All about EPS to some...

Other than the EPS stories (to DJIM),  there was no dominating noise to explain the market stability and rise today.   As a whole,  this market shrugged off the morning weakness and closed the day near the high.   This is quite remarkable given the weakness we had toward yesterday's late day session.    Technically, we dipped south of SPX 840 intraday, but it’s only bearish if it closes there.   Mkt closed SPX 850, right in the middle of the range we‘ve focused, sort of the battle ground these days.    As we have mentioned the last couple of Journals,  we seemed to be range bound until something catalyst that can drive us higher, or lower.  

The market players are attempting to say such things as, (Briefingcom)…Another factor keeping a lid on rallies right now is that this earnings season is shaping up to be essentially a lot of white noise….Moreover, while the unexpectedly high number of current quarter beats might normally be seen as a positive catalyst for the market, what is keeping a damper on most earnings-fueled rallies is that: 1) stocks already have had extended runs into their reports, and 2) as is typical in a recession, these bottom-line beats are most often enabled by aggressive cost-cutting rather than stronger than expected demand.  

Here at DJIM, we are not looking for another substantial rally, we just want to see the market break this range.   Yesterday before the open (Forum), we noted their was ‘broad’ corporate trends that we felt might give the market a boost.    Considering,  the previous close was ugly, a day with no catalysts and some EPS stories (CC's) during the trading day , we somehow closed at SPX850.  We think earning are playing a quiet backdoor role.    Do you have a better explanation?.  This premise has some credence following AMC reactions to MSFT, AMZN.   Of course, barring any “stress test” negative cataylst, we think the market may abate the “ selling the news(eps)” and surprise many by breaking over 860!.

As far as individual/ stocks, we couldn’t be more pleased with the action LVS  WYNN.  Both continued the squeeze potential we alluded to and were up another 10% early while the overall market lagged.  We also had a nice 3+ move from alerted PENN ,  a “Racino” off earnings, besides the earnings we liked it fit because it fits into the Gaming play.


On the negative side, we’re sorry to see our favorite commodity group since late March disappoint.  NUE, RS, and STLD all moved lower as the concern of the health of this industry lingers.   The ag-chem sec wasn’t so rosy either as POT, did not inspire much confidence either after its report.    This basically gave us the confirmation that you'd never know how this market will respond to certain report/guidance.   On the other hand,  we had a couple of well received statements from the likes of AAPL EQIX.    We were actually quite surprised to see EQIX have such a strong reaction which is very different to last quarter's reaction to a similar report.

Banks, again,  were leaders late carrying the market tape into the green.  We commented BLK  might be gaving reason for optimism later.  It broke out with another 4+ points add on late and  WFC, JPM, GS, STT, (PNC, CS  earnings noted)... just a few on our list that performed exceptionally well.    If the market players can let out a breath, a  sigh of relief on the stress tests, the XLF breaking $11  will cause a nice break to the upside.   The Futures are pointing to a lower open (low 840's), but we think this will change by open.  Euro markets may give signals to market direction early on.

Tomorrow,  we'll get a glance of the criteria that's being used in the all important "stress test".   This is definitely going to be interesting as investors would see for themselves how some of their favourite companies will fare in the test.

AMC, we've had some nice reactions to the corporate trends for Nasdaq tech- linked MSFT, AMZN, JNPR SYNA and even in a financial link, AXP (huge expense cuts).    Unfortunately,  we also had the news that Chrysler is nearing an announcement to file for Chap 11. This should be overshadowed and relate more to sub groups.   The trend lately seems to be favouring the EPS stories in our eyes.    So far, we had quite a few market leaders that showed decent eps reaction, in our view AAPL is not 'selling on news' typical as others seem to be calling it because a stock doesn't jump 10-20%.    This is definitely a high contrast to what happened last quarter as most of the companies were taken down hard after their earning report.  That was selling the news.

At DJIM,  we have been doing some quick trading here and there last few days.   However, we are still waiting patiently for this market to make a major move.    The probability, at this point, still favours an up move as oppose to a down move as 840 seems pretty formidable this week.

'"The Premise"

It’s not a blockbuster film, but it’s the storyline being played out here at Djimstocks for over a month.   The review below, but,...  on to today's action first.

Us disappointed?.  No way, Jose!.  Okay, we didn’t get our expectation of a SPX ~880 coinciding with a XLF ~$11 close as a signal for this melt up to continue,   but it’s only a matter of time!.   We were just a little too greedy late in the day after an already great day!.  SPX875 is the true breakout for most following TA,  873.5,  a new closing high and should be sufficient for more upside as the heavy resistance is in the 866-872.  SPX 860 is support now.  

Okay, does it matter, why the melt -up?.   Recently, we pointed out overnight, *overseas market giving clues to our market day and it didn't disappoint this morning.  *Stress easing over the bank stress test issue.   Preferred to common offers instead of Gov't transfusions.  Watch if some are announced soon, you may have squeezes unfold in C/BAC especially.    **Earnings..Earnings..!.  AMC, FSLR, GMCR  are not curbing markets appetite for the riskier assets.   You want to believe parts of GDP, FOMC were the reason,  go crazy!

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Let’s just review, “The Premise“….it’s not tiresome to hear,  the premise is why we are a whisper from 880.

Encouraging Eco' data

Underlying bid prevailing on pullbacks.

This is probably our most over used, but this why we are smelling ~880.   Last,  this pointed out after Tuesday night futures held 840 twice.  “Excess money is anxious money” as asset managers put money to work as the underlying bid.

Tailwinds outweighing Headwinds, Upside 'news' risks for shorts

Resilience

Shorts not pressing new positions under 840

After getting screwed a day later recently by trying this tactic.  No reason for them to press shorts higher as the fear of tailwinds is always there.  Also, it's almost a technical issue to stay clear now.  Now, as we said late yesterday,  the ones in from April 17-20 should gradually cover as well.


“Anxious excess money + Nervous shorts“…..now equals ~880

Earnings

This has been downplayed by most outlets b/c expectations were lowered so much.  We are just getting over the 50% of reports out this season and the tone is changing to explain the melt up occurring.  We had a different tone last week,   April 23rd,  before the open, …Some encouraging 'broad'corporate trends eg.AAPL CMG EBAY ESI RCL CS PNC HSY...Maybe..just maybe for a day the mkt can stop using the ' stress test' excuse and focus on corporate . trends...April 24th, Going a little on the limb here , but underlying potential for a big day". We got a big rally that day, the premise was earnings that morning.

http://www.djimstocks.com/djim-journal-09/2009/4/24/all-about-eps-to-some.html

Tailwinds to run over 860??...Of course,  earnings will dictate,  but if we keep getting surprises we'll have the shorts giving up and we can really overshoot 860.   The reason is this is where most of the shorts are set up from mid Jan -Feb!!..April 14th.


Switch to Selective Individual plays

Concentration, consumer discretionary angle, while the market trades in a tight range on SPX.  This was something we promised back in late march after Treasury news.   At that time, it was the ‘inflation’ trade with Steels the primary trade.   That was successful, but we’ve diverted to a more cyclical recovery trade mixed w/ earnigs  eg. TIF, GYMB .    Following this trend,  we’ve avoided the grind this month of the SPX/ SPY trade that has overwhelmed traders with its boredom.    We’ve a had a trail of stock alerts go up over 20% in a few days the past week,  LVS over 50%, WYNN, PENN, CRYP ~20%  and slowly coming back to earnings plays that was the ‘heart and money’ and why we are here and many of you.  Ah, the glory days!..lol.. We added RGR  today.

After March 23rd close... today we surged through the 50ma and closed well above this 800 mark. (824).   This close is a big positive and the Bulls finally should have the upper hand going forward.  On a technical view,  the next big TA levels not until the upper 800's... ............What’s the next big catalyst?.  You got a sniff of it late today and that is if bankers- brokers raise capital through private equity deals to exit the TARP!   This is amost a clincher and what will drive this market closer to SPX 1000.    Did we say that..1000?..lol.   "This is isn’t so funny to many a Bull with excess or a nervous Bear now, as the weather gets warmer, this possibility will get much warmer in the next few months!.   We're going to get a correction,  but it may not come when all are expecting one"..April 20th.

Underlying push for the market the past month …It might not be the catalyst headline , but it’s an underlying reason since the ‘whales’, including hedgies smelling this idea since our late March note on it.

Okay.  SPX1000.    We are going there this year and probably even 1100 ,  the hiccup correction  will come, but as we recently pointed out,  what if doesn’t!!.  Well then.. we may just get a "V ' shaped recovery!!.   Now,  that would be a helluva “V” for victory.   The point is,  just keep trading with a “positve bias”  following the premise here at DJIMstocks.   We will have headwinds along the way, we will have sloppy bad days,  but we think the ‘easy’ and best trades are just beginning as we get back to concentrating on the methodology that was us.. ‘individual plays- linked to earnings’.

If we see the above bold/ underlined items falling apart,  you are seeing the beginning of the hiccup correction.  Make a print out and keep this next to your screens as a guide.

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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.

Triple play rally!

What's a triple play rally and what are the ingredients to such?  Well, in our view it's a combination of 3 players getting into the act!.  We clearly had that today!

1- Recent week worth of trading was a week of lower highs, lower lows.   This is a clear sign shorts were starting to press fresh new positions.   Every time there was a blip upwards, the shorts would press positions lower and lower (thus lower highs) as they were becoming a little giddy after not having this opportunity for weeks.   So what happens when this pattern of lower highs/ lows gets busted over ~896 today, including holding overnight support at May 4ht lows.    Yep, you get them shorts scrambling to cover once again.   Ingredient number one is short covering.  (See alert comment around 2:45pm before the next rip up to know where we think we’re probably going now).

2- We’ve talked a lot about 5% SPX correction  as a measuring stick,  it also coincided with 20ma and a great place to find an underlying bid.   Look back to the April's 5% dip that brought out buyers, eventually leading to 930 highs.  Today,  we got this sidelined money  seeing this market doesn’t want to break 20ma and use the 5% as reason enough to get in. 

3-  The sidelined money (longer term $) + short covering equals momentum money coming out   to play and only adding to the fury of buying.    Last week as everyone was saying get into the "safety trade",  we said we’d hang up the phone on our clients if we were brokers asked to switch to such a trade going forward.   Clearly what we saw today was a rush to 'higher beta stock and groups'  as money from the safety stocks- groups was a source of funds to switch in higher beta’s once again.   No better sign of this was in Casino- lodging stocks.   Last Fridays alert buy in to WMS  was timely and others like HOT, WYNN, LVS  and the more spec' MGM  provided big gains across the board.

Of course in order to have a triple rally,  you need a catalyst or 2 …to wake the sleeping giants from their 'quiet period' and we pointed out a few we were looking for.   You probably did not see ours mentioned anywhere as a potential catalysts to reverse this market in the upcoming week. 

1) One part for the banks- brokers was our underlined, determination to repay TARP.    Only near the close did the headline finally come across that GS-JPM-MS  have applied to repay 45 bln in TARP.  STT applied earlier.  If you think our mkt went up all day because of Indian mkts and not the fact this `determination = apply` was making the rounds all day with institutions types,  you’re greatly mistaken.    *Also importantly was Geit`s saying he doesn’t want to see executive comp. limits.    This always makes Wall street happy.   *We also think Barron’s negative article on Treasury’s was a lift to equities as this says go to riskier assets such as stocks!. 

2)A wake call for Tech was the possibility of the what comes out of the upcoming tier 1 tech conference.   This provided some positive eco` comments, such as NVDA`s,  'market bottomed..product demand growing and improving from last 2 Q`s'.    Tomorrow, we`ll hear from companies like NOK, IBM, EBAY ,  we also have April Q reports coming from HPQ BRCD ADSK soon to add more clarity to trends after the official Jan thru March earnings season.

3) We even got a 3rd catalyst from earnings side of things.   We pinpointed HD last week, but LOW`s gave enough in a positive beat and raise to guidance before HD`s report tomorrow.

Points 2 and 3 is something shorts are not really expecting as they keep saying earnings season is over with.  They are missing the point these April Q end reports can do some serious damage to their thinking earnings season is done with.   These give a glimpse to what is happening after March and if its good,  it points to a better than expected Q2 reporting season.

We had a good NAHB number today, tomorrow we get what could be as crucial to markets mood as Retail was last week in the form of housing starts and building permits.

..getting close

The bullet points to tonight’s Journal relate solely to what we alerted in the afternoon as they are the most important trends visible.  It is also what we were crying for in the late week’s trade when nothing moved in our trading universe, yet stocks like DIS were making new highs and creeping the DOW 30 higher.  Today a wide range of mid-small caps from our shadow list performed very well….from China (HEAT UTA CAGC etc. to Casino’s ..LVS WYNN  (thanks to Dubai 10bln resolution) to commods’, notably steel..X..

First and most important is the small cap index was outperforming, thus DJIM shadowlist and finished the day to multi week highs (+1.5%).   Second, the economy sensitive sectors, notably the transports  up 1.7% and a break to new 52wk high and through >4100.  The SOX  closed right at 340 and is not just yet conclusive of the daily double we are looking for further upside.   Still, we closed at 1114, another new closing high on SPX, yet off 1119 intraday high.   C ’s larger than anticipated capital issue made the financials lag as this left some overhang,  still other important names made a nice recovery later in the day as DB  made positive comments that helped improve the tone and morning’s weakness was bought up.

Close, but no cigar just yet to break north of 1115/1120, setting up for FOMC 16th to settle the score or just the anticipation of not much change to break north before the decision.  At this point, you cannot trade on your heels in anticipation if the FOMC statement language will change,  even after the recent strong jobs report.  Minutes down the road may play a bigger role.   We think Bernanke gave enough clues recently that no big changes will be present (sorry Bears),  yet some tweaks/adjustments should be inevitable after the strong jobs. 

We just can't picture the FOMC in grinch mode and pissing off vacationing important trading players/ desks.