from an EPS report at this point.

SPX has been down 6 of last 8 days and 3 in a row and 1060-58 might be ST support, but the market awaits GDP (Thur) and homebuyers tax credit news/ financial bill etc.   So, while the market box score may look okay on the surface tonight,  there are ominous signals internally that require the above trading basics to stick to.