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.

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.

Day 5 ahead?

We mailed in our request Wednesday afternoon for a bank-brokers led reversal and today it was stamped as the group followed through in the morning bringing along the rest of the SP tape.   An impressive ~3% SP Financial rally tacked on to yesterdays 30 minute move accompanied by Crude (yesterdays E&P plays PVA GDP  tagged along) and slowly commodity stocks began to bounce as the USD weakened. (becoming too closely related the USD moves).    Was yesterday’s big sell off just the usual hiccup?   Maybe, but Shippers stayed red into close.    If all this action wasn’t your scene,  the DJIM earnings/ story scene is enough as more Q’s plays,  DDRX  OGXI  EJ  (co’ cnbc guest) all had 10% -20% intraday rips higher.    A few others were on the cusp of/ and breaking monthly/ recent  highs  EBS TSL SAFM ARUN.    The buy pullback theme remains pretty clear on all DJIM plays.   Basically with the majority of these you can use the ‘hit and run’  play by taking profits and switching between names while waiting for a pullback to get back in something you sold.  

Chart: SPY move/ SPX reversal off 200ma

Once again the shorts are thwarted as they can’t get enough downside days to get cocky and initiate new positions to press the market lower, but this has been one of the bullet points we’ve pointing out since SPX ~800, so it’s nothing new!.

Ahead of NFP  #'s tomorrow,  we have a few things roaming in our crystal balls.  As we know the ADP # (532K losses) handicaps the NFP (-520K consensus),  so you’d expect a similar number, right!/?.   Well,  we’re feeling a little squirrelly and think we may get under 500k.    Something also interesting is the Banks-Brokers, we’re seeing and using the XLF  here.   Considering the action in the group in the last few hours, if this is only the beginning of a move,  it would soon be kissing the 200MA.   The last time this occurred was in prehistoric times;)..2007!.    So, is this the missing link to push the tape higher as most indices are over 200ma now?. 

Oh yeah,  we are moving into a possible day 5 with SPX over 200ma.   This is crucial as this confirms for many the breakout,  we‘d actually probably just prefer this occurring to close off the week to avoid excessive bullishness setting in and instead take baby steps.

Chart: DAY 5 SPX?

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.

..not bad at all

There is nothing like getting something over with!..?.    Something in this case is a generous meltdown for the Bears that hardly feels like a drop in the bucket for the Bulls.    Despite, a drop of ~6% on the SPX from recent highs to todays low,  we must admit it hasn’t been anything to lose sleep over.   Well, that is if positioned or in this case non-positioned in anything commodity, bank-broker, simply any High Beta liquid equities.    These HB's are always the first to encounter profit taking due to the flock comings and goings as they please due to liquidity giving easy access to such movement.   

How did we get to 200MA and lower intraday so quickly?.  A few notables have occurred, since we alerted Monday, our worrisome view on Banks-Brokers have produced a decline of about 5% from that point and …“As far as individual stocks, simultaneously most we shadow have slipped below 9ema in the past few sessions and if you've been with us since day 1,  you know we view this as a negative until the level is recaptured.   This is a possible show leading the market to 200ma“.    It’s not a coincidence we saw stocks such as EBS STEC CVLT  putting up 5% moves intraday as they have continued to trade above 9ema during these downside days, while the commodity linked stocks under 9ema were given the pile driver lower.    Okay, so what now?.     Barring any terrible eco data points tomorrow,  we’re glad to get  this first leg of a correction possibly over with as we regained the SPX’s 200MA.  We should trade range bound now between  ~903S-920R-929R.     Just like consolidating upside moves, a downside,  should be as well.   

What we like about today is despite what looks like a flattish day,  we broke/ regained the 200ma (meaning little conviction amongst shorts to press) and got a further beating to the commodity/banks- brokers all in one swoop.  (We still feel this correction so far is..  profit taking vs. giddy shorties)   Simply,  we can get cheaper shares now at what could be a short term low put in on the SPX,  possibly leading to a reversal bounce.     So far this week any bounce attempt has been tepid,  either the volatility including those late buying closes are gone (which is fine as we can just grind up to next R), or we’re due for a nice pop, especially in bloodied commodity linked stocks.    Giving credence to such a move coming is the sale sign went down in Techs (Semi’s/SOX) , Retail closes at highs as it saw some buy interest and Transports reversed later in day despite FDX's premkt crappy guidance.  If we’re flat through the morning eco data points,  we’ll look for a tradeable bounce beginning in the morning.   If this is the case sooner than later, you can't ignore buying those 'still on sale today' cheaper shares below 9ema in whatever group leads for a trade to begin with.

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.

...NCH for SPX coincides with 10+ earnings plays

We'll start things tonight with this little biotechnology company called Vivus.  Some speculation into our diet.　Some of you may have heard of this company at one time or another, but we are sure that most of you have heard of this name tonight. What's so special about this play other than the fact it's finished up 70% off 75 million shares? Here's the thing, take a look around you and see how many of your own relatives or friends that are overweight? Ok, we are just going to stop right here. Basically, VVUS  came out with their phase 3 trial results on their obesity drug Qnexa showing significant efficiency in reducing patient's weight. According to many analysts, they've set the golden standard for this type of drug. This ought to get people very excited because at this point, at little over $800 million market cap, there sure is a quite a bit of room on the upside considering also this was stuck under $10 for years now. We have seen it with DNDN, and we have seen it with HGSI. In our opinion, this VVUS story is better than both of other stories. Therefore, we started a somewhat sizable position today and will continue to add off any dips. One thing about this company though, is that it's also heavily followed by institution.  From what we hear 'holders' were adding longs even with 70% lift. Once the initial fever is gone, the play will trade much more stable and have the potential to move much higher. We are currently treating this one as a longer term play for our portfolio.

Now onto the market!　Ok, here's the thing, it takes not ONE, but TWO attempt of correction to make most people realize how powerful and vigorous this bull rally is.The most recent pullback, despite that one day massive volume, is over with on higher lows. Right now, we are expecting new highs to be breached on any given day now. As we said Thursday night, it will be inevitable once ~1020 reached.

Many plays on our DJIM earnings linked watchlist screen were showing some impressive individual action that are moving in tandem with the index. Most impressively, COMP, or the technology index has broken out today. 　This strength is displayed throughout our technology linked names, including many bolded into yesterdays trading, CTSH +4% , ARUN +4%, ROVI +2.5, STEC +5% ININ +4% . Also making news highs on our list including  EBS +11% EMS CTRP WYNN PWRD FSYS CVLT. So, is this the type of market worth chasing at this point? If we do break SPX 1039 , we think it's worth every bit to chase this market. When you have a consecutive blowout report like HITK (we bought some) had today, its making alot of players to look forward to the next round of earning season. 

As far as commods', we've turned our eyes from coal to steel as SLX looks to breakout.  Still, we'd caution at this stage for the whole group and keep positions small and on a tight leash to turnover.  As we saw late in day, they can rollover quickly as the USD rallied off lows.  The correlation is very strong now between USD and these stocks.

China  linked stocks, slew of key data coming up Thursday night.

All of a sudden, Sept. is looking to liven up trader's screen for a change. If August proved to be somewhat boring, we sure aren't getting any of that drowsiness from the market so far this month. Bottom line, we are looking to add more stuff if we get some mini dip opportunities next few days as the breakout of this market just seems imminent.