DJIM 36, 2009

First of all, we sincerely hope that everyone had a great Labour day weekend.   We sure did!    Coming into September,  it's definitely a welcome time for us to rest our minds for an extra day or two in order to prepare what may be one of the busiest fall trading season in a long time.   The feeling this September of going into a fall trading season excites many traders.  For us,  prior to any market exuberance towards SPX1, we said we just want to get to 1000-1050 for the summer before pulling back for a breather and than taking the market higher by years end.  It’s almost playing out perfectly as we didn‘t go any higher, we just aren’t sure if this recent pullback was IT?   Before Thursday’s trade,  we were anticipating a ..” it may lead to a technical bounce before the weekend”.   Next day, we said if we hold/bounce overnight at SPX1,  it should signal we go higher.   We bounced Thursday night a few times there and Friday's move came to fruition.    Well, as we always say trading is about preparing and anticipating and we closed the week off at the important 1016.  This, just a few hours after breaking downside supports at 1013,1016, 1018,  is impressive once again.     As discussed, the Bears were simply 'Blowing it' by not pressing the Bulls with new positions to their knees!.  Sooner or later, the underlying bid was going to come back.  The sudden drop early in the week, just scared it for a bit and the Bears failure to act upon it was the door opening for the bid to come in a safer feel environment.  Simply' da' Bears did not have such a nice 3 day break and will dread waking up on Tuesday.  That feeling, we remember as that is day we went back to school!

*“We said we won't get bullish unless we get over 1015, we can add now over low 1020's and we think it is inevitable we go higher than recent high cycle”.  This will hold true if we close above say 1023, new cycle highs are coming on this 2 day leg, we think.

Many trader's profit is made or lost in the next few months.    Why?   Historically, fall trading is the most volatile trading period and there can be lots of positive or negative surprises.    This simply creates plenty of trading opportunities for those that are on top of their game.

Exactly one year ago today, we were faced with nothing but uncertainty.   The theme of our journals at the time was mostly "sitting on sideline", "holding cash", "wait and see" type of phrases.    Last year, we wanted to see how bad the credit crisis will get, how bad the recession will get and how much the stock market can drop.    Exactly one year later, we'd feel we are in the exact opposite end of the spectrum.   Right now, we want to see how much corporate profit can improve, how much further this economy is recovering and how much higher this market can go.    Ironic, isn't it?     What's so different now compare to 1930s or 1980s when we had some tough time with our economy?    Simply put, the U.S. economy isn't just U.S. anymore and it's dependent a lot more on other parts of the world.     In the old days, a U.S. based company couldn't perform well in a recession filled environment, if its business is solely in U.S.   Right now, any household name can't survive, period, if it doesn't have heavy international exposure.   So,  in the conclusion, other countries, let it be China or Brazil, are doing their part to quickly lift U.S. out of a potentially nasty recession.     It helps for other country to buy up U.S. assets, it helps for them to buy U.S. treasury, and it also helps them to continue the busy export/import routine with U.S.    So this is the big picture.

It's very reasonable to believe we'd get some carry through from Friday's strength come Tuesday morning.  Focusing on China/ Commods'/Golds last week here turned out to be a good idea and this will continue to be our focus.   Our last alert on China's CTRP  produced a quick 4pts/ 8% and UTA  wasn't a bad secondary idea.  Our Gold  watchlist was a dart board.   We also had quite a few EPS plays that are behaving nicely with the broad market.    Again, now that the long weekend is over and vacation trading is also officially over,  we have no excuse to get real direction from the market participants.    This is a particularly important/ interesting/ busy week as it can set the tone for the rest of this month.    At this point, we are betting that we go higher from here.

....Humble Bull...

Even though we got what we wanted in the past 3 trading sessions..”We said we won't get bullish unless we get over 1015, we can add now over low 1020's and we think it is inevitable we go higher than recent high cycle“,  we have to remind ourselves this market can humble you quickly!.  Therefore, we choose to lighten up positions as all the strength in the market was in the 3 groups we were on top of…Commods, China, Gold.   We don’t need to be overly bullish now,  it doesn’t matter really considering we’ve been on right side anticipating a bounce since late last week with the right stocks.  So, right now, we’re taking a breather as the market should by lightening up.  If we can just eke out a slight green day tomorrow, it would be a positive.  

Interestingly, we gapped all the supports we’ve been noting by opening at 1018!. Clearly, this gap at supports (1016-1018 ) is even more important now and we’d be using it as support going forward.   We’re hardly TA experts, but this seems to be quite the bullish gap for a retest of 1039 at least.

As far as individual plays/ sectors, we’d still concentrate on the 3 sec's above and EPS plays.  We had a few making new highs,  ININ and ATHR  premkt was up to $29.  If you were frustrated by ATHR's lacklustre performance after we alerted the gap after earnings, you missed a 25% gain now this Q in it.  Clearly, if we go with an EPS play here the best past is you likely won’t be losing money, you just need patience sometimes for the results to come in and a good entry.   Others lining up might be, ROVI, CTSH, STEC  bounced nicely today again and should have follow through.  HITK  moved into earnings.  Many of the newer EPS stocks we liked this Q,  will move into their next dates and not just a few days before.  It’s not pre- earnings runs, it is simply the course of things these days as earnings winners don’t all go like MAIL , but take another route which means they get valued into next report.

Today, we had FSLR  for a possible max of 10 points as a day trade.  We knew a senior Chinese delegation was visiting the company over the weekend /late last week in the US and thought a deal of some kind would be in the works and so played it.  You don’t go all that way just to do nothing.   In the afternoon, a deal was announced for a major solar plant in China.  CTRP  was upgraded today by GS, but UTA  was the big winner as it’s run now 20%+ since alerted as a secondary play around $9.30.  We like this segment of China, also they are possibly opening up their skies to more business and becoming more friendly as far as flight plans/taxes.

After INTC guide recently,  we pointed out that their raising of guidance will lead to many more upside surprises going forward in tech.   We are getting glimpses of this daily with stocks such as MCHP  last night.  Reason, we are pointing this out now is that are fewer and fewer negative preannouncements in all sectors than in other years going forward and more upside.  This should lead to an interesting EPS season, yep, it’s close with RIMM  reporting Sept 24!.

1044

A week ago in the midst of what was the much ballyhooed ‘correction’, we made what you have to admit was a ballsy call of an inevitable new cycle high outlining the steps to watch for in order for such to happen.  First, the inability and missed opp’ by shorts to bring the bulls to their knees, a technical bounce beginning possibly after Bulls catch their wind,  becoming bullish over 1015/16, inevitable new cycle high if we get over 1020-23 and a what had to be a bullish gap at 1016-1018 previous support.   Of course, this ladder program could have broken down if we had some negative catalyst, but the thing for a trader is to be prepared.   As a Bull, you better be prepared for the upside and not thinking ‘what if’ this and/ or that happens.  We hate the obsession with SPX, but there's a lot of you here that trade the SPX ES, SPY and so it`s become a natural trend here the past year.   For us, we just like to see earnings and stocks with deserving higher prices become more in focus as it should in a recovery process and hope to continue to toss out trades like SWM  yesterday, steel commodity focus (X ), FSLR, CTRP-UTA,  GOLD  that have worked quickly coinciding with this SPX move.  All this while maintaining our earnings- sectors plays which includes most of those names for the longer term trader.

Today, now up over 40pts since last week,  we closed or you could say painted the close at the 1044 Oct week high.  To be honest..so what!.  “So what?” is seemingly also the  attitude of the market as there is no real aggressive  buying volume leading to this new rally cycle high, ‘potential’ breakout.   This will be the cry of the shorts…‘no volume' today or the past 4 days of this rally‘.  Geez..this should be a top 10 hit song for the past few months!.   Let’s give up waiting for it and just move on.   Today's volume was the recent trend of around 9 bln traded, at least the volume is not all AIG BAC FNM etc as it was recently.  Also, a lot of the big money is sitting in on conferences all over the country.  We have the Cit tech, BAC media and many Retail open houses at GS- Barclays.   Do you know what this money is hearing?.   Nothing, but good stuff as you can see by the numerous analyst upgrades and companies raising numbers at the tech conferences (JNPR today as example).   As long as we stay grind higher or just consolidate over SPX1, we’ll have earnings starting soon and last months Bear cry of no Revenue growth will not be an excuse this time around, but will likely be the fuel for the market.  

So, what now…hopefully, we hope we avoid a gap up or down in the morning from any surprise China data (noted yesterday) and just consolidate/ grind this recent move.

Here's some Honey...

Are there really Bears who don‘t like honey?.   Well,  it seems the ones in the stocks market these days just don’t, even when it’s handed to them on a plate overnight at SPX ES 1030.   Yes.. that's about 20 points from lows to highs the Bears got teased and than dragged by an underlying bid of swarming Bees!.   What had the makings of a 1+% down day due to world markets feeling the US-China trade wars,  turned out to be just a regular ordinary day in this Bull rally.....Bears not pressuring new positions….Bulls coming in with an underlying bid..new cycle high being made.    The Bears just can`t conquer their fear of upside risks and really who could blame them after the 2 recent slides that ended up disappearing by short covering with new highs being made both times.   Today`s upside risk is not really the Retail report, this report tomorrow has been a time shorts position themselves prior to this summer, which led to sell offs on day of.  

In our view, today`s upside risk is something you probably didn't hear much about in the media.  It is the Barclay`s conference tomorrow/ Wednesday, where banks will start updating the markets on Q3!.  We discussed the positive tone coming out of the conferences last week, notably the Tech`s sending a positive tone that helped the market make new highs.  Well, this week, this financial conference is fear for Bears!.  We all remember what the Bank- Broker tone did for the market to start this rally!.  Simply, the shorts were reluctant and covered in case things are upbeat leading to SP financials ending up 1.4% on the day.    Early in the summer, we said eventually after this initial rally, we anticipate the Banks- Brokers to lead the market higher in Q3-4.    Is this the beginning of this or are they going to be the reason we pullback and correct.    Simply,  this conference is important to the Bull cause and we'll monitor closely…(sell off on good tone or will market run higher?). Still, there is other data points to watch for, inc retail sales and earning from some notable names this week.

As far as individual earnings linked stocks, we had a few more hovering around and/ or making new highs like SWI,  which has had consecutive up days.   FIRE  alerted again last week is capable of duplicating such a move.   UTA  continues to find a bid, but after being alerted in $9.30`s recently, a run to 12.60 is not a bad excuse to take some profits as it just clears 50ma (even though today it had its best bid day).   A stock like this is one we'd be buying prior to its next earnings report due to its China and business factor.    VVUS,  showed it's capable of moving fast on any given day, we have no hesitation holding it long term as we originally said.

"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.  

Persistent..

We have always asked ourselves question like this "does a quick rebound back to the previous resistance be trustworthy?"  So far in 2009, nothing behaved in a logical and conventional way.  This also includes the technical side of this market.  We spent most of the day hovering around SPX 1098 and it is exactly where we closed at.   After such a quick and powerful rebound, we just had a 2 day pause without giving back any ground from this market is considered a victory to us.  This is evidenced by the sea of green on our watchlist despite a market pause.

If you ask most traders about what they think of current market,  they'd tell you to be cautious and it'd be risky to chase any move at this point.   We can also tell you that secretly everyone wished they'd load up all of the things at five or ten percent below the current level.  Unfortunately, this game is not about "what you should've or could've done!", and it's all about "what are you going to do now"?  We at DJIM are currently holding enough quality plays with a balanced(as we talked about yesterday) mix that if we get a leg up, we would be happy.  If we have a pullback from here, we'd have plenty of cash to add to the dips as we believe buyers are looking for any weakness.  So, really it is about being comfortable with what you holding.   The comfort level is different for everyone, but we'd imagine at some point every one of us will know what level of equity level would make us sleep well at night.  Basically, at this point, we are feeling confident about the remainder of the year.  Many earning reports have exceeded the high expectation and Econ. data has been up to task as well.  So, this market does not need a super drive up toward the end of year.  All we ask is to hold the recent high level and perhaps make a little progress upwards as we move toward new year.

AMC, we had HPQ pre-announced a slightly better guidance and an acquisition of a tech. company 3Com.   Well, any acquisition in these days are viewed as positive and there has been about 10+ in this tech space recently.   There were also two very interesting earning reports from GMCR & CTRP, which will definitely get some action tomorrow.  While CTRP's report is a no brainer given the AH reaction, we feel GMCR's reaction can be a little misleading.  We remember the exact same event took place for GMCR during last quarter's earning reaction AMC, the stock went up the next day.  If PEET' s is weak in sympathy tomorrow, we won't be hesitant to catch it on the bid. *At this point buyers are not only looking to buy the broad market dips, they also look at individual plays that dip by themselves to get exposure.   The market is probably finished with 5% corrections for 2009, so you have to be selective and look for individual buys if no negative catalytic newsflow comes rest of 2009 to get in.  Example is 24hrs ago, MELI  was under $43 in early trading, today you could have unleashed some near $36, if you bought the dip of a good eps play.  In addition,  we'd be looking at UTA  to see if it can catch any CTRP sympathy trade before it reports next week.   

We have to say things are looking pretty good at this moment.  If financial heavy weights such as JPM or GS can lead the sector with a strong move higher, we'd be looking at SPX 1100 in the rear view mirror in no time.  Unfortunately, today they gave up early gains and market followed suit from new SPX highs.

..getting close

The bullet points to tonight’s Journal relate solely to what we alerted in the afternoon as they are the most important trends visible.  It is also what we were crying for in the late week’s trade when nothing moved in our trading universe, yet stocks like DIS were making new highs and creeping the DOW 30 higher.  Today a wide range of mid-small caps from our shadow list performed very well….from China (HEAT UTA CAGC etc. to Casino’s ..LVS WYNN  (thanks to Dubai 10bln resolution) to commods’, notably steel..X..

First and most important is the small cap index was outperforming, thus DJIM shadowlist and finished the day to multi week highs (+1.5%).   Second, the economy sensitive sectors, notably the transports  up 1.7% and a break to new 52wk high and through >4100.  The SOX  closed right at 340 and is not just yet conclusive of the daily double we are looking for further upside.   Still, we closed at 1114, another new closing high on SPX, yet off 1119 intraday high.   C ’s larger than anticipated capital issue made the financials lag as this left some overhang,  still other important names made a nice recovery later in the day as DB  made positive comments that helped improve the tone and morning’s weakness was bought up.

Close, but no cigar just yet to break north of 1115/1120, setting up for FOMC 16th to settle the score or just the anticipation of not much change to break north before the decision.  At this point, you cannot trade on your heels in anticipation if the FOMC statement language will change,  even after the recent strong jobs report.  Minutes down the road may play a bigger role.   We think Bernanke gave enough clues recently that no big changes will be present (sorry Bears),  yet some tweaks/adjustments should be inevitable after the strong jobs. 

We just can't picture the FOMC in grinch mode and pissing off vacationing important trading players/ desks.