Absorption

Today's tape shouldn't come as a surprise.   Not only did the banks- brokers leaders need to absorb last weeks gains,  they also need to absorb their billions of capital offerings with the market.  

Two of the prominent leaders in this rally were the Techs and Financials.   These comprised 50% of the SPX point advancement.    Last week, we highlighted the lagging tech, today we had the financials naturally pause sucking in the gains & slew of paper.    Naturally,  we pause and succumb to some profit taking as the tape goes with the recent leaders.    No matter, Banks- Brokers still acted resilient considering all they have to deal with.    If 50% of the SPX move is going on hiatus until a positive catalytic event,  we are vulnerable to the beginning of a correction for the market.  

Fortunately, here at DJIM we have focus on EPS stocks &  selective sec's.  Today while the market plays in the red,  we have stocks DJIM linked stocks EBS, (reader forum eps note),  BWY  (buy at BAC/MER today) and the Gaming /Lodging sector plays ( WYNN LVS MGM..) still showing signs of squeezing as more LV and China notes come out over weekend.   This is shown in the "Room for Green..", intraday post.   Some may look to defensive sectors like HCare, biotech etc in event of a correction,  we're fine with concentration on recent earnings which sometimes fall into those sectors anyway.   EBS has always gone against the trend of the market as seen in a yrly chart.   We've talked of eventually the market playing into our hands and the easy trade.  Imagine if today's action in EBS LMIA BWY signals a possible return one day to micro- small caps as we get to an economic trough with attention swinging back to..dare we say it back to IBD type of stocks, where growth matters.   Hey, why wouldn't hedgies exploit this area once again to pamper their books?

Besides FSYS  comeback to our lists,  we have added PEGA  LMIA  to our potential tradeable EPS list.  Like last weeks EPS list,  we watch to see if these make the grade,  most from last week are flirting with 9ema.

As far as tech, we have upcoming analyst meetings, tier1 conferences to watch in the short term for direction.

We held 909, at close, which represents a recent trendline, (898 a recent low-the psychological 900 )is where we want see the underlying bid prevail.

Away from the spotlight...

Basically, all of the action today after a triple play rally is not from the usual movers and shakers ,  instead it’s from our boring listed  plays..old (commods’ ) and new (EPS’).  The index may have closed flattish and financials rolled over naer close,  but it's otherwise a pretty swell day around these parts.   The biggest story of the day occurred AMC.   We are referring to the gigantic offering from BAC.     Here's the eye catching number, 1.25 BILLION shares at an average price of $10.77/shr were issued/ sold by BAC.   Over 800 million shares look to have been sold in a large block!!   Wow, this is just something we don't see that often in our lifetime.    Will this massive offering give some more firmer support to the market?    After all, traders were worried that BAC might have trouble raising money,  but it's just not the case.( now ½ done to 33.9 capital plan).    We have to view this as ultra positive    It wasn't a big deal for GS, MS or WFC to raise money,  but a massive secondary raise from BAC(somewhat inferior quality bank), a 10% discount to the daily avg since announced seems to have not been a big deal either.    As much as you'd think this would suck up a lot of cash from the investors, this has to be viewed as very positive development for BAC, the financial industry and this market in general as someone took a huge 2/3 stake of the offering.   

Now..the real action today was from a lot of our recent earning plays and the group plays.    We’ve been highlighting buying pullbacks awhile now as our 'Premise' holds.   Recall, we said many new plays are toying around 9ema, of course this would include most of our plays as we've been in a 5-6% corrective market.  eg. BWY DDRX NEU GYMB  FSLR ICE CTV  LIFE...In addition to the earning plays,  if that's not enough, we also have commods’ feeding off the weak $USD unwind,  GNK JRCC SCHN X  and agri.(POT, MOS ) since we *highlighted crop report last week were gaining more ground today.   

Earlier, we also had EJ , a former gem here, which guided pretty nicely, gained a trade spot quickly on to our playlist.   In fact,  it seems many of the old Chinese plays are heating up here again.    ASIA  SNDA  TSL.. are just some of the plays acting well.   Remember, we have CAF  to basket a further move here.  SOLF  also reported a not so bad quarter and gained some positive reaction today from firms.   This may bode well for solars STP and TSL reports coming up.   Also, NTES SINA SNDA are other China reports shortly.

Also side market note , CY (semi) had the most bullish comments from the often mentioned ‘tech conference’.   Conclusions from conference are more positive than expected and we should see the space continue to get a bid this week.    ADI (semi)had a good report AMC

On the other hand, we also have runaway earning plays like ADY  STEC , which we are patiently waiting for a pullback before making a potential entry.  As we have mentioned before, this market is full of good trading plays and we really appreciate a slow trading day like today.  

Technically, we are currently range bound  (876-929) right now heading into a holiday week.    There's no telling how the rest of the week will play out (FOMC minutes tomorrow), but we do like the action in many of the individual plays on our list going forward.    If this market can nudge higher, our question and answer to “Sell in May or will it be Buy in May?…was correct at SPX 872 as it‘s become a stock picker‘s market ,  dominated by earning plays churning this market higher. 

http://www.djimstocks.com/djim-journal-09/2009/5/1/sell-in-mayor-will-it-be-buy-in-may.html

A little healthy pullback so far...

Even the most die hard bears have to consider today's weakness as nothing but a healthy pullback.   In the big picture,  we trade this tape higher as long as the bullet points hold in our, “The Premise”.   New members may find it here, http://www.djimstocks.com/djim-journal-09/2009/4/30/the-premise.html.

The pace of this run-up,  we feel is going to be slower than what we have seen since March.  This is good news!?.   It gives us opportunity to re-enter positions we've cashed out.    Today's was a good day to get into some of the positions, excluding commodity linked equities for now.    Right now,  it's not about timing the perfect dip.   It's about buying on big dips, coupled with low volume in a rising market.  As noted in the last hour of trading,  we felt the selling had almost abated in banks-brokers this week.   Also, we felt the broad tape on low volume was not at risk / limited damage and could turn because of this.    A nice squeeze into the close ensued to frustrate the shorts some more.   This close may have some follow through in the morning,  it should withstand commodity-resources weakness if it continues.   You see, banks-brokers, tech, crude-energy can carry the tape without many commodity links.

The commods got some bit nasty action today,  but as we said we had to an excuse to take profits after Mondays melt up to ~950 after a 3-4 day move in the group.    Everyone here at DJIM had time to exit Tuesday or at worst at the bell today in one piece as we warned of USD strength to hit commodity linked stocks.    The USD had its biggest 1-day gain since January and the CRX followed suit with the largest sell off in a month.    We have seen this action many times over since we started trading commodity stocks.     The big up-moves are almost guaranteed to be followed by a meaningful pullback,  so it’s always prudent to take profits.    Of course, if you went  'long'  late March when we said the inflation trade is on,  you’re laughing holding through to now.    It just hurts to see nice gains over days evaporate in an hour or two, most times like today 7-10% across the board.    The key is that the entire commodity group has moved up,  week after week in a pretty consistent fashion and we‘ll re-initiate sooner than later.     We simply have to accept the volatility in the group as a fact and as well as an everlasting opportunity.    Fr now,  we need to recover our commodity index $CRX  to above ~635 or get a further dip to consider the high beta commodity linked stocks again.   List includes,  Coals (ANR, MEE, JRCC, WLT), Steels (X,RS, SCHN), Ag- Chem (MOS, POT), Solars (FSLR TSL STP), Copper (FCX), Shippers (GNK). We think the BDI (dry bulk) index might have peaked, (Intraday day note),  so we’ll see if this spreads weakness / weighs on the sector next few days.

The most interesting group out there today is the Banks- Brokers.  It has been under- performing the market during last couple of days,  but we might be close to a move.   It may have started late today.  Without the participation of financials,  it's hard to see this market getting anywhere close to SPX 1000.   For now, we simply have to believe that the financial group will move up soon barring bad sound (noise) bites.

Chinese stocks have been particularly strong lately and we simply have to contribute the strength to their economy and as well as the optimism in Asia.   In addition, many of the China plays have come out with some stellar earnings to back up their move. We wouldn't be hesitant to buy stuff like EJ, CTRP, SNDA, CYOU etc. when opportunity presents itself.    Techs, are also a group we'd consider favourably on buying the dips.

Bottom line,  if commodity stocks take a further breather, we have other sectors to trade.   We have plenty of plays (earning), BWY EBS ASIA  outperformed today,  others held up nicely covering a wide range of sectors.   As we’ve discussed heading into summer, we will have groups to trade/ rotate.

DDRX - BWY - CVLT- EJ alert plays in May

At DJIMstocks.com,  besides maintaining a ‘bullish’  posture in our Daily Market commentary since late March for the broad market (SPX) detailing reasons for such as we progressed higher."  This is almost a clincher and what will drive this market closer to SPX 1000.…03/24/09”,   We also initiated a trade in commodity linked stocks-groups at the same time,  followed by the probability of the small caps trade off earnings.   Below are a few examples of alerted plays in what was to many a boring ‘chop’ trade in May.

DDRX, alerted April 30 trading in the low $9's. traded to a high of $18.75 in 25 trading days.

BWY, alerted at the open May 5th at ~$11 as an EPS play, traded to a high of $16.75 in less than 25 trading days

CVLT, alerted as a DDUP secondary play May 27th, ~$11-12, traded to just under $16 in 8 trading days.

EJ, alerted at open ~$13.50, traded up to ~$17 in 13 trading days.

DJIM #23 2009

Market’s behaviour Friday morning brought back memories of past FOMC/statements where the market behaves wildly in both directions afterwards.    Even our squirrelly possibility of a NFP # below 500 was off the mark as we got a very low 300K number that melted up the SPX futures +15 pts premkt.   Unfortunately,  we saw this market get too bullish (recall we said end of previous Journal, we wanted to avoid excessive bullishness) and most importantly have the report take the $USD for a ride up.  We warned before the open to be ‘careful’ and hopefully, we all avoided chasing and just watched the big fade job of the tape begin immediately at the open.    The highlight of the the day became the very strong USD, unfortunately for many this was too late before the consequence of a low NFP # was figured out.    Still, we finished a 5th day above the 200ma which is quite important as it confirms the breakout for many with a technical view of the market.   We’re still going to be hesitant here for the broad market tape as the market is showing 950 level is formidable, we’d start the week maintaining Fridays premkt note to be ‘careful’.

So..that’s’ one market, the broad market!.    Meanwhile back at DJIM farm, the underlying market of small caps was outperforming as some of it’s animals continued to run freely.  EBS  noted at the beginning of the week as one setting up finished the week up 25%, other notables +4-7% gains Friday..ARUN, STEC, EJ, BWY. 

Despite the commodity linked stocks reaction to strong $USD, a clear trend emerged and that was the early strength in Steels..AKS, SCHN, NUE, CLF, X  held and outperformed the coals, ferts. Oil/ energy.  A little digging and we figure the RIO/BHP deal is beneficial to the US steel producers bottom lines (EPS..especially X) as higher iron ore prices are on the horizon from this massive deal.   We say horizon, not tomorrow or next week.  Right now, we may continue to be at the mercy of a USD bounce in the very short term.

One scenario we possibly see ahead is on a ’psychological’ level that may just rhyme with the technical picture at this point.   We have 3 weeks till Q end and we may have a ‘Little Blue Pill’  theory to keep this market strong and potentially take out 950 to 970-980 range.    The LBP theory is the performance anxiety that must be felt by money managers who have refused to ‘believe’ and will have to show something on their books for this 40% rally.   They are still very underinvested!.   One way to do this and what we would like to see is a ‘sharp’ decline to 200ma  very soon and have them hammer this mark with vigor and vitality.    Once again, we would than see our premise of an underlying bid prevailing as has been the case since March.   Once MM’s are given this entry level they would have even more reason to buy push this market higher to squeeze out better numbers for their books by Q end.

Good trend in tact...

Every couple of trading days,  we get a day where the Bears seem to have an upper hand in the early going,  ONLY to give back all their gains in the final hour.    In fact,  this isn't a new episode we witnessed today, but a pretty consistent show that comes every few days for a couple of months now.   Since March,  we’ve been pointing out an underlying bid at 20MA coming in,  now it’s seemingly ~200MA levels  on day 6 over this important technical level.   We were still quite short of the 919SPX present day 200ma (7pts).    Today, overwhelmingly an underlying bid came where the breakout occurred last Monday‘s (200ma level).   Even on those days where the Bears do claim victory, a failed follow through day puts the ball right back into the Bull camp.   It’s never-ending and frustrating to say the least, for those Bears.    If this hasn't been a continuous classical buy on dip kind of rally, we don't know what is!.    In fact,  all these little mini back and forth action simply put this rally in a much healthier state than the Bears would ever hope for as we grind higher.  

Still, as we said 950, even 940+ is quite formidable for the Bulls for now without a positive catalyst.  Also,  putting the move 3pm move into context,  it was following a very low volume day to that point and the ensuing move was purely SPY  and a few other ETF’s related.    You will understand this as you look at your ‘shadow list’ and see little follow through/ little movement in individual stocks/ sectors after 3pm.   One sided move so far,  we would like confirmation by seeing some follow through action in Asian/ FTSE mkts in am before getting too excited for more, just yet.

This is, in fact, is a Bull run that gives us plenty of opportunities.   As long as you trade with the trend, not with your feeling, and not with your disagreement with the state of the economy or policy makers, you'd be doing fine so far.    Is there manipulation in this market by the market makers eg. JPM, GS or policy makers as cried by the Bears?   So what if there is!!   If you are a trader and consumed by visiting blogs to clog your mind,"blogs that clog",  you will see these useless cries.   Think about for a second,  if you have another gig to worry about other than trading and come home in the evening, what do you see?.    You see a market going up and up,  that’s all !!.  Sonner than later, you call your broker to buy!.   If you read the WSJ, your local financial print or just tune into CNBC,  you don’t hear this manipulation noise.    We are simply here to trade with the majority (trend), regardless of what the minority opinion is on the 'net'.   The most ridiculous aspect of these ‘conspiracy’ theorists,  is if they believe it sooooo’ much and are so sure it is pushing this market higher for weeks now …why do they not just trade this trend up and make money off it!.     It's a daily laughing matter to us to visit these characters when we don't have nothing better to do sitting in front our platforms for hours on in daily.  

In this market, it's not our personal opinion that matters on the bigger picture,  it's the majority of everyone else' opinion (money) that matter. 

As far as individual stock action goes, we are still finding a lot of good dip opportunities from our earnings plays.   SAFM ARUN STEC BWY GMCR.. all were making fresh highs today, some dip a little, some don‘t.   Most of the Chinese plays look buyable too on dips.   If you are uncomfortable or unsure about some of the commodity dips, then it's ok not to buy them.    After a few days of strong $USD ruckus,  we may have a good commodity linked trade back very soon.  Not counting Oil/energy plays related to(if) higher crude prices,  we'd stick to 'steels' over the other linked commod' groups.    In the meantime,  we have plenty of "sure" plays on our list that can be justified as safe dip buys, only problem is some don't dip and that's why it's essential to do quality 'stock picking' early to make the bigger dollars as has been the case with our small cap 'earnings' plays this Q.

In AMC newsflow, TXN  guided higher on a optimistic call.    We are wondering if this is a sign to come for many tech' companies.   After all, if there's some growth business segments from a big one like TXN, it has to be the same case for many other smaller players.    Basically, we don't expect TXN to be the last one to pre-announce good guidance, we already had CREE  be the first recently.   Bottom line,  the ball is seemingly never in Bears' court for long.   It’s hard to press new shorts lower and lower because it's hard to get their brothers and sisters to do so when the declines only last a few hours, or a day.   As we said, the volume is light across the tape today indicating the shorts are not confident to press new positions even when down big for a few hours.    We are hoping for some more grinding action in order to set up a more powerful leg up down the road.   Yup, still...that's our 'bullish' plan.

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!

DJIM #26

The only trepidation you may have in trading this market is if you’re consumed by technical analysis of the SPX on a daily basis in making trade decisions.   If this continues to be the case,  traders will continue to miss opportunities heading into this earnings season.    Fortunately,  since late March on TSY news from the FED,  we said we’re going back the DJIM basics and going back to individual stocks/ sector picking concentration.  Back to our roots, yep.. back to the days of the Swamp with Lizard King and eventually as moderators for the trading forum in Rev Sharks (www.sharkinvesting.com).    Up to that FED intervention almost everyone was consumed by and fixated on the daily activity of the SPX, including us,  as long opp's were few and far between.    Many traders have stuck to this SPX trade and have missed a beautiful run in individual stocks/ sectors.   The reason we bring this up now is it has become tiresome hearing this is a boring market with little chance to make money due to the trading range last 2 mths.     Besides putting on the commodity linked stocks trade,  we thought if the market continued to act right,  enthusiasm would come back to micro /small caps, focusing on earnings.   Well,   it definitely did as the BWY  DDRX  ARUN  GMCR  ADY  EJ  CVLT  ICE  STEC  EBS  etc. dominated our DJIM platforms with big gains during the recent Q, while supposedly the market produced nothing but a chop trade.    What we’re saying is the market may become more boring in the next 2 months for many traders ,  but we’re looking forward and excited for new opportunities as companies begin to announce earnings for their June ending Q’s.    If things were better for the names listed above last Q,  we expect a slew of new stocks to come on radar with better bottom lines from a recovering economy.  

Until July 13th or so,  you should be drying up some powder in readiness for new stock buying.  You don’t want to be holding stocks that are losing steam or holding any losers if it takes up buying power.  You want to have cash on hand for fresh meat and /or continue for now to be very selective in buying. Your trading proficiency is not measured by how much trading you do,  but by your profits!.   We don't expect any fireworks until next holiday weekend,  we probably did not trade more than 3 or 4 stocks last week with PWRD, DDRX  heading into the week.    It made for a long week,  but at the end of the week it is only your P&L that matters.

..Here we go...

Since the NFP report on October 2 and a test of the gap 1016-1018,  the market has seemed ‘bullish’ towards this earnings season or has this rally just been a function of the weak USD ??.   Today, we got up all the way up to 1079, a point off the Sept intraday high with inconclusive  evidence this high is deservingly so, if based on earnings expectations. 

So far, AA  beat forecasts but its ~6% pop was met by sellers (the stock closed up ~2%). RPM  struggled despite beating and raising.  According to Barron’s, “in recent weeks, analysts have raised their estimates for 641 companies and lowered their marks for 383, bringing the positive-to-negative differential to 258 companies, or 17.2% of the S&P 1500.  That's the most bullish in nearly two years. 

Once again we moved higher on a low volume day (under 6bln),  ES traded about 50% of its 10 day average,  as investors wait for week 1 reports which will will be dominated by tech and financials. In tech land, there will be a slew of semis (INTC, AMD, XLNX, ALTR, CY, FCS, ASML, and others), as well as the first major enterprise firm (IBM ), and internet company (GOOG ). In financials, there will be only a few names, but they are some of the industry’s largest (JPM ) starts things off on Wed, GS/C  come Thurs morning, and BAC/GE  are Fri before the bell).  There will also be some important health care companies (JNJ on Tues). 

Interestingly, while we wait for big name earnings, a few DJIM's EPS' were in the headlines AMC with earnings related reports.

ININ – preannounced earnings; sees revs $32-34MM and EPS .28-.31 (St was .15 and $31MM). "Product and services revenues contributed to results for the quarter, both increasing compared to the same period last year," said Interactive Intelligence founder and CEO, Dr. Donald E. Brown. "We received two license orders that were each more than $1 million and eight other orders each worth more than $250,000. Company results were due to strong revenues and continued expense
management."

BWY   acquires BLL’s plastic pail biz, raises guidance – Ball Corp announces sale of plastic pail plant to BWAY Corp for $32MM. BWY guides 4Q and FY adj EBITDA and EPS to high end of guidance range provided in early August; also sees adj FCF exceeding $50MM vs prior guidance of $46-48MM