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Entries in TAILWINDS (4)


DJIM #13  2009

On the back of this rally,  we've outlined consistently the tailwinds are outweighing the headwinds and so let the beat go in and trade with a bullish bias.   Unfortunately,  this weekend we've got the one potential headwind (D.C!).. "Unfortunately, this is a D.C sideshow the market has to deal with on a daily basis now".    Instead of waking up to continued M&A activity on Monday to keep the market rolling,  we've got that D.C cloud over the global markets as they talk tough with GM/Chrysler.   In reality this item goes hand in hand with the things were ' tougher' in March banker comments from late Friday (still ,NTRS BAC said there are tentative signs of bottom in economy during meeting but this not really reported) and thus the 2-4% downside globally.   SPX held 790 overnight.   At this juncture in the rally,  we think this reaction is more of an excuse to take profits.   This exaggerated move might may turn out to be a buying on the dip opportunity.   If last weeks underlying bid/ support takes advantage drops is any indication,  the market should shrug this off.      Nevertheless,  we'll avoid the initial sell off opportunity to buy into and just wait for more headlines.      This is going to be a rich newsflow week and we expect volatility intraday Monday through Friday!.     After taking advantage of the inflation- linked trade last week,  we're in no hurry to add early this week and instead turn our focus on corporate earnings.    After all the positive financial newflow and 'hints' of stabilizing economic data it all winds into the upcoming corporate earnings season.    All the momentum and good breadth seen is at risk  as all eyes are on 1Q reporting season.

Besides,  the wildcard play on commodity equities here,  we have stocks like EBS MYGN  that should withstand broad selling as their sec's are usually quite immune.   We also added STP  in hope the solar 1 - day frenzy has any legs,  we said this China paper will do nothing for U.S based Solar co's on the revenue front, plus the budget is not so great so far.   Still we went with the STP  ADR despite all the negatives,  even a 'short this play' call from FBR.     We think it acted well late despite this and started a speculative position,  maybe traders will look for a sector to manipulate higher.    As we said following the Treasury buy news,  we are turning to individual stocks- sec`s away from the market driven technical SPX /SPY trade.    We are hoping, like the commodities,  some niches will emerge and not trade with the broad market on a daily basis.


Early Cyclical trade underway..

One thing we haven’t seen for years is the US markets being dictated by overnight global markets, instead we’ve been riding the coattails of intraday newsflow originating from within for what seems like month after month.   This has changed recently,  maybe for the second or third time within a month large gains in Asian markets and even Europe spillover to the US markets.   We just follow.   This really isn’t a surprise,  if you believe China is leading the world out of recession which it is seemingly doing    Today, the worldwide squeeze continued as stocks surged in Asia and Europe with SP futures in tow as the safety bids in FX/ credit/ gold unwind!.     This was the key,  not the M2M fever we were waiting for in the morning.    Judging by the action in financials throughout the day,  you clearly see the M2M relaxer was not the culprit for the melt up.     Basically,  M2M changes are a  ‘middle ground’ compromise.    It’s really a wash as it is a compromise to both sides of the fight for it and against it.    So, the key is what we’ve been stamping in bold on site about eco’ data recently…."hints of stabilization".   This is probably the biggest tailwind  in the markets right now as the financial catalysts die down.   Today it seems everybody woke up screaming the end of the recession is here as we had more encouraging data worldwide!.     This is the underlying trend as eco' data is flattening out….. China March Manu PMI, China output expands finally, better than expected, UK house prices and March Auto Saar numbers probably have indicated a bottom and yesterday we also had the ISM provide a catalyst.     So, it wasn’t the financials leading this market based on M2M fever,  it was a rotation into a ‘Early cyclical’  trade, high beta groups were getting the money and some of it coming from profit taking in financials.    The heavy groups in the early cycle trade were/ are the Industrial, (transports notably, consumer discretionary/ retail / gaming and tech.    The best performing were the high beta/ high short interest equities.    Look at best performers on SP500...ODP, WYN WYNN CBS HOG HOT…can you say junk..junk..junk!     So, if you look at shadowlist the gains are not what you may expect from the individual equities listed as the groups moving today have not been in focus here,  why should they be if this just the beginning of an early cyclical rotation.    Let’s just say,  if this for real and pink or yellow shoe wearing gamblers appear we’ll have the likes of CROX and WYNN back on our trading lists in no time!    Anything in the safe sectors of late, Hlth care/Biotech just lags on days like this as the risk appetite changes.   You have a choice now,  this may continue where the riff -raff may provide nice gains in the short term or just stick to trading the groups we started to again over a week ago in the commodity linked stocks.   Eventually, the USD will falter and these will be favoured all over again in a bigger scope than what we are seeing now.

The question is where did the red flags go all of a sudden?.  Here`s a few.  SPX 840-860  should be a difficult barrier to cross,  we saw hints of this today as we approached 840.   Also, the SP financials still have not taken out their  recent highs (march 23rd).   We`d like to see this to have a chance to break 860 and cause shorts to unwind quickly and cause a big run.    MSFT, yeah its not a horseman stock these days, but it reversed and turned red today.     Oh yeah,  here is a wake call potential,  the employment report!.   If the ADP number was close,  this report may not be shrugged off as the ADP was as it comes with the above barriers- question marks.  Jobs are a big lagging indicator, but they still matter providing implications for  Credit trends going foward.   Consumer confidence is the key here and its turning.   Never a bad idea to throw some caution into the tailwinds,  but any substantial dips are a buying opp`.    Nevertheless, sticking to a positive bias and looking for pockets of strength..solars or whatever group pops up.

We have had pre announcements in Med tech stocks already and we’ll watch for spill to other sec’s.  We had somewhat backwards reaction to SCHN (steel) and MON ( Ag’s)earnings.    If you look at the headline results, which would stock/ group would you think would be a better trade today?.    In reality, what do you think will do better going forward knowing what you know of the global eco‘?.   So, the reaction to these reports was surprising and may make it difficult if you want to trade right off a headline number/ guidance as soon as it crosses the wire this earnings season     We also had the RIMM  pop AMC, its not the headline Q #,  it’s the gross margin number the scurried the shorts out.    We’d love for this to be a tale of things to come this earnings season if stocks melt up on earnings, but in RIMM’s case this was pure short covering and is probably not sustainable unless this market melts up on a broad scale.


Tailwinds to run over 860?

Once again,   DJIM keywords for the state of the market the past while,  prevailed today.  The lead we’ve been going with in maintaining a positive bias consists of the words…tailwinds, underlying bid, resilient.   All these showed up today as stocks closed +2 SPX points after staging an impressive rally off the opening lows.    An underlying bid was again present showing resiliency and signalling tailwinds, mostly in hints of stabilization in eco' data working hand in hand with much better numbers from the banks (WFC).    Leading the market tape today was definitely the financials!.   There was no real catalysts today,  just more tailwinds generated by WFC from last week.    Although,  we did have more positive headlines from China showing trends are stabilizing,  loan growth is going through the roof and gov’t players continue to make positive commentary.

Sector watch

Banks- Brokers linked,  what can you say,  but keep with up the herd.   You know the stocks we like at DJIM.  AMC, all GS  did was set the bar higher for others with a much better expected report in many aspects.  The public offering is quite neutral on a dilution basis (limited risk).   We dipped into the V -MA for stocks linked to financials as the charts look ready for more.    It will be interesting to see the GS reaction, the market might be feeling spoiled and not give this report all it deserves initially.

Commodity linked -stocks

The $CRX  made a new recent high as the USD weakened mostly due to many of the world markets being on holiday.  Basically, if left home alone,  this USD related sector was doing what it wants and some give back may come early tomorrow.   Still, we are specific here lately with what is working,  primarily the Steels  and Ag`s-chems - and our only copper play FCX  has been a standout, even alum' AA  got up to $9.30 since we said this stock should trade up following report.(mid 7`s).  Throw in a little solar (STP ), but we're staying away from the coals.  

China linked - stocks.

A positive is no matter the hiccups the market-SPX may have soon or later,  we are getting back to individual stock- sectors working by themselves.   This was the strategy here if you recall following the Treasury buy news to go with individual- sector plays instead of being fixated with the daily SPX up and downs.    Guess what?..the China theme is seemingly here again as many of old DJIM names are coming up all over daily high screeners.   Stocks like SNDA, NTES making new highs and more to come.  One way to get your feet wet here is with CAF,  if you are not comfortable with that FXI.

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!!.

A major eco' address tomorrow, "recession to recovery".  Hopefully,  this is just another tailwind-ish` catalyst.


'"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!


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


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“… equals ~880


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.

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! 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?   "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.