...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.  

Headwinds comin' ..?

Surprisingly,  day after a rally you’d expect some downward consolidation to take place,  even more surprisingly is given a horrible Retail Sales the market set a new closing high SPX 1012, (yet not a new intraday high).   If there is a finally a headwind potential coming for the market,  it will have materialized from today’s Retail sales number as we look days/ or a week back from now.    Production is picking up, but consumer is a clunker still.   Remember what we said as a theme for the recovery....“ If you build it, he will come!“.   Well, ..he..she..they are not yet coming which is disappointing, we did not think we'd see a 5th straight decline.    Also, for the 2nd straight day there is a divergence between asset classes, importantly equities and corporate credit which is a negative as the equity market attempts a breakout, a breakout squeeze so far with not a lot of conviction buying.  In last weekends Journal, we talked of a stall to blow off some 'bullish' steam,  despite a seemingly volatile week we will probably accomplish just that to close off the week..a stall and consolidation period.

As far as sector performance, second day of leadership from 2 of the big 3 as Banks- Brokers and Commodity linked stocks.  Even Tech traded well, particularly the semi’s.    All commodity stocks we favor can be found on our shadow list, as always we favor X-CLF  for steel, WLT-ANR-MEE  for coal,  FCX  (copper) to trade.    As far as Ferts, bad news is being shaken off today suggesting all the recent turmoil with pricing affecting stocks may be going away . (POT MOS ).   A casino play here, LVS  squeezed today, but it didn’t cause widespread follow through action as usually seen in the group.

Some earning notables off DJIM,  noted STEC  starting to shake off its offering before Wednesday trade, well, did it ever making a NCH with a 2 day sprint.  Others on Journal this week, SXCI PRE MAIL FIRE TXIC  were all pretty solid.

"Golden week" stocks!

A lot of real buying in the morning off AA earnings, Jobless claims #, positive retail curtailed at 1pm off a weak 30yr auction and we finished at SPX 1065.    Well, that’s what the broad market was doing and seeing, we really didn’t notice as our “Golden week’ China stocks had all the fireworks.   Of course, we’re talking about alerted UTA TXIC and TRIT  all running probably with many of the same players behind them. 

There is really not much to add before Friday’s trade,  investors will wait to make bigger commitments when we really kick off earnings next week and begin to get Sept eco data.  

..Tales(s) of the tape

It’s what’s inside that counts, the saying goes!.  You can apply this to the market today.  On the surface the market grazed (off only 3.5 SPX pts) above the 1060-58 gap of October 8th,  yet the underlying market was terrible with widespread deterioration.

Weekend`s edition, we said stick to ‘bigger names’ ..small caps lagging action.  Yesterday…avoid (high beta cheap-outperformers) micro-mid-small caps.  Unfortunately, what we want to avoid is mostly what our DJIM trading list is comprised of.   Today, the selling continued and got aggressive with many of the EPS out performers being rocked…ININ, HMIN, FUQI, TXIC, TRIT, BIDU, WYNN, STEC, AONE  etc.  Some were new earning report related, others sector realted (China), some IPOs.   In the broad market, the TRAN breakdown has the SOX as a partner.    Also, even though we've avoided commodity linked stocks recently, we can't help but notice the damage done in sub groups like steel today.   This type of selling is reminiscent of the days when HF`s dumped at the end of a month(s) in 07-08. As we said yesterday, they are locking in profits as fiscal year end for many is Oct-Nov.   While the selling seems to have abated on the surface, buyers are hesitant to step up until the market finds its support level.  You should as well, if your time horizon for a trade is more than a day.   If you can flip intraday, some names will provide a trade, possibly even tomorrow after their beatings.   A stock like WYNN  that is $20 off highs and has ability to squeeze at anytime is starting to look attractive even as a longer term hold possibility, other smaller beat up names don't have the same characteristics yet.

Also from yesterday…"…be careful jumping into excellent reports with both feet immediately.  Wait for reaction to confirm buyers will still eat up growth stocks".     Today, we alerted a stock with a cautionary…'see if it catches on'.    What we see clearly now from this stock and others is even small caps are going to have a hard time catching a bid from an EPS report in this current environment.  The 'sell on the news' is spreading and we again caution about getting in on a stock early from an EPS report at this point.

SPX has been down 6 of last 8 days and 3 in a row and 1060-58 might be ST support, but the market awaits GDP (Thur) and homebuyers tax credit news/ financial bill etc.   So, while the market box score may look okay on the surface tonight,  there are ominous signals internally that require the above trading basics to stick to.