Brake on or just a break?..

While it looked like the market was having a bit of trouble making any kind of rebound through out most of the day, it did manage to climb up and close near the best level of the session at the end of day.    However, there's really nothing to cheer about because we still ended down almost 15 pts on SPX and closed below 1001.   The  Brazil ‘threat’ noted before the trading day pumped the USD at the open (unexpected) as the futures did not point to such and we went through a sinkhole to about 1090 in the first 15 minutes.  Another big catalyst was the BofA downgrade of chips which is really no surprise because their reason was speculated right after INTC’s report. 

Recall, many times, we’ve said when Bulls are hit by a fast and deep sell off, they do not put an underlying bid/ support until things cool and settle down.   A technical breakdown like today is not the same as the previous days shallow dips that are bought up.  Note, there was not a lot of individual stock hits, usually means mostly a ‘futures’ ETF technical fast money trade.  This means holders were not dumping stock.

Yes, we closed below the 1001 level which invites room for potential further downside.   Will today's move signal some more turbulent days ahead?    We'd think unlikely as today's move may have taken most of short term excessive bullishness down to a reasonable level.  Still, we'd preferred to have tested 1085.

After today,  it does feel that we are not obligated to chase some plays at an extremely uncomfortable level anymore.   In a way, it's somewhat of a relief to see this market come down once in a while.    Remember, healthy bulls runs will consist of many up days and a few down days.    Even though the down days may be dramatic in action, it is a natural occurrence as we‘ve all witnessed.    What we have to do now is to take advantage of some of the pullback to add to our existing position or start new positions on those plays we'd feel uncomfortable to play a couple of days ago.

Story is the same and strategy is no different.   There may be some headlines out there blaming this and that for this particular day but end of day it’s really not relevant as market will forget and move on to new headline.    Also, everytime we have a down day, you'd hear more cautious comments from analysts, but they always quickly disappear once the market resumes the uptrend.     Like we said in previous Journals, we strongly feel that investors, and especially institutional investors, are locked in their mind to bring this market to a higher level to finish up their year.    There's really not many potential negative events between now and end of this year that can come in and change the amount of bullishness we have out there.    The once in a while profit taking days are merely acting as a reminder that this is still a risky business.

As far as plays wise, of course, the safest thing to add on a day like today are the mega caps like MSFT and AMZN.   Still, we aren't excluding smaller plays that have taken hits lately like PEET CTRP GMCR (new adds to DJIM, AIXG RINO ) to our dip list either because we know what they are capable of on a good day(s).    Bottom line, tomorrow is the option expiry day for the month and there isn't anything on the Economic calendar.  A close over 1093 escapes a downside reversal week,  break of 1085 and we may eventually be testing the gap of 1070-1072 discussed a while back.  We’d watch 1085 to bring out the underlying bid if it has time to flatline there and not be reached because of a negative catalyst.

Yesterday's alert 'short' on shippers produced some ugliness in the group eg. GNK -11% EGLE -13% EXM -12% DSX -7%,  we would stay clear of being long and/ or anticipating bounce in this group for the short term.

DJIM 48, 2009

First of all, we wish everyone just had a great thanksgiving holiday.    The past week was "supposed" to be a quiet week where the focus was supposed to be on turkey as oppose to the market.    Instead, we had this ‘little ;)’ announcement from Dubai that it's planning to delay the debt payment of its state controlled company, Dubai World.    As we know with news rocked the western world,  hopefully you didn’t react like “Tiger Woods” by panicking and fender bender-ing a fire hydrant and a tree early that morning!   Both the European and Asian market took a hefty beating and our futures pointed to a nasty ripple open for Friday as the sudden return of ‘credit risk‘ returned seemingly.   They definitely picked a right time to do this, eh?

The actual ‘leverage’ exposure, as far as the US banks is concerned, is very minimal and we think this is containable.    The fact we had a huge gap down at the open on Friday morning was inevitable due to the overseas weakness.    Also, there's also the so called "flight to safety" trade where people taking on safer investment while losing some risky ones.    For DJIM, we had one question in our mind this holiday.     Didn't anyone see this coming from Dubai?     To us, Dubai is nothing more than a glorious version of "Vegas".    With the number of projects they have going on over there, they'd better hope that they can attract more than just the rich folks.    By now, we know that most of the exposure are from the European banks and that is something reassuring to know for the U.S. market.

The biggest question right now, come Monday, is whether this Dubai news would continue to shake investors' confidence in the equity market and flee to other safe assets.    If Friday was a good indication of how things would come in the coming week, we are pretty confident things won't be bad.    The volume on Friday looks pretty good, given the fact the market only opened for half a day.    Had the market opened for the full day,  we would have some very healthy volume and turnover.    This to us, means that many folks were being pulled from their holiday and back onto their ‘blackberry’ trading desks to deal with the market.    No doubt, many folks saw this as an opportunity to buy into weakness while others would see this as a reason to park it in for the year.      For DJIM, we see this weakness as an opportunity as we don't believe U.S. market participants would be as concerned about Dubai as the European players.     On the other hand,  there's really no other alternative investments to pile your money into.   The so called "safety assets" don't really earn you much and if this Dubai debacle turns out to be nothing but a short term manageable headache, we believe the funds will flow back into the equity market.

As far as plays go, some of our latest plays behaved really well on Friday.   RINO and TRIT  even managed to tack on some respectable gains.    Other plays such as AIXG, CLF, CTRP, MELI,  GMCR... all traded as if the market was down just a couple of points.     Coming Monday,  we'll have most traders back from the holiday and we'll see how they digest the recent events.    We also have data from this Black Friday sales event which will give traders plenty of catalyst to vote their opinion.   In addition,  we have job report in the coming week,  so this will be a pivotal week for the remainder of the trading year.

Jitters dissipate..

As the market hovered in and around important support 1088 (20Ma) and 1085 Fridays low our jitters were abating as a downward breakdown was becoming less likely.    Our jitters were not around Dubai as our previous Journal stated, but the back to back to back to back end of month selling we’ve been seeing in the market the last part of the year.   This Nov. month’s end is almost as crucial as last month due to fiscal selling possibilities by HF’s.  Fortunately, they probably don’t have much left to throw away after October as they’ve been sitting on their hands supposedly not participating in new buying and probably because they better hold what they have into year-end or face underperformance anxiety again.  

What we saw today, we haven’t seen in a while and that is Financials  outperforming, especially, it was almost a shock to see GS  and JPM  up, finally!.  This was bullet point #1  as to why we felt this was a good day and we should’ve been up nicely as alerted in afternoon because it showed Dubai fears were diminishing.  The last hour close points to a ’nicely’ open and was not just ‘marking up’ by managers in stocks to close off month according Cramerhead tonight.  This move should extend in morning in our view.

Next, bullet point #2  was not the China overnight gains as US markets rarely follow up or down the last few months (instead Europe), but what they were ‘pledging’ and that was to stick with stimulus efforts into 2010 and so this abates change of policy worries as been the case of worry in world markets, including US.    Part of this was the early morning alert  idea of CAAS , which went from mid 18’s time of alert to $20+ pretty quickly as  ‘passenger vehicle’ tax cut schemes were positive and we thought this was the best play (sub-sector) to jump on. (WATG TXIC may be others if this has life).  A few other DJIM china plays also played along, notably CTRP, TRIT, RINO.   On the speculative side, SEED  on Journal during Thanksgiving week regained momo’ for a big day.

Bullet point #3  was the Semi numbers out over the weekend.  Recall, BOA recently cracked the chip sector with a downgrade well, today JPM boosted '09 sales forecasts following better SIA sales showing sales are tracking or above expectations Q4 with solid demand.   We have AIXG  (ADR), our recent fave here making new closing highs in Germany and in US.  ** Note, there is a CFSB conference this week and companies may provide more positive updates signs for the sector and drive NASD.

In our view,  these bullet points were positives that were overshadowing in the morning any negatives eg. Dubai (positive news in pm) or holiday retail stats (actually improved in afternoon as more data came out /24% to 11% YOY from early am data).    As the news in afternoon on Dubai and Retail improved,  it pushed the market away from the important support levels all the way to 1095 on the back of already positive news flow we’re highlighting. 

It's all good...

So long, Dubai!   Since the Dubai news hit, we suspected that the news just would not be able to bring down this market. ..“we see this weakness as an opportunity.“..“Dubai stuff is really a non story here..”(alert Monday).   Today, all the talk is what we’ve been saying, except many who were drawn into the fear hype are only hearing these words in the media today, sidelined with many missed SPX points and individual stocks making new highs.  Getting in tomorrow for a Dubai trade is a little too late.  The past couple of trading days have been great to our latest bolded stocks as they've been making new highs....AIXG (CREE/VECO  alert Nov 24),  RINO , Nov 20th (new adds to DJIM, AIXG , RINO ) to our dip list either because we know what they are capable of on a good day(s)..MELI, CTRP TRIT CLF…and CAAS  20+% in a few days.  

As we have pointed out over the weekend and yesterday,  Dubai is likely an isolated agenda which is “containable” and regional.    The overwhelming appetite for equity market is the most important theme we have in this market right now.  That’s why the premise of the never-ending underlying bid is and has been the overwhelming theme here for months.  Simply, this has meant buyers are there for support and any sell offs should be used to buy your favorite DJIM stocks if they get hit or not.   

As of the closing tonight, SPX stood at 1108, smacking against the recent high.    We have mentioned couple of days ago that investors have this urge to get returns off their cash.    Well, you aren't going to get any return from money market or treasury bills.   Nor you can get any return from sitting on the sidelines and watch every single one of your favourite stock go up without your involvement.     Even though we aren't the big money managers,  we can understand EXACTLY how they feel if they are underperforming.    By sitting in cash, or being cautious, the money mangers are under performing even the least experienced yahoo traders who flip SEED  as a hobby.   This may sound harsh but the message is clear out there, "You have to be IN this market to get SOME return!"

Now we got our message off our back, we'll talk about some of our plays.    On our second thought, there's really not much to talk about other than the fact most of our plays are cruising.    Sure, some of the plays may act a little overheated, but we still have to be thankful for the kind of  excellent action they've given us.    Some of the Chinese (bullet point#2), more positive data here today and plays continue to be very hot and that's a very positive development going into the year end.   We’re also adding CAGC  to our trading list as Ferts are hitting new highs.

Only disappointment today is the GS/JPM  Financial bullet point from yesterday.  The more we think of it... this sector may lag for rest of year and not stop the market as long as the group just holds flat.   Bullet point #3 from yesterday, SEMI’s  (up 3%)led the move today with more companies (ALTR eg.) providing market boosting updates and  2010 forecasts out this morning.  

However, we also want to mention that it's ok to trim off some of the extended positions here.   We have done so today, but we'll remain on the aggressive end on any more pullbacks.  Due to what we see in the market today, we will look tomorrow at getting possibly back into a casino 'trade' with WYNN, LVS , the two names we play here.  We also see shippers  turning here and into year end as alerted today.    The market may consolidate some tomorrow, but we think it's a stock pickers market going forward and so individual groups will still attract attention, even if the broad market tape is not doing much. 

Before you know it,  this market may leave you behind once again so you have to absolutely have some holdings going into the year end.     We still like the idea of a balanced portfolio although we have been tilting our weighting toward the smaller stuff over the past few days.

Bottom line, we have a job report to look forward to this Friday and based on the market sentiment, the number may not even matter that much.   Folks, we are right against the recent high here and maybe we can just get lucky this time.