Constructive..

As we opened our platforms premarket and saw “UK bank problems“..Injection by UK treasury into RBS, disappointing UBS report lead to a 2% decline in European indexes..We couldn’t help but think here we go again.  These are the kinds of headlines that bring up bad memories and you’d expect it to spread here to US markets.  Importantly,  US financials held in.  SP futs held the noted support in Journal to look for (1027) by open with the market shrugging off these problematic negatives even with a strong US dollar. ( as per early morning alert at SPX 1038). 

Oh yeah,  we had a big cyclical acquisition by Mr. Buffett, but this failed to give the market a bid (only a badly needed one to TRAN index, now only if we can get on for SOX).   The Bears had a another positive as a huge deal, besides all positive eco’ data lately, could not spark the market.    However for the Bulls,  things started to improve dramatically as the day wore on.    Most of the plays, particularly smaller caps were nicely in the green.   A seemingly flattish close, but the underlying market was pretty good in our eyes.   Just as we pointed out our ‘lagging list‘ over a week ago as a concern that turned out as a prelude to a broad market decline,  today‘s strength in the list led by initially by riskier asset group Casinos (WYNN, LVS ) .   When you see higher beta names moving, you are probably seeing an underlying bid developing. 


So far, so good as we closed at 1045!  A constructive day in our view, financials finished in positive territory and higher beta & smaller cap names performed well, even speculative biotech got a bid.  Go back and see what we said yesterday may happen if Mondays highs taken.  Still, tomorrow's FOMC may change the behaviour of this market depending on Fed's tweaking or not the statement.   Clearly, even if any market guru had the statement in hand as of tonight, they would not be able to predict what the market will do.  Watch the USD$ guru here!.

As far as more action,  we have had a strong day from the commodity land despite the strength from USD.   Oil related names enjoyed a nice day as well as coal plays having to do with BNI/ Buffett.    We lost another DJIM favorite play...STAR recently.   DDRX  agreed to be bought out by PEET and we think it's a very good price for PEET.   We ‘d replace DDRX with PEET  on our watchlist as the action suggests some more bullish momentum in the coming days/weeks.   On the other hand,  STEC ,  also one of our former darlings, has released a report that's very disappointing and it pretty much spelled the end of its story.  Only reason to bring this massacre up is to serve as a reminder why we don’t hold mid-small caps into earning reports.

DJIM #45 2009

Some of the words used to describe Friday’s highly anticipated NFP/ Employment rate trade in IBD edition this weekend include…”almost as if market took off early for a phantom holiday…volume slouched..  Market decided to celebrate a silent film actors birthday….near silent…yawn.  

If you waited to do a reactionary trade all week off the NFP on Friday and avoided trading the volatility prior to it,  you were left mumbling the same IBD words and missed plenty of trading opp’ before it.   If you don’t think outside the box in this market, you're left out.   Fortunately, here we try to think ahead, if our ideas don’t work..that’s fine, at least we're all prepared and if the ideas work, you’re a step ahead of the herd.   Last week, this included a potential reversal off 1027, the prospect of the market ‘getting it all back’ on Thursday after the FOMC late sell off and the possibility of a ‘ flat’ trade on Friday where nothing happens and we get an ‘exhaustive’  day.    You may be able to spin Friday’s report to get something good out of it, but, let’s be realistic the numbers were ‘horrible’ and many previously said 10%+ headline would cause a ‘ big sell off’. 

Earlier last week, we were asking what does this market want to move to another leg up. …One thing we thought the market may  need is …“…or have 10% unemployment hit finally to blend everything together and have a big day leading to the next leg up”.    The premise of having a 10% tape finally hit was what the smart money was trading on Thursday prior to release,  the consequence was a flat day as most shorts were already pressed out on Thursday and no conviction buyers were ready on Friday.   Why would any new money come in on Friday after the such a horrible number?   If you were sidelined, you were also just scratching your head and asking what the market was doing not selling off.   This equalled a draw in the boxscore.  Anyways, the question in our mind is if the 2+% Thursday was the "big day" needed for another uptrend without the usual big volume to indicate such a move??.   A close of 1067 or higher is/was crucial for the Bull frame of mind, a push over 1074-1075  puts the ball back in the Bulls court for a 1100+ close into the New Year.  An upside reversal week was completed from 1027.

We have a rather slow eco’ data week,  but this doesn’t mean the volatility will stop.   It might not be as crazy as recently, but the $USD  will continue to provoke moves.  A potential USD correction is a possible ‘roadblock’ and the wake of the employment numbers is still to be determined, eventually the talk may turn to a labour market recovery stall.    Until one or both of these things occur, trading life goes on with what we have to work with day to day. 

In all the broad market excitement, a few names emerged that we like, MELI   following earnings and PEET  after EPS/DDRX combo’

Bumpy 'holidays' for bears ahead?

Over the weekend, we couldn't help but notice that the general media is a bit worried about the current state of this market.    There were numerous articles citing that we could be getting a bumpy ride over the next few weeks.    This is due to the fact we had two down days last weeks and that was enough to bring out the skeptics once again.     We don't want to read the media comments after today's action, however.    Frankly, we are just a little tired of the media lately and all the back and forth.  This includes every wishy washy regular guests on CNBC that switch sides on a daily basis.   There are many reasons that caused the market go up/gap in strong fashion, but we think the biggest reason is the reason we've been saying all along.   There's underlying bid from the money managers who like to see this market higher, as oppose to lower into year end.

Headlines are plenty today, the weak USD due to dovish comments, China growth forecast of 10% in 4Q, potential FOMC minutes containing upward eco. growth forecasts and European markets were substantially higher due to German/ Eurozone PMI‘s (we noted Euro data as a potential catalyst this week.)    All of these contributed to a quick rise in equity market today as 1100 and 1005 resistance got pummeled.    Are we surprised?   Nope!   Just like on a down day, people need reasons to explain the market action.   For DJIM, a day like today does not shock us because we're 'Bull' prepared due to expectation of a potential underlying bid as this time around 1085.   If you're not a ' Bull' and preparing for a bid, you miss most gains due to a gap like today if you're not invested.   Still, we do have to point out that not all of the stocks were enjoying the kind of gains the indicies are suggesting as the USD decoupled for many commodity linked stocks.   MELI  and AIXG  ( a DJIM add last week) were outperformers though.  Big caps have obviously benefited from the broad market gain, some of the smaller stuff may still play catch up.

Then there is the coffee frenzy.   PEET  was originally a stock we played due to their announced "acquisition" of DDRX, (a stock we covered since high single digits.)    Remember, a while back we concluded that the price PEET offered to buy DDRX is considered an outright steal.   Today, GMCR , the other favourite EPS/coffee stock here thought the same and outbid PEET.   Naturally this type of an event causes a sell off as a bidding war is a negative for the original bidder.   PEET, raised the offer, but will probably lose DDRX all together was the sentiment.     This superior GMCR offer puts PEET in a very difficult situation.    Despite the fact PEET announced to raise their offer with a mixture of cash/share, it still doesn't come close as good as GMCR's offer of ALL CASH.    As of the closing price today,  PEET's offer is effectively lower than GMCR's offer on DDRX.    Why are these two fighting for DDRX?   We have discussed here many times before, it's all about the growth of k-cup.    In our opinion, the bidding war, if it continues, will be unfavourable to PEET and we decide it's no longer an attractive play based on the current event.    At this point, it's even hard to say if anybody ELSE may come into the picture and give DDRX a fresh bid.     You have to remember, the bidding war between the two may actually draw out other potential interested party.     As it stands, even at $30/shr, it's only $172 million.    The reason we gave this a lengthy paragraph is that we wanted everyone to understand our logic to go long PEETin the first place and why we think PEET is no longer a play going forward.  This is not a 'weakness' , we buy, as it’s news flow related.    Do we still like GMCR?   Yes, of course, especially now that it has a chance to grab DDRX.

One of our readers also mentioned SEED,  a stock that doubled up today off volume that's four times its own float.    As of right now, we don't really know the long term impact of this particular announcement.   Bascially there's no telling of what it means for SEED as far as dollar amount is concerned.    What we do know, however, is that this stock may just be the favourite stock of the day traders and speculators for this holiday week.    It might be worth to trade this thing for as long as the story lasts, but ideally it's best to stick to what you know heading into year end.

This is a shorted trading week and many traders are away on holiday as we all know.    Today's volume is relatively low, but it's still pretty decent given the circumstance.    It might not be realistic to expect this market to break out of recent high cleanly, but we do think there are some trading opportunities worth participating in.