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Entries in Early Cyclical rotation (1)


Early Cyclical trade underway..

One thing we haven’t seen for years is the US markets being dictated by overnight global markets, instead we’ve been riding the coattails of intraday newsflow originating from within for what seems like month after month.   This has changed recently,  maybe for the second or third time within a month large gains in Asian markets and even Europe spillover to the US markets.   We just follow.   This really isn’t a surprise,  if you believe China is leading the world out of recession which it is seemingly doing    Today, the worldwide squeeze continued as stocks surged in Asia and Europe with SP futures in tow as the safety bids in FX/ credit/ gold unwind!.     This was the key,  not the M2M fever we were waiting for in the morning.    Judging by the action in financials throughout the day,  you clearly see the M2M relaxer was not the culprit for the melt up.     Basically,  M2M changes are a  ‘middle ground’ compromise.    It’s really a wash as it is a compromise to both sides of the fight for it and against it.    So, the key is what we’ve been stamping in bold on site about eco’ data recently…."hints of stabilization".   This is probably the biggest tailwind  in the markets right now as the financial catalysts die down.   Today it seems everybody woke up screaming the end of the recession is here as we had more encouraging data worldwide!.     This is the underlying trend as eco' data is flattening out….. China March Manu PMI, China output expands finally, better than expected, UK house prices and March Auto Saar numbers probably have indicated a bottom and yesterday we also had the ISM provide a catalyst.     So, it wasn’t the financials leading this market based on M2M fever,  it was a rotation into a ‘Early cyclical’  trade, high beta groups were getting the money and some of it coming from profit taking in financials.    The heavy groups in the early cycle trade were/ are the Industrial, (transports notably, consumer discretionary/ retail / gaming and tech.    The best performing were the high beta/ high short interest equities.    Look at best performers on SP500...ODP, WYN WYNN CBS HOG HOT…can you say junk..junk..junk!     So, if you look at shadowlist the gains are not what you may expect from the individual equities listed as the groups moving today have not been in focus here,  why should they be if this just the beginning of an early cyclical rotation.    Let’s just say,  if this for real and pink or yellow shoe wearing gamblers appear we’ll have the likes of CROX and WYNN back on our trading lists in no time!    Anything in the safe sectors of late, Hlth care/Biotech just lags on days like this as the risk appetite changes.   You have a choice now,  this may continue where the riff -raff may provide nice gains in the short term or just stick to trading the groups we started to again over a week ago in the commodity linked stocks.   Eventually, the USD will falter and these will be favoured all over again in a bigger scope than what we are seeing now.

The question is where did the red flags go all of a sudden?.  Here`s a few.  SPX 840-860  should be a difficult barrier to cross,  we saw hints of this today as we approached 840.   Also, the SP financials still have not taken out their  recent highs (march 23rd).   We`d like to see this to have a chance to break 860 and cause shorts to unwind quickly and cause a big run.    MSFT, yeah its not a horseman stock these days, but it reversed and turned red today.     Oh yeah,  here is a wake call potential,  the employment report!.   If the ADP number was close,  this report may not be shrugged off as the ADP was as it comes with the above barriers- question marks.  Jobs are a big lagging indicator, but they still matter providing implications for  Credit trends going foward.   Consumer confidence is the key here and its turning.   Never a bad idea to throw some caution into the tailwinds,  but any substantial dips are a buying opp`.    Nevertheless, sticking to a positive bias and looking for pockets of strength..solars or whatever group pops up.

We have had pre announcements in Med tech stocks already and we’ll watch for spill to other sec’s.  We had somewhat backwards reaction to SCHN (steel) and MON ( Ag’s)earnings.    If you look at the headline results, which would stock/ group would you think would be a better trade today?.    In reality, what do you think will do better going forward knowing what you know of the global eco‘?.   So, the reaction to these reports was surprising and may make it difficult if you want to trade right off a headline number/ guidance as soon as it crosses the wire this earnings season     We also had the RIMM  pop AMC, its not the headline Q #,  it’s the gross margin number the scurried the shorts out.    We’d love for this to be a tale of things to come this earnings season if stocks melt up on earnings, but in RIMM’s case this was pure short covering and is probably not sustainable unless this market melts up on a broad scale.