Stag 'nation'

This market, as of late, has become very stagnant in determining a course of action.    Well, this same stagnation can be applied to the government policy makers leading the way.    If you connect the two dots, what it means is that what's happening out there in the market is directly what's happening in Washington.    Since we don't have any inside sources, or anyone who's even remotely close to the circle of people that make the almighty decision for American economy and country, we can only speculate that things are just not as smooth going behind closed doors.     Of course,  they aren't debating on some silly agenda, after all, it's the all important stimulus package as well as a crucial bank bailout plan.    Lets give them some time, shall we?.

Nope!  The more time they are given, chances are, the more likelyhood that nothing will ever get done on time.   It is how things typically work with any government.    Basically, when solving a crisis, and yes we are having a crisis, it's better to hammer things when it's hot.    You can argue that it takes time to perfect a plan to help the economy or banking sector.    Well, we weren't born yesterday and we know that there's no such thing as a perfect plan.     Chances are, even a great plan that was designed in the first place would turn (revised) out to be much much less after many differences in opinion among different policy makers who supposedly represent nothing but the people they are elected for.     In this probably once in a life time economic crisis and banking crisis,  nobody really knows what's the best course of action.    We feel in essence, time is really the thing that can eventually cure the mess and help to recover things.    What we do want to see at this point, is some action from the government.      It's been two weeks since the inaugration and people just want to see some action.     The more time the government waits, the more doubters will come out and start pointing fingers.    As a result, we as consumers will lose confidence in just about everything.     Well, it doesn't take a genius to know what happens then to the market.

Indecies today may show that Naz is supposedly doing "better" than the rest and there's hope in the market somewhere.    Don't be fooled!    We are lucky that many financial institutions did not get rolled over today.    Many of the Dow components, and heavy hitters such as MMM, WMT, CAT, even PG are trading at recent lows.    Sure,  the RUT closed green along with the COMP (we don't care for MSFT, INTC leading), but the all important SPX was still flattish.    If government doesn't do anything or does something that disappoints the market with regard to the financial sector, we WILL test last November lows and chances are, we'd set a new low.    

Right now, we can't see things beyond a two to three day horizon.   It isn't because the technicals don't work or the fundamentals aren't there.    All balls are in Washington's court right now and anything they say or imply or do will affect the market in a great way.     Hypothetically, some form of decision and major annoucement will come from the policy makers within next two weeks.   We just don't know to expect at this point.    Lets be honest here, we all hope market likes what they hear.     This is a very important task for the new administration and it can be viewed as a first test for Mr. Obama as well.   

Trading plan wise, we are sticking to last week's buy on extreme weakness.   So far, we are merely sticking to some selective and quality financials and education services stocks.    If you happened to nab some NTRS, GS, JPM PBCT ESI (nch) APOL  on the cheap,  then you've done alright lately.  Short side, recently we eyed machinery (still getting killed) and than steels (most back at pre-earnings prices) stocks as problems. 

The overall strategy remains that you have to limit your total position size and not let it get out of hand.   Be picky.  Making profitable trades is one thing,  but making risky and greedy trades are something else.

One positive, gone unnoticed, the JPMorgan PMI global manufacturing  rose for the first time in a year!.

Holding pattern..

Sitting on the dock of the bay…wasting time was the theme to today’s trade.    Tomorrow, if you’re not careful it’s gonna be more than ships rolling away, it will be your ‘chips’.     Any positives from todays trade like staying around 870 will be irrelevant tomorrow,  so there’s no reason to dwell on today’s holding pattern.      Still as far as today,  we had the Ag’s chem stocks POT, MON MOS  start to rollover ahead of tomorrows USDA # following the run into it.     The coals seem to have short covering occurring, WLT ANR JRCC BTU.    The recent run on the commods’ is not only the BDI,  but the PMI index we highlighted as a positive early last week.     The financials, specifically the life insurers (HIG ) led on reports the TARP will opened up to them.     Recent plays here like GNK MYGN GEOY  all hit new recent highs during the day.  In the broad market, we need a healthy close above 869(50Ma)-870,  today did nothing.    It’s was all a waiting game with light volume for tomorrow and we leaned to the short side SPY, long SDS  for the broad market in case the mood turns negative (premkt) before the announcements.   Just in case the market decides it didn’t get any positive clues today.   It may be disappointed by the time it wakes up and/or trades in Europe is our thinking, we didn't exactly hear anything great ourselves.    Afterwards, we expect nothing  less than a volatile trading session.   The possibility that nothing will change and everything remains the same is high.   The hoopla is Super Bowl out of hand,  the expectations seem to be too high and usually the game disappoints.     Unfortunately, nobody really knows what they want or what is the right solution.     Geithner will make his big bank bailout speech tomorrow @ 11amET .   He’ll have all day to 'sell the plan ' with numerous interviews.    Hopefully, Geithner gives a better presentation than Paulson did not so long ago.   Unfortunately, there is no magic pill and we fear if not enough is done on the toxic assets, we’ll have an unhappy market.    A bad bank with private investors providing much of the capital is not a cure, but maybe an expanded TALF plays a role here as well.    As it stands now,  we’re not sure which part of the rumoured plan can change the sentiment to a positive bias.   If the plan is just an overview and lacking major details, clarity, we won’t have a happy market.  

SELL, SELL, is something Geithner will have to do,  if not,  the market will SELL SELL for him.   We’ll update during the day as events unfold.

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.

Looks can be deceiving...

Fortunately, the phrase just does NOT apply to this market!.   How about that SPX 907, eh? . Just in last Journal, we said , “As far as we're concerned there is no reason the SPX should be at least be higher than where it was end of 2008 (900) in the short term.  Things are a hundred times better than they were at that stage globally, so why should we be lower.”.   Talk about short term, as in right here, right now..today!.

With a couple of positive economic data add-ons (Pending Home Sales and Construction Spending) to the already noted China PMI that was getting headlines all day, we got a nice kick off to the trading day.   Since $CRX broke out of six month range on Friday, we might as well get some follow through right away from the commodities as noted in Journal.     What a follow through by commodities though!    Not only did we got a sector (coal) upgrade from Goldman, (you heard about it here first, before CNBC, Briefing) just about every commodity stock you can think of had a really nice gap and finished strong.   

What really pushed SPX index above 900 was the financial squeeze in the afternoon.  WFC up 24%, BAC up 19%, what???    If you look at some of the bank action,  you'd wonder if we had some blockbuster news from the sector today.   Nope, it's just a simple "lets squeeze them hard" type of day from the financial sector and our premkt thesis that the “hope vs. fear“ NYT story was a notable headling to watch for a broker- bank trade.  We thought if fears abate in the market, we have a possible trade in the group.   Later, we noted a Citi headline and in the recent "The Premise“ journal outlined…“Preferred to common offers instead of Gov't transfusions.  Watch if some are announced soon, you may have squeezes unfold”.   Boy, did we ever!.   Why you ask?.   Simply, if this was to happen it meant the C, BAC WFC capital problems would have an easier time raising the moolah than feared.    One way is through Pref's to common.   Also, long ago we said 'equity deals' when on the table would be a time to buy the market.  Another stock offering was announced AMC.  This signals "Capital markets" are opening up!.

Remember what the the premise behind DJIM was and is and why we repeat, quote past lines.  DJIM is to simply to "LEAD' you by giving you what / where we are leaning to/ watching for as traders.  What you do with the information is in your own hands, how you decipher it and how you trade it.

The biggest rips were in BAC, WFC, running on this seemingly "negative" speculation of raising capital.    It doesn't matter if it's a commercial bank, insurance company or a broker, every type of financial stock ended up a healthy amount and the XLF  over $11 close (finally) coincided with the SPX 900.  SP finanical index +10%, abnk index +18%.   WFC,  probably takes over JPM as the strongest performer from the big banks.   GS broke out of recent range and MS is sitting at the recent high.   This is the kind of action that definitely makes you think if we have really entered a new era.    This era, is what we felt as the recovery era.    Of course, it's still too early to even officially announce that we have entered this recovery phase after just one quarter of earnings/data.    What we do firmly believe is that this is what most investors/traders wanted to see or look forward regardless the legitimacy of this belief.

The conclusion is that from now till the next earning period,  we will probably be trading in a golden (hopeful) period.     Things will definitely look and sound promising.   Dips and pullbacks will be bought aggressively in the next couple of months.    This is what we strongly feel at this point.    Most important of all, there'll be lots of great trading opportunities/setups on the long side.

Here are some sector overview...

Commodity linked stocks,   Simply, the China PMI  is rallying the commods'. The dirty Coal stuff, MEE, ANR, JRCC  etc, had some unbelievable short covering action back to back days.  We can add JOYG, BUCY  as a coal -link trade now that is more stable going forward as it touches more sub groups in a recovery trade.    Steel stuff CLF, X, SCHN, RS are the ones that we are also buying aggressively on any dips.  AKS  is up 40% since buy in alert April 21st..   Oil means a lot for our play OIH and many solar plays, FSLR, STP, TSL based on its recent move, we feel are grinding higher. 

Tech linked, we are still sticking with the familiar names these days.  RIMM, EQIX, RVBD  etc. are all on our active trading list.  MVSN  safely creeping to new highs.  CYOU  violently doing the same.   Premkt, we noted basking the results and Asian mkt strength trade via 'CAF '  to avoid chasing the eps gaps,  CAF opened $36's and drove to nearly $40 (+8%), while CYOU/SOHU declined most of the day from opening bell.

Consumer/ cyclical linked stocks,  GMCR  looks like it's going to be ready sooner or later to start another leg up.   GES, GYMB  keep making new highs.   We also really like many casino stocks.   Judging by the recent reaction from PENN, MGM(tonight) etc., this sector may just run longer.    Our favourite are still WYNN and PENN  though.  LVS  has doubled since we took it on as a breakout and squeeze play on gaming April 21 just below $5.  Let's add ASCA  to the group list.

Right now, everything seems to be benefiting from the renewed optimism that economy might be picking up.    It really doesn't matter what sort of play fit your style or timeframe, as long as you play the correct side.    This is the kind of market that does not reward sideline action.    

"All the horses are seemingly stepping up to the gate for what will eventually be back to the 'Easy'  trade days".   This is something we all can look forward to from recent action.

PMI's = SPX 1k = Market too giddy

Normally, you’d think we’d be in a celebratory mood seeing SPX crossing and finishing over the 1K level.   Today's jump in index is the direct result of various encouraging PMI readings around the world.    The ISM (PMI) number in U.S shows rebound in IP and new orders rose to levels not seen since the summer of 2007.   This has been an integral part of our trading methodology/ premise.  All you have to do is click the search link on site and type in PMI and /or IP to see how we fit this PMI into SPX1k you could say.  Simply, to us at DJIM, these numbers have been expected and now we wonder with all the giddiness today on the subject of PMI’s was the investor really that behind the curve and/or will the smart money now use this to sell off to all the Johnny -come latelies just over SPX1K?

Also, not that long, on March 6th,  we hit SPX 666 and soon after named it, the ’Mark of the Beast'. Wow, what a devil of a beast up 50% now from those levels.  Today's finish brings us exactly 50% higher off the recent low.   Regardless the type of rally we just had, the action we've endured during the last six months will be talked about and studied many times down the road.   However, there's one thing that kept on hitting DJIM traders' mind today as the previous 2 Journals.     Now that we've crossed SPX 1000, is the end of this special rally near us?    For the longest time,  we've been the out spoken bulls on this rally and it's gotten us nicely thus far this year.   We thought the best case scenario would be around SPX 1000- 1050,  provided this quarter's earning reports hit the market and latest Eco. trends follow the recovery path. 
 
Now that the majority of big earnings are out and we are entering the last stretch of the summer trading with SPX over 1000, we are wondering if this market has any more juice left to go much higher.    Personally, we prefer this market not to go much higher because it'll only lead to the other extreme of the exuberance.   

We feel it's definitely best for this market to settle down and digest its gains.    It isn't just our wishful thinking though.   We are seeing signs lately  that things may not be as rosy as SPX suggests.
There's no doubt SPY'der is doing all of the work lately.    Commodity (the group which has pretty much the worst earning reports) has been on fire lately due to USD$ failure and is all the talk today due to PMI,  but it's the earning plays on our list that are catching our attention on this market strength as they don't seem to be catching the pace with the SPX action.   It seems we get a kick right after we alert of ~5% like on FIRE  (Friday) , today even VIT  (non earnings) and than its flat line action from there on in.  This is frankly a bit worrisome.    For us at DJIM, if good earning plays, particularly small caps don't tag along with the index action, it usually signals a top is near for us.    This doesn't mean that we are turning super bearish and going short at this point.     We just wanted to point out that going heavily long at this point on presents a considerable amount of risk.    It doesn't mean that we won't go long, we'd only go "extra" long on those that behaved the best, but, most of all we are preparing for a pullback.  

Bottom line, market is doing its best to give both Bulls and Bears a challenge at this point as to what's next.   It's absolutely crucial for us to stay cool and rational.