Sober up time coming?

Those coming back to the market and now finding the SPX up nearly 20% (from 11/20) didn’t help the market sober up from it’s holiday cheer.   Despite new potential tax cuts of 300bln + , we still opened weak and finished in the red.  (We had a test of 918-919SPX early and rebounded).   The market was generally flat tape with exuberance for bargain shopping evident throughout our previously shadow-listed commodity stocks.   Again, we saw beaten down prices of Shippers, coal, solars get eaten up, while the E & P Shales continued their merry way with Oil climbing closer to $50 ( some of this  also b/c of a XOM for CHK rumor).   All this with a strong $USD should have brought commodity equities down as it did with the price of gold.   Instead, we just got more and more buying of equities on sale from 2008 inventory as those coming late are seemingly chasing ahead of any news from Washington.

At his point,  it seems best not to fight the positive tape, even geopolitical tensions are being ignored as markets worldwide keep rising.   But,  we think it is just a matter of time before analysts get back to their desks and start cutting many sectors/ equities on valuation such as the Solars, Shippers to bring them back to reality.   AMC, MOS (Chem-AG’) reported and should trade down sector, but AH’s is no indication of that happening.  We’d say wait for firms to have a say and than see the reaction.   Based on below-consensus 2Q:F09 and EPS and the negative near-term EPS implications of planned production cuts, profit taking should occur.  Persistent weak customer demand is seen and the company is reducing its potash production by up to one million tonnes in the second half of F2009 and reieterated its willingness to further reduce phosphate production up to one million tonnes through F2009.  

We think a sobriety test from the holiday mode is just around the corner and we’re looking for short candidates in the sectors above. 

Volume still not back to normal levels.

..complacency hurts

Sometimes it’s better to be a little early than late.   The premise at DJIM of ‘ bad news’, gag off come New Year and therefore establishing short positions paid off handsomely today,  despite a few days of nail biting, head scratching as this melt up continued without any real Bank stocks involvement.     As we said, it’s important to trade on facts and not emotional swings as in chasing the lot.    We had plenty of crucial facts to the markets fate for the day and alerted them into the open.    Fortunately, the market had the ‘sobriety’ test and it was even better than expected in the form of a meltdown of 3% across the broad indices as volumes start to come back.    Not only was SPX918 humbled, 900 a big mark came into focus and luckily held up at close for now.   We don’t think it will hold this week as more bad facts to be wake up to might be around the corner .  This is something we said at the end of last week, we don’t want!.  Surprises !.  Some will say today was profit taking...yeah, it was..... but it came with realization and fear once again that it simply sucks out there in the real world and therefore not just simple profit taking.

Coming into the trading day,  we highlighted/ underlined on site that we were seeing a tandem  at work with Oil seemingly hitting a 50 wall and weakness appearing in commodity equities into the previous days close.   Crude fell over 10% today and it took those equities/ commod`sectors...  Ships, coals etc. to the shed and will continue to if crude is becoming bearish once again.    As far as the broad market,  a frightening ADP number followed by the timely INTC news answered our journal title of where the next resistance is…..This is a tricky week as this is officially the start of the "earning warning" period.  We've had a bunch of small  tech names warn already this week, but the semi's/ hardware were probably best actors today.  So, it's the bigger names that we'll determine course.  This may become the resistance if a noteworthy co' reports one.

The reason we alerted the ADP, INTC (we don’t very often release such events) is we thought they were noteworthy because the market had become “COMPLACENT’ in thinking everything is priced into the market,  including economic and corporate news after the last Q.      Don’t forget INTC already cut from 10.1bln in November to 9.3 and now to 8.2.   That’s a big shift and we will see more of this, so those ignoring and becoming complacent are going to get hit down the road if they don’t smarten up.    This was a cold shower awakening that it could get even nastier.    Despite all the lowered guidance from co’s and analysts,  we still think the numbers may get worse than anyone thinks.

The only positive was MON and a huge squeeze as analysts had become quite bearish on the company lately.   We want to point out this has little to do with rest of sector and eventually the crude factor if bearish will knock the other Ag-chem stocks down.   Around 40c of the difference in estimates from the street were glyphosphate profits and MON biggest competitor is Dupont.   This report has little to do with how bad MOS’s really was.

Right now,  the focus has to be to close 900SPX+ for any bullish sentiment to remain short term.  The fear we had going into this weak has been put back in quite a few today that had become complacent.  The effects are they will now be waiting for more ‘bad news’ and this market may have a hard time fighting back beacuse of it…Obama inauguration or not.

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.

C as in "Crumble"

You can also use the word "Collapse" or "Creamed" to describe today's ‘world’s’ market.   Besides European bank fears DB -9%, warned,  HSBC -8% capital fears.   In addition,  C (-23+%) , which is also the ticker symbol for today's big Culprit in US markets, Citigroup.    So, the way people have been interpreting Citi's restructuring come earnings is negative , everyone feeling that there's a very likelihood it's going under no matter what it does.    This is, at least true with the common stocks.    Basically,  Citi is the nucleus of market worries that caused Tuesday‘s chop, slop into a mudslide crashing through 860SPX.    Of course, we also had the dreadful retail sales number & failures, foreign  downgrade ratings , NT filing for chap 11.... to blame on the market decline.   It’s just becoming a flood of the ‘bad news’, we discussed at DJIM once the gag order came off in January.

Here's the truth!    We broke SPX 860 cleanly and we are now turning to SPX 820 for support with DJIA 8000 not far away.    It also confirms that the rally started in December was nothing more than a typical bear market rally as we’ve discussed recently.     Today's market action was pretty intense with uncertainty in Washington TARP-Stimulus-Geithner picking up steam and helping to sicken the markets.   There was no letting up of even a minor intraday bounce.    You can tell that institutions are selling heavy and putting a lid on every rally attempt.     Even watching from the sideline,  we can feel the intense selling pressure.     VIX, the volatility index, shot up to 50 and that's something we have to be very wary of.     Why?   Today's the first day in the last few weeks that looked a lot like a typical day in last November.     Coincidentally,  back in November, the market was all over the financial companies as fear of collapsing banking system runs rampant.    Today, to a lesser degree, same fear is back and action is just oh so similar.  Intraday swings are more likely to return in this environment..up and down.

There's no safe heaven out there.    We are also putting off "buy on weakness thesis" for now.   The market may rebound tomorrow,  but we are not playing cute this time.    JPM is set to report tomorrow and Citi is going to report the day after.    Market reaction on these two behemoths is very crucial.     Basically,  we feel SPX 820 hinges on the well being of these two earning events.   The best bet right now is continue to stay neutral and on the sideline.    This may be a "coward" way to approach this market , but we feel this is the best strategy when your own hard earned money is on the line with every trade here.     Regardless what happens though, we still like the way market resolved any issues with quick and decisive action in the past.    We may go much lower or stop right here, we'll know the answer within a couple of days.   By then,  we'd know what to expect from this market and which plays to look for.

A muddy start to the year (below)

....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!.

..puff the magic dragon..where you go?

In the middle of the latest rally as the market came to ~940 SPX,  we wrote in the first journal, (DJIM #1 2009), we believe we will see SPX go back down to low 800 at some point during the year.”.   Little did we think,  ‘later in the year’ would be 11 trading days later. 

Expectation was with a few hiccups 1000 SPX would be reached sometime at the end of first Q of 2009 and than a fall to 800, maybe 750 before all the Obama economics and gov’t intervention of 2008 would lead to a rally back to 1000 or higher later in the year.    Right now,  the only hope is all this has been sandwiched closer together and a rally, maybe not the yet expected later in the year,  but still one of significance as 800/ 750 present the low range of this range bound market we see (750-800 to 1000 SPX).   Unfortunately these levels are coming at a very nervous time with banks globally under heavy pressure (BKX down 20% and at levels not seen since the early '90s) and we‘re in the middle of earnings season that is expected to stink up the already stinky joint.   Financial co’s are now less than 10% of the SPX index
 
All this on inauguration day,  maybe at the end of the day it was a deserving welcome considering the new president’s first 'puff'  act just hours after taking office is to halt Guantanamo trials.. Come on, really, this is not what the market needs or wants to smoke after an already non-inspiring market speech earlier in the day.!

Yesterday, we said the building crisis was sort of saved by the long weekend, today there was nothing to save the financial collapse as we picked up just where left off on Friday.  There was no Obama magic dragon rally many had their sights on in blog land. at least.  There was only many unanswered questions as to what must or can be done to save the banks.    Please..if a relief rally (maybe imminent) occurs ,  don’t call it an Obama rally if it happens!.   We were just at 860SPX cash Sunday night as many moved ahead with their losing calls into inauguration,  only to be blown apart by global banking news soon after.   It will just be an oversold to lower range bounce, if we get one.   The giant headlines, news flow will continue to flow out of Washington and the U.K, the time to be short would have in anticipation of the gag coming off into 2009 from 900’s SPX and not now even if the headlines are ominous from the banking sector.    The magnitude of selling seen the past few days shouldn’t last.   It is best to be prepared for a bounce this week from these levels not seen since November.    The difference now to November is what seems to be a stronger credit market with spreads tighter and issuance stronger.  Iif this is truly a positive than stocks are close to buy range in this range bound market.   If there changes in the credit market going forward this year, say goodbye to this lower 750-800 PX range.

Also as we get closer to February and earnings from steel and solar names come before us, we’d look at any rally to short these sector equities.    In the meantime, we focus on this weeks big tech earnings and hope more are like IBM’s (good luck!),  GE is also on deck, it is worrisome this behemoth is being shorted to seemingly oblivion these past few trading days.

dialing.....1-'(800)'-$SPX

Almost everything on the market today answered yesterdays “ coming around?” question.   All we wanted was to for the market to stabilize and not display the wild gyrations we’ve seen this short trading week.  Instead,  we got more of the same volatility answering the suspicion that Wednesdays bounce was nothing but short covering.    Despite some earning bright stars this week in IBM and AAPL after mkt close,  the mkt got stunk by an early wake up call from an unexpected source (MSFT).   

Talk about something getting in your cereal and causing a sale sign to go up on everything by the opening bell.   As bad as MSFT was,  you have to read over CNH’s  report (Alert sent out on machinery sec) to see how '09 is shaping up as for this sector.    Besides the big miss,  the company did not provide any 2009 EPS guidance,  which is a negative in our view and a sign of the uncertainty in 2009.    Negative follow through extended to CAT  (reports Monday), MTW, TEX and ag’ equipment like DE and pure infrastructure stocks like JEC, FLR got rattled from the bell as well.   Besides noting a short in the machinery sector,  we were jumping off and turning on Education stocks (ESI, APOL ) at their highs.   This is a place we’d usually be adding to positions in the past,  instead , we slanted to the downside thinking breaking out successfully in this environment maybe a useless proposition.   Of course,   we still like this safe sector and these earnings winners,  but we’ll wait for a pullback to come back long and attempt a breakout.  After holding all day during the market declines, they succumbed some finally into the close.

As far as the mid day rally, what rally really?.  It lasted 1 hour and probably was nothing more than another short covering attempt.    In a short covering rally, you don’t have “whales” buying.   There is no institutional buying Wednesday or today from what we are hearing.   A blink of hope was given by GS, JPM during a Financial slide of nearly 6% on the day.   Insurance firms took brunt of the punishment today.  

This is a confused market,  let’s hope GE doesn’t say something too negative going forward in the morning to add to the downward pressure coming from every sector today.    It’s very much a technical market, so keep eye on 800 SPX area as most important level now, we’re nowhere close to the 50ma .

..Better than feared..

A better than feared mentality is quietly emerging as January readings are improving in many parts of the globe.  Unfortunately, we can't really do anything about it until Washington makes some positive noise.   Oh well, life goes on and one highlight emerged at DJIM premarket, MYGN.

MYGN,   something must be in the genes for this biotech to produce another strong Q!  Once again, we alerted this shadow-listed stock highlighting that even if it gapped it had room to roam and did ever.  After being 74-75 at premkt alert it gapped to $77--78 and by noon it was eyeing $85.   No matter your entry in the morning,  MYGN should have been a good friend to DJIM members once again.  EPS of .43 beat the street consensus .32 handily, excellent sequential revenue growth as well.   Estimates will be raised here and targets should follow.  On a day where no leadership emerged in a rally, MYGN clearly stood out.   We will continue to trade MYGN,  but after such a robust day, we'll wait for a pullback to trade it again, just like last Q.

Speaking of no leadership in a rally of 140 points!.  No financials, no familiar high beta tech.  We received a few emails, read some trading blogs and heard the same question of where were the financials-banks, most notably.  This led many to question and ask how did indexes move so much.   It`s quite simple,  if you just look at the recent declines of the SP Finacials-Banks, down 27% and  38% respectively and you understand they don`t always follow or lead.    It`s not a question of is this rally day sustainable because all are clearly waiting for Washington,  we realize breaking 850 is most likely not doable without a positive Washington spin.   Today, PNC,  brought the regional banks and the sec down, we also had questions arising about BAC`s credit levels and dilutive equity sales to the gov`t.  This space is clearly underperforming all year and so did today!.   Today's move was ETF and Options driven,  not by any one stock!.   Throw in some broad short covering and nothing stands out.   This is why this move was a head scratcher to many when you look at stocks individually and see miniscule gains. 

A few market bullet points,

Washington, it’s a sector in itself now.  Geithner interview, words of a very aggressive, quick stance on  fiscal stimulus and Republicans alternative plan that would include a corporate tax cut helped the market.  Neither is very meaningful and enough to move the market like it did.   We just think a push higher to protect 8000 was starting when we tossed out the SPY chart yesterday.

Shippers,  we noted this sec late last week, we gained more interest today off the Baltic Dry Index advancing another 4.5% to over 1,100.  Iron ore-China noise flow the reason. 

USD$ was selling off across the board.  Big pullback.  We recently put up charts of UUP-$CRX correlation.  At this point bumps in the dollar and you begin to look to trade some commodity stocks-sectors.   Many steel stocks acted right.   Industrial related stocks performed well off some of the sec earnings..UPS one of them.

Resistance=  around 850SPX

Eco data, including yesterdays note on the PMI, better than feared data flowed some more (pending home sales beat, but with price falls)

CSCO  tonight, market never seems to do well (afternoon of) as a precursor to a big tech report last few Q`s.