DJIM #25 2009

In last weekends, DJIM #24,  we finally conceded to the fact that , “ We need to respect the probability of a profit taking correction finally from those participating since March to allow latecomers a chance now to get in”.   What we didn’t and won’t concede in 2009 is ..“we are still very much bullish longer term on this market”, even though we thought we lost momo`the previous week.

As we come to the end of 1H, this upcoming week,  we look forward to a climate change for risk appetite in equities continuing as the recovery takes us out of recession with manufacturing and financial systems rebounding.    The landscape is definitely changing,  but after a 50% decline with many individual accounts bloodied it takes more than 3 months to rid investors of fear and regain confidence.   What’s occurring now is natural in the process of a recovery.   It is called 2nd guessing,  especially those green shoots as they are known.    Instead of looking at obvious fundamental changes, many are turning to the , ‘what if’ mentality.   This the ‘watching life go by’ way of mentality crowd.   Many are already suffering this from SPX 666 and will only punish themselves further if not looking for another ~20% from this market in 2H 2009 at some point.    Last week,  we got what is now is a 4th consecutive correction of ~5% off SPX highs holding during this rally without what should be sooner than later, a meaningful correction of around 10%.    So….is this the one that declines further or are we going to be questioning the same thing if/ when we begin a 5th consecutive 5% ?.     After, seemingly holding above 200MA, we are beginning to doubt the current correction will allow latecomers a chance to get in.    One thing,  we definitely believe is those latecomers will NEVER be given an opportunity to get in the 600’-700’s, maybe even below 850SPX.   Those in the market will never allow such a gift.   Human ..fundamental nature…say you buy a home and keep putting money into over time.   You’re never going to let someone buy it at your initial investment price are you or lower (unless of course stuck in the recent ordeals).  Well,  same in this equity market,  we won’t be letting the latecomers into this neighbourhood so easy.  It’s gated now.    They’re going to buy this market at a premium!.   Maybe they are getting the message as current inflows into equities are surpassing those at 2003 lows and MF inflows have doubled over the prior 4 week trend.   We`re not talking chump change (9bln vs. 4ln)

Here’s an idea of what may be happening that will not allow a meaningful correction just yet.  We are having an orderly quite transfusion.   A transfusion where those in market for weeks are doing some profit taking, but the selling can’t gain traction as the Bears hope because there is sufficient inflows taking the supply.     In essence,   this is why our premise from March of an underlying bid prevailing keeps on motoring.    Those that have been following the market with us for over 5 years,  you know in the good ole days,  we always said the market will not go down further if declining at that time due to EPS just around the corner.   This theme is also possible now in a 5% correction as the upside risk remains of corporate growth here and there.    We are also up against what could be and actually should be window dressing for end of Q2,  especially with a 5% decline already in place for a buying opp’ for managers.   This all works unless higher powers used the 956SPX early on in June as a time to cash in early.   A game of cat and mouse here as we‘re stuck in June gap resistance last few days.   Simplifying,   we are fine unless we close below 200MA.   To be honest,  we’d accept a terrible and unexpected headline over the weekend to see how strong we are at 200MA around 900SPX.   This would give either side (Bulls-Bears) a belief system.   Bulls..“nothing can stop us now” and the Bears a belief in finally pressing shorts with confidence(maybe).

To simplify more, we’re sticking to this Q’s plays, mostly EPS or story wise until new babies are born in the upcoming Q.   Even though,  the big boys like RIMM may have EPS cooked in,  it should not stop the risk appetite for newborns in the micro-small cap world.    Keep those STEC PWRD CMED ’s upside guidance coming!.   Speaking of,  you might have noticed strength on Friday anything China  related in any sector outperforming, besides PWRD, CMED.   See Shadow list link on site..EJ ADY STP.    Also,  noticed some risk was coming back into our Casino/ lodging... ASCA WYNN PENN HOT LVS WMS  plays,  so look here as well starting next week for possible continution. ( we think these C-L`s are a group that may move best into their earnings given recent slide).    If we see the same reaction (RIMM) going forward....”cooked in..sell news,” in micro/small cap types off earnings,  we’ll now it’s time for a real market breather,  but we doubt it as the risk appetite back for such plays should continue in a recovery trade.    Other than individualé group plays above,  we always have banks- brokers/ commods sector  rotation to take advantage of on any intraday/ short term rallies to dive into for a trade.

..Some footing

All we could ask for is some stability at this point,  today we probably found some footing.   Early in the trading day,   it looked like the recent downside grind would continue to May lows and we honestly had/ have no problem of going 880,  which marks the May lows with the April highs just below.   Maybe the market participants feel lucky and feel like they can prosper from 888.8  as the market finally found a bid.   Still,  all eyes are on FOMC at 2:15 tomorrow and all we really did was flat line all day, so we'll keep commentary short.    After we get through the statement all eyes turn to earnings and the possibility of the “Golden Cross” for a technical signal.   So, let’s just get through this tomorrow in one piece.

As far as flows today,  our ‘Steel'  focus in commodity -linked stocks had numerous positive commentary points from CMC  MT  X .(alert- comment post today).   The USD$/ DXY below 80 helped the cause for all groups, but we’re concentrating on Steels as we’ve pointed out numerously.   We continue to pick up X ,  but we have others you can buy like AKS, RS SCHN ZEUS .    Considering,   we’ve been playing commods’ for what seems like years now,  everyone should have their favourites that you feel comfortable trading in whatever commod’ group.   The positive flow in commods’ may continue for a few days at least after the bear market like recent slide of 20%+ in most names.   Some decoupling from USD should occur at some points after such a slide and so stocks may move on their own.

Remember,  despite what the World Bank  noise was on most economies,  they did raise China  forecasts the week before and so we still like this group now for trade.   PWRD  made new recent highs after alerted recently.   A few opps to pick up in $27s have come since and it flirted with $30 a few times today.

Everything else is still shaking off their recent beatings and money flow into the sectors just wasn’t there yet today.   Basically the Banks- Brokers./ Tech hugged the SPX later on as they found some footing after recovering early losses.   That’s all we can ask for today.

Pints on us!

The solid earnings calls keep coming and the SPX keeps trotting along.  What else is new?.   To tell you the truth, unbelievably the short term outcome of SPX near 2009 highs is of little consequence to us at this stage.  Yes, that’s all the investing public is talking about as we close at a SPX‘09 high, we admit to hardly even glancing at SPX, SPY trading today.   All we see at DJIM is how well our shadow list is behaving and preparing for opportunities ahead for more Pint sized earnings on top of last Q's winners.   Okay, maybe not looking at SPX had to do in part being occupied with watching our premkt HGSI   forum post call at 3.5mln shares/ $10 that sprouted to 123 mln shares traded and a 25% gain from those levels.   But seriously, what excites us is not if the SPX breaks 956 intraday day high this week, but what possibly lies ahead as far as earnings are concerned.  What these solid earnings in the first week are telling us is we are going to get some nice EPS winners in the next 2 months.   Yes, 2 months because most Pint sized caps report for Q’s after all the Keg size stocks report.   Plus these Pint sized caps will have 1 to 2 months of better economy than the ones reporting end of June Q’s now, so earnings may be right out of the park!.  Also, remember half of these don’t even provide guidance which only makes an excellent past Q of relevance.  We should have much more than the (ININ  HITK ) so far this Q to play.

Back at DJIM farm today,  the  drunken’animals were running freely…just yesterday we said…“Even last week, we had past DJIM shadow-listed Q plays putting in new highs at some point ( STEC STAR  CVLT EJ   )”.   Today, we had a few more DJIM shadowed earning stars light up the sky, ( GMCR  PWRD  DDRX ) for 10-15% and some with new highs.  Nobody on the web can be beat that  "Fab 7”  for a few months now.  Also, if that’s not enough, recall in a Journal and later in Forum(06/24) we suggested a pre earnings move will probably come to Casinos after a member asked if it was a time to buy back than.  Well,  with earnings in a week or so these names eg  LVS, WYNN  are acting like earnings winners the past 4-5 days as prospects improve (may need a rest though).  

Even if the market falls into total darkness from something other than a solar eclipse, we have a ‘Premise’ here that's been working overtime since March and an easy to follow formula to stick to going forward.   Note, the "BAR' has been set high for the Keg sized companies by INTC, GS etc., so the big boys ahead will need to shatter numbers/guidance going forward for a great reaction.   On the other hand, if one of these misses it will lost likely be a very nice short quick intraday trade.  The good thing is our pint sized  earnings focus has "no bar" to play in.   Also, the probability a herd momentum mentality has set in and pints are the best way to cure any performance anxiety over one’s stock portfolio in years past.

Geez, just got all thirsty..luckily it's almost noon in London UK!. 

Cheers'

...How'd we get here?

‘Here“…is seemingly nowhere as we sit below SPX1K again and many jumping on the train last week are asking this question.   Before the 1st trading day of August, we discussed a break of SPX 1K was inevitable after painting a Bullish outside month to conclude July.   Once we accomplished this feat in short time, we immediately warned that an overshoot spike would be the beginning of a reversal if 1014 was hit and the market would “blow off some premium steam”.   Since Fridays intraday high spike to todays low..(26 pts < 3% has been blown off).   Today as the SPX futs touched down to 990/ 993 Cash important support, we were in danger of this reversal continuing to next 982S and than even 970S later on.   Simply,  we feel stops are laid out just below 990 and this would induce a further drop.   We’re watching this level closely this week,  today’s volume was quite low in all probability awaiting FOMC.   FOMC, not much is expected,  still it should swing the market either way just because we sit at support.

The Friday SPX failure to close over 1014 is reminding us of the June attempt to get over 950.  A break to SPX 956 and than a close of 944.  We think the trade going forward may resemble the aftermath of that day.  Have a look at the daily.

What’s important to understand for future reference are some points to recognize as a trader to be a head of the curve.   Once we broke SPX1K, we titled a journal “ PMI= SPX1= Market too Giddy”.  That day global PMI pushed the market higher as all of a sudden these PMI’s were the holy grail as seemingly every  Johnny come lately’ was coming in bullish.   We wondered if this investor was really that behind the curve and now the smart money would begin to sell off to them over SPX1 (Aug 4).   This relates to the overall bullish sentiment getting too high, thus too giddy.   Other bearish points we have discussed recently are the mid/ small caps earnings winners not going higher which signals a short term top for us and most recently the failure of the COMP all leads to our cry here…’we want broad particpation’ and we’re not getting it.   Also our NYSE A/ D line is turning.

A few earning plays from this Q did look good today.  FIRE  continues to make new highs,  PWRD  made a nice one day reversal after selling off on excellent earnings.  EJ  beating on top of Aug range ahead of EPS.  ABVT, consolidating, flat lining well since EPS.  SXCI  and even STEC  is starting to shake off the offering.    But as noted yesterday, breakouts are a concern and just as we noted TBI  breakout was vulnerable as it gave it all back.   We’ll feel much more comfortable with our niche once this action stops. We also added some TXIC  today due to earnings, China and business related make the float even that more attractive to go higher.    Anyways, today a few more of our niche plays are looking better, hopefully a sign of things to come.

Today,  financials down 3% with banks down 5% being the weakest sub group, we have Tech doing nothing since MSFT earnings and Commods  needing a well deserved rest all intertwining here.   Not simple to figure out we need someone to pick up the slack.  

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.