Bull Eclipse

As the other side of the globe is enjoying a once in a few hundred years event of a major Solar Eclipse, we couldn't help but wonder if the stock market, notably Nazzy days streak not seen for a decade), here is enjoying one of the rarest moment as well.    Yes, we are up again and perhaps it's getting a little tiresome?   Not a chance! :)   The only type of traders who are tired of our current rally are either in shorts or are in cash.    In fact, by visiting a few Bear blogs, you'd be able to find a communities of traders who are filled with disgust and anger with this 'Bull eclipse'  over their Bear dens.    Fortunately, they are the minority at this point, many are just a furball of their old selves and others are in the closet crossdressing as we speak.   We admit that we often visit such blogs as some of you seem to as well.   We do that not visit because we are looking for short plays or trading ideas.    Instead, we simply visit those Bearish sites to get an idea what them Bears are thinking and what their case of a trading argument is.    If a Bear is considered a Bull's enemy, then we have to understand our enemy to the fullest in order to beat them in this game.    Frankly,  it's been a scene of chaos at the Bear sites lately.    Many of the da’ Bears are self proclaimed very good technicians who make mince meat of the naïve or inexperienced traders looking for an edge.    However, at DJIM, we always believe that charting is a supplemental, extension to trading.   Understanding the big picture and understanding the market mentality, individual niches is much more important than looking at charts blindly for a trade.   Most importantly, we’ve always believed the first thing you need is to discover a good fundamental stock and than you chart to your hearts content as a guide for R/S levels.   This is where most of these Bear technical places go array.   Most only look at charts to begin with, probably night after night going over scans alphabetically till they see something that gets their Fibs excited.   They don’t care what stock ABC business niche is or care if eg.earnings are tomorrow.   We’ve seen humorous things such as going long a MOO etf trade, while shorting individual Chem fertilizers stocks and /or the corn futs in the group because charts painted such a picture at the same time. 

As we have been saying, what happens few months from now is anyone's guess.   Bears may argue that we may eventually head for a nasty downfall when all of the things unfold.    This may potentially happen, but come on, seriously, what does a hypothetical theory have anything to do with what's happening NOW?     It doesn't take a genius to figure out what's happening with the market these days.  ASK..Goldmans , Credit Suisse calls this week.  CS actually has just reversed their call into equities from their June call !.  You don`t see CS often in the news like GS-JPM, but believe us they are an integral big player in the marketplace.   

Yes,  the market has been up for more than a few days too many and we may very well pause here for a pullback.   So what?  The Bulls are in charge.  This current rally is the result of people believing and acting that things are improving from credit to corporate.  Yes, the consumer in US is behind, but as recently quoted here, "Build it, he will come".   Some of the major companies we know, have come out with some reports that handily beat the expectation and guided well.    We have discussed this "beat the bar" effect during the last few days, so we are not going to go there again.

Today's EPS winner has to be JDAS  alerted AMC yesterday!   We don't post # reports regularly here because this way you do some of your own DD before making a trading decision.   For those new or inexperienced this is the only way to learn/ decipher and understand what looks like a good trade and what isn't in the future.   We just have to say that the report is that good and that's the only lead we'll give on most plays.    As far as DJIM's strategy goes when it comes to earning plays, we are looking for those companies that delivers a big and positive earning surprise.  Unfortunately, if you just go on a 'headline' number wire cross you will sooner than later be finished as a trader. It's not that simple, you need to snoop around a headline number.  JDAS falls under the category and so did, notably GMCR STEC from last Q.     These are the best kind of earning plays we like because not only they are small enough to run up, they are also liquid enough because many institutions will own them.     On the other hand, eps play such as DDRX, BWY, ININ, HITK are always welcome to our list because they always have the "potential"  to pull a big one due to their float after the discovery process unfolds amongst traders.   In the case of DDRX, it pulled an amazing run-up.   In regards to MAIL post today, due to its thinness, it  may or may not do anything.  You don’t buy a stock like this to put in your top 5-10 holds at anytime.   Just like last Q reporting, we are creating a list of plays to keep an eye on (ININ HITK JDAS MAIL this Q so far) and hope for a portion to be become winners like last Q’s list.    Some will fall off the list as we progress, new ones will be added and some like STEC GMCR STAR, we’ll all be trading into the next Q.    These new ones, we now can follow on the charts, keeping an eye on such things as 9ema pullback to possibly buy again or for the first time.   In addition, we are also paying attention to 'group' earning plays.   A specialty group from a particular sector or country may get some hot attention if things turn for the better.   China plays fall into this group and as well as any commodity groups we might trade. 

We had a caution on commods/machinery trade today after CAT  up ~12% premkt pulled the group (JOYG BUCY ) up premarket as we may have “Johny-come-lately” playing here and so we may get sell the news after what we saw in China.  It didn't spill into the overall market, but, note banks( regionals) are not helping this market to break 956 roadblock today.  We can`t have BIOTECH outperform these last few days, most likely if a PB occurs here it will be because of Banks-Commods noise here.  

Most of these 'Machinary/Industrials' gapped and all lost roughly ~$3 off top as seen by JOYG chart below.   As a whole the commodity linked groups/stocks were mixed, notably BTU  (-5%) pulled coals group.   Considering, BTU is top of crop, some parts to their call will seemingly weigh more on other coal stocks down the road than itself.   Tomorrow morning is quite important to these groups as a number of each groups leaders report, so we remain patient here, but not confident any individual and/or group earning plays will emerge,  more importantly to us is what they say will give us signs for the market.

Bottom line,  there's many potential earning surprises from pint sizes down the road and we have to absolutely capture all of them.   It is our mission and our goal for this quarter.    This market may be a little overheated due to market's enthusiasm with earning reports from big companies.   If we get a pullback in the coming days, we'd be sure to get the latest, including last Q's earning plays on the cheap.

Leveling out....

It was the message from both the Fed and market.    While our economic activity is levelling out, the stock market seems to be doing the same.    In both case, it is good news.   From the Fed perspective, they are believing that the recession is coming to an end (only slightly raising growth).   This belief is followed by their announcement of Fed's end of purchasing long bond in October instead of September.  They`re being as conservative as possible, just in case.   Basically, if the mighty Fed is giving us the indication that we are done going down with pace of contraction slowing,  why shouldn't we listen?    The truth is, we should listen.    Some people may not agree with Fed on the current state of the economy,  so what?   Last time we checked, Fed's still running the show and anything they say and do are impacting our market, greatly.    So the conclusion is that we have to be confident going forward.

From this market's perspective, today's event provided a positive catalyst to squeeze the ‘stops’ out of the previous 1007 stiff R level after finding solid support at SPX 993.    Even though the market was up quite a bit before the Fed decision, importantly, it doesn't get ‘sold off ‘either after the decision came out.  We discussed someone needed to step up, early on Financial, Tech, Commods all stepped up together.  This early move definitely caught many by surprise even though we had some positive catalysts spread out, including TOL #’s.   As we said, odds were for a swing on FOMC day in either direction because we were on important support.

We wouldn't worry about the "weak" finish because no matter how you look at it, we still closed deep in the green.   The finish today erased all of yesterday's loss and puts us right where we were a couple of days ago.    It does feel like this market wants to level out a bit longer before making a big move.  We still favor a pullback before heading much higher.  This move today may put a scare into the shorts once again of trying to press new positions.  A close over 1014, even 1010 Fridays close would be looked on positively. 

In addition, we'd like to see more of our earning plays participate more on the green days.  Up until now, we have quite a few plays we are following after their earning reports.  So far, none of them have made any significant progress since their earning pop, except maybe HITK MAIL FIRE, but that`s not really the momo`we`re looking for, maybe too greedily after STEC DDRX and a few others last Q.  We believe some will eventually pop out of the range and challenge new highs.  Those are the ones we'd be chasing aggressively.  Still, a few bolded yesterday performed decently, FIRE  STEC  PWRD  EJ ( did same as PWRD following EPS, rising higher and selling off later).   A few liked stocks in July 28th alerts, PFE, RKT  had nice days as well.   So far, there's really no point betting heavily on one play or the other.   We simply have to let the plays behaviour dictate our funds.   In our opinion, every earning play has a chance to do well unless it breaks down badly.    Things are moving along somewhat slowly recently and it's fine with us.   The next couple of weeks may be a good test for some of our earning plays and we'll see if anything gets to be favoured by this market. 

Where's the new 880?

Yesterday we talked about the resistance of SPX 1014 replacing the old 950.    Today we have to give some thoughts on the new support as in the old SPX 880.    Despite today's gain,  we’re hard pressed to think that we can challenge the recent high anytime soon.    Right now, even 1K SPX seems an oceans away, we didn’t see any real conviction buying today and so this bounce may evaporate quickly.

Pretty light volume bounce can be attributed to a couple of things we’ve discussed,  the Financial  led the way(+1.9%), which was a direct result of Mastertrust CC #‘s (AXP, BAC, C, JPM) and the simple fact 982 was not an easy place to press fresh shorts after missing a 20pt gap.    Today's minor rebound doesn't necessarily invite anyone to add to their long positions,  it only gives shorts a more comfortable level to lay down positions above 982 at higher resistances to SPX1K.   After Monday’s pile driver, the longs are hesitant and tentative, including us.  

Looking forward to any potential long positions, rebounds like today give us an idea which plays are following the index more than the others.    Some plays are battled back toward the 9 ema, which is good, others have climbed back above 9 ema, which is even better.   To us, today's a day to paint a mental picture of what plays to add on potential weakness in the coming days.   On the other hand, if this market breaks out off some catalysts, we'd know exactly what to chase as well. 

Just to give an idea of plays that are above 9 ema, among the ones on our list include ABVT FIRE FSYS MAIL ROVI STEC TBI WLT.   Things really don't look that bad out there and we are using our recent theme "wishing for a pullback" to treat this particular scenario.    Now we are getting what we want, we have to start taking advantage of a good pullback.    In a worst case (pullback)scenario, we feel the support is around SPX 940 to SPX 952 area.    However, just because index is capable of pulling back down that many points,  it doesn't mean that all of plays on our list will suffer the same dramatic decline.    Relative performance is the key when it comes to adding on weakness.    No matter how much we liked a play prior to the pullback, how it behaves during the decline will determine which play gets the most of our attention.  In short, we can all be surprised by which plays stand out the most.

Earning season is grinding down and there's really not much else to look forward to other than the weekly Econ. data.     Fortunately, we have less than a couple of weeks before the fall trading season starts.    Bottom line, the best thing we can hope for is the healthy consolidation of this recent rally before we head into post Labor day trade.    So far, things are rolling on target, recall we've always said before 1K SPX was hit, we don't want to spend much time over that level this summer in order to have another run later in the year.

Anything but conventional....

So far,  it's been concluded that 2009 isn't a normal trading year.    Unlike last year, where everyone seemed to be on the same page, this year nobody seems to agree on anything concrete for more than a day.     One thing we all have to admit and respect though, is that the market took a gigantic turn from a low of SPX 666 to what we are now at SPX 1025.     We can disagree on many aspects of the recent economic development, corporate development and policy development.     What we all have to agree though is that the public (investment) has one sided agreed that things are improving.   Investment community has been voicing their opinion through  buying and more buying of riskier assets (equities) and that's how we got to this point today.

Strangely, it's still a sceptical vision for some people (bears).    Since we can’t predict what's going to happen the next six months to a year of trading , that conclusion remains up in the air, but we cannot DENY what's happened the last six months.    If people still think it's just a conspiracy by the government and a bunch of big brokerage firm’s artificially propping this market higher, then those people seriously need to check their heads.    Politely, simply that’s our interpretation of those people who have misread the market during last six months.

Ok, having traded this market on the long side during the past few months, we do admit that things aren't easily interpretable from time to time.    In other words, this hasn't been a conventional bull market.     How?   The market itself has consistently beat our expectation and surprised even the most optimistic bulls.    It's a good thing, right?    Well, unless you are a new bull that was born at the beginning of 2009, this might be one of those sweetest year you'll ever encounter.    For those seasoned traders that have "seen it all", we feel the market has outperformed most of them.    For DJIM traders,  we trade and live in a world of probabilities.    We enter a trade often in a high probability scenario and hope to profit from it.    If the trading scenario offers a low probability, we simply wait for better opportunity.    This is our conventional way of trading and why earnings plays work either immediately or simply, sooner than later.    However, what if the market offers nothing but low probability trades and often those trades work out wonderfully?    Well, welcome to 2009!.     Having traded as many years as we have, we just have to say that this year is nothing like the other years.   In other so- so bull years, we'd have done ten times better than we'd have done this year up till now.    Of course,  we may be a bit hard on ourselves, but the whole point we are trying to make here is that this ISN"T a conventional trading year.     It's been a slow and cautious adjustment as well always still full of hesitation and tentativeness.    We simply do not want to throw away all of our previous "know how" experience in order to adjust to the current trading mentality where garbage bin stocks have worked.   This will probably be a repeat of where Joe- Schmo thinks he’s a trader now until the day comes they are taught a ruthless lesson or two to take them where they started from.   We know, down the road, this market will eventually return to the normal mode and our knowledge and experience will apply greatly.    Discipline and consisitency is still our main strength at DJIM, even if it means foregoing some of the "seemingly easy" profit here and there.

Back to this market, we concluded yesterday's Journal that we’d concentrate on individual stocks and let the broad market to what it needs to do at new 2009 highs.  A stock we alerted late last week and said yesterday it should be on top of your trading list,  BCRX  stole the show with a huge lift, we really didn’t even notice SPX action all afternoon thanks to it.   Even though we closed flat,  it's really not that big of a deal considering the week we just had and the fact this is the week people go away for one last break in the summer.    Some other plays on our list such as SWM SXCI HGSI ABVT  from this Q and those from last Q STEC EBS EQIX... exhibited some nice strength through out the day.    Other plays have been firming up the setup as well as noted yesterday.   Overall, we thought it's a pretty good day.   As the market inches higher, we are in the buy on strength mode.  Tomorrow is that 5000 household CCI # to watch for possible market direction , even though we don’t really consider a eco data point.