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Entries in commodity trade (4)

Mar202009 after

As expected,  a good nights sleep,  maybe some nightmares after the FEDS big bang and the euphoria died off in the marketplace today.   You have to be encouraged by the muted tired feeling action, it's better the recent market gains are digested and not relinquished today.   Support at 775 never threatened.  It’s actually funny to hear the word ‘catalyst’ come up again today.   Now, it seems the market wants /needs another catalyst to go further.    Well, let’s put it this way, the FED essentially used it’s last bullet and we’d better get on with life.   What a greedy bunch we traders/investors seem to be,  why not just give the FED "big bang" sometime to take shape.   What did emerge today and what will be the buzzword going forth most likely is inflation.    So, as the market contemplates the stiff ‘800’ SPX (50MA today) at overbought RSI levels with banks-brokers rolling over as the short cover buy demand has abated today, note (seems the Citi pref-common swap trade went against some big hedgies (short common/long prefs., which caused a vicious short cover rally in many of the banks),  you either continue to get caught up in this technical driven market or as we pointed out start looking/ hoping for a group/ sector that may benefit from the FEDS stunner and move away from the technical trade dictating your every move.     The market will do what it needs to do!.    At this point, there are still upside risks as we come into month/Q end for the shorts and that may keep the market from a major pullback and instead break the 800 hurdle later next week.     Right now, we’re going to concentrate on a basket of inflation linked equities and the inflation expectations noise.    Maybe , it’s too early, but the market is quite giddy and it may just rotate quickly into a commodity trade.   It’s only a guess or hope,  but.  with Q end coming it is the perfect time seemingly to get the hedgies to prop up their books.   No better way to do it than try to move the heavily shorted beaten down commodity community..steel (SLX- etf), coal (KOL), E&P, oils, Ag’s-Chems.   

As you remember when we traded with those sectors in the first half of 2008,  the market on a daily basis did not have be green for these stocks to be in the green at the close.   Those days we didn’t care what the SPX was doing, we just went with the individual equities/ sectors.   It might be a dream that months later we can have the same outcome,  but today with the market pullback our shadow list is pretty well all green with many in double digits % gains.   We’ve updated the shadowlist today (link on left at site),  putting back more of the stocks we followed and discovered before many 2X or 3X last year.   

Still, understand that there is NO current bullish news in the global steel/ or iron ore business etc.. The physical market is still slowing, but with stimuli effects in China slowly emerging and with this inflation buzzword coming into play, sooner than later the stock markets participants in these areas will have to start looking forward and not pinpointing day by day activity in March of those markets.  The risk-reward ratio is much more appealing now than it was days/weeks ago for commodity levered equities.


DJIM #12, 2009

Heading into the last trading week of the month, we can't help but feel emotional when looking back at the events that have transpired up to this point.      The biggest question on people's mind these days is "have we seen the worst?"    Nobody knows!    What we do know at this point,  is that there is a sense of stability returning back into the financial system.    Of course, none of us really have the first hand knowledge on how things are or going to be with the financial system in U.S.    Judging by the action from the government, the announcement from various banking CEOs, and most importantly, the stock action itself, you can't but feel that we may have seen the "worst" in these financial companies.    

Just a couple of days ago,  Fed announced some drastic measure to pump another 1.2 trillion into the system.    This weekend, there's news that Geithner will announce details of the long awaited "toxic asset plan" as early as Monday in more attempts in putting a stop to this crisis.    We have often said in the past,  it will take time to fix a broken system.     As long as the system (financial) does not break down due to total lack of confidence,  then everything else is recoverable.     At this point,  we have to believe that the government is doing everything it can to restore confidence, unfortunately,  bonus bill is getting a lot of negative headlines after the Treasury buying news.   We may all not agree on a lot of details of its plan(s) and even go as far as question the efficiency of the plan(s) going forward.    However, we have to agree that they are at least on the right path and it's all we got.     For now, we simply don't want to bet AGAINST the government.

Over the past week, shorts have been literally vaporized by this market.    Market itself has pulled back on profit taking to the SPX 770 area.   We view the action Friday as a healthy 'tired action' pullback, primarily because we're not seeing shorts reload, we've been highlighting in bold here recently... "shorts are not lining up new positions due to upside risk to news".     The toxic asset leaks this weekend is one big risk for the shorts.   As traders,  we are looking for the strongest sector on this pullback and we really like what we saw from the Commodities, even on the pullback Friday     During the next little while,  our trading thesis will be focused primarily on the commodity sector, maybe the financials will again be in focus if the Geithner is liked by the market.    We have explained in the past couple of Journals on why we like the commodity (buzzword, inflation) sectors going forward.    Oil and oil related are a main concentration, but we are allowing everything from coal to steel to get back onto our trading list.

There will be some economic data in the coming week.   We'd also have a good glimpse where the short term support is for this market.    For now, we are definitely looking to trade up on pullbacks within the commodity sector.


underlying bid prevailing..

Underlying bid prevails today as the bigger fish go fishing...

Just some scattered trading thoughts,  mostly due to fact many aspects of this market/ plays remain the same since late last week.

Two characteristics of the market still showing,

1) Shorts are NOT starting fresh shorts due to upside risk of news.  Ones that pressed with downside were left dazed and confused.  Also we still feel the Hedgies/ Institutions, MF’s pensions (whales) are chasing equities to pretty up their books month end/ Q end.

2) We kept mentioning the underlying bid providing support yesterday, we thought and got it in the morning as we extended higher (helped by durables, housing) after not such a nice close on Tuesday.  We alerted in the afternoon, we were aware of Whale buying the Industrials in the morning (this spurred by eco‘ data), the idea was they would come into the closing broadly.   Remember, this is mostly the time whales buy,  this is why last 30 minutes to a close is such an important ingredient to the health of the market.    Besides, we didn’t think the low volume downside to under 800 or the Treasury auction news was all that important.   Other news providing some headwinds was Trsy asking for authority to seize hedge funds and worries they won't just let banks leave the TARP in near-term.    Almost to the minute of alert,  we got a V-shaped bounce started which scurried out any shorts that pressed into this downside move thinking this rally was broken.     Again, the underlying bid is there for now.   

Remember,  instead of scurrying around the find a stock that may work during/if we get a big move such as this 140DJIA +reversal in minutes,  just go with SPY/SSO or even better go to JPM/GS  to get the most out of a move.    We’re having some trouble getting through  ~820SPX area,   but this kind of close will make everyone think twice..the bulls (encouraged ,confidence) and bears (losing faith, jittery).    This is looking like more digestion above 800 before a move higher, instead of indigestion.  A meaningful break of 820 very possible tomorrow. *eco data tomorow morning.


We had short covering early in the steels , again X  leading the way.   Considering,  we are about a week into the inflation linked equity trade,  we succumed to quite a bit of profit taking as the broad market sold off.    Always remember,  if your stock/sec has been fastest to the upside,  it will be one of the fastest down as the broad market turns.    This trade will have hiccups, so as we answered in the forum last week, everything is still a trade, not an investment, so take profits along the way.   We've all learned the past 12+months this a traders market.    As far tech/Naz related stocks,  we had SMH $SOX  breakout after the opening bell,  but it got taken down with the tape.    $SOX,  we'd like this 230 broken convincingly to attract more interest,  including ours to go into the high beta's stocks.

More tailwinds than headwinds...simple for now.


Good ole days ...

At least, judging from the performance of this market during the last few days, we got a glimpse of what the market was like back in the good ole days.   No matter how you see it,  the trading lately has been just crushingly painful for the bears (shorts).     Maybe, they are also responsible for this never ending rally we are currently enjoying.    We closed at SPX 833, going out near day highs.   Everything except the financials rallied today and the action was pretty broad based.   It's great to see others step up to the plate and lead today.  Transports broke through 50ma and the $SOX SMH  passed the hurdle noted yesterday (good signs, now hold!).   With regard to the financials, we aren't worried a bit because the monstrous gains they had during the past two weeks really need to be cooled off a bit.   Today the best performers of late and those that surged late yesterday took the day off, some profit taking, some rotation into other arms such as Asset Managers has been seen lately.    Even today's alerted stock ICE ($77 to $81 day high) benefit from recent headlines as they will eventually play a major role in the CDS clearing markets.   As long as the financials consolidate in a good range, everything has a chance to go up.    This is pretty much the underlying theme for this market lately.

At this point, we don't really care how high it can go or how much longer it'll last.   Until the market sentiment changes, we are staying on the long side.    Believe it or not, for the longest time, it felt this market had unlimited sell supply and therefore neverending selling pressure.    The last few days felt money is being poured back into this market.    We really haven't had such "late day rally and take out day high" kind of action in a long while.    For this market to demonstrate this kind of behaviour in spite a recent 25% gain already, it's just remarkable.    This is where we have to make up our mind and perhaps change our mentality towards a more neutral, if not a somewhat bullish stance on the outlook for the remainder of this year.     Financials so far have been stabilized as a result of more money being put into the system.   It may not be the best solution, but at least most of us agree that given time, it can work.    With recent news that home sales are picking up slightly, that's also another positive sign for the bulls.

Commodities, all of us must be loving them these days.    Everything from FCX  to POT  to CLF  are having a great run recently.    We already discussed this in detail last week on why we like this sector and this week has been proved to be nothing short of great action.    If you look at the 6 months charts on plays such as MOS MON POT (BHP for POT??)  *( March 31st is a very date/ USDA supply and demand planting preview), OIH or the index itself $CRX,  it's as if we are on a verge of a major breakout.    The potential is there and we just have to wait to see how it plays out.    However, we do have to keep an open mind here because alot of the news lately has been quite bullish for the sector.    If the breakout is going to happen,  now is actually a good time.

Approximately a week into April, we'll officially kick off the earning season.    This means we'll get a more in depth look of the corporate earning front and as well as gauge the investor reaction off those reports.  We have a strong feeling that we might actually get a few nice earnings winners this time around.   Considering how bad equities have been beaten down, we might get a nice surprise or two and ignite some serious buying interest.   

A few days still left till Q end and todays broad action was a sign of performance anxiety from the 'Whales'.

Oh yeah, speaking of good ole days, today's Solar frenzy  is assuming the best, important details are missing in the China paper.  Also, a China subsidy would not be a revenue pop for US based solar co's as it would favor 'in- house' co's.   A short play possibility here as firms most likely to knock this.