DJIM #31 2009

Every trading cliché in regards to ..'go away in May' and 'summer doldrums' has been thrown away in 2009.  But considering, we’ve gone through extraordinary times to the downside starting in late ‘07, we shouldn’t be surprised that none of the past cliches have held to form as we enter the month of August. We concluded July by painting a Bullish outside month of 869 on the monthly chart and we should try and break 1k early next week just because of this fact.   At DJIM, we had a successful July calling 2 breakouts, one was the break of 884 ES to start the rip and one last week to take out the Bears last line of defence this summer at 956 to come arms length of SPX1K.   Now entering August, we feel most of the work on the broad indices may have been done ST,  maybe one more push and break of SPX 1k like we said Friday to ..say to 1014 as 1st possible R before a market reversal.   In our view, the SPX is setting up to blow off some of the premium steam  after it breaks 1k into the employment report week.   Before or after the report, a good or bad report is probably going to be irrelevant.  It’s just going to happen we think.  

Considering, we’re not invested in high beta names now, like commods, casinos, we aren’t going to be too worried if a ST top occurs or if the market just motors up because we’ll be should fine with stocks we are closely following and trading. 

EPS stocks like FIRE  initiated on Friday, it jumped another 5% after posted and naturally settled on some profit taking after a 2 day run by close.

As we’ve noted in Journal recently,  we don’t plan on occupying a level over SPX 1000 for too long this summer, we prefer to make a strong bid to occupy the 1000++ for good in the latter part of the year when a powerful growth spurt will finally be evident to all, including those who are still Bears now.  We think rotation into and leadership will be from the Banks-Brokers later in the year to signal the next move.   This 1000 level is pretty well priced when you take in consideration a stronger than expected EPS season so far as a reasonable multiple.    It is hard to imagine a late summer-early fall overshoot, but these are not normal times and upside risk remains for anyone not participating or on the wrong side of the trade so far.   Fortunately, we don’t have to worry about all this,  life just goes on as we’re about picking stocks and we just need a few like STEC, DDRX from last Q this Q to trade for the next month or two.   So, as we enter August, we’re not in a position of Performance anxiety like many out there and can almost relax after being on the right side of the trade for months now.   We think the upside is limited here ST for the broad market in August, but not for individual plays as we enter the July Q end earning reports that kick off with CSCO on Wednesday night.   As we’ve been saying recently, we favor small caps over big gaps as a general tone for the market going forward and this plays right into our DJIM niche, if right.   The premium is pretty well used up now for the broad market, but this premium is probably going to be there for the taking as the mid-small caps reports continue to flow in August.

PMI's = SPX 1k = Market too giddy

Normally, you’d think we’d be in a celebratory mood seeing SPX crossing and finishing over the 1K level.   Today's jump in index is the direct result of various encouraging PMI readings around the world.    The ISM (PMI) number in U.S shows rebound in IP and new orders rose to levels not seen since the summer of 2007.   This has been an integral part of our trading methodology/ premise.  All you have to do is click the search link on site and type in PMI and /or IP to see how we fit this PMI into SPX1k you could say.  Simply, to us at DJIM, these numbers have been expected and now we wonder with all the giddiness today on the subject of PMI’s was the investor really that behind the curve and/or will the smart money now use this to sell off to all the Johnny -come latelies just over SPX1K?

Also, not that long, on March 6th,  we hit SPX 666 and soon after named it, the ’Mark of the Beast'. Wow, what a devil of a beast up 50% now from those levels.  Today's finish brings us exactly 50% higher off the recent low.   Regardless the type of rally we just had, the action we've endured during the last six months will be talked about and studied many times down the road.   However, there's one thing that kept on hitting DJIM traders' mind today as the previous 2 Journals.     Now that we've crossed SPX 1000, is the end of this special rally near us?    For the longest time,  we've been the out spoken bulls on this rally and it's gotten us nicely thus far this year.   We thought the best case scenario would be around SPX 1000- 1050,  provided this quarter's earning reports hit the market and latest Eco. trends follow the recovery path. 
 
Now that the majority of big earnings are out and we are entering the last stretch of the summer trading with SPX over 1000, we are wondering if this market has any more juice left to go much higher.    Personally, we prefer this market not to go much higher because it'll only lead to the other extreme of the exuberance.   

We feel it's definitely best for this market to settle down and digest its gains.    It isn't just our wishful thinking though.   We are seeing signs lately  that things may not be as rosy as SPX suggests.
There's no doubt SPY'der is doing all of the work lately.    Commodity (the group which has pretty much the worst earning reports) has been on fire lately due to USD$ failure and is all the talk today due to PMI,  but it's the earning plays on our list that are catching our attention on this market strength as they don't seem to be catching the pace with the SPX action.   It seems we get a kick right after we alert of ~5% like on FIRE  (Friday) , today even VIT  (non earnings) and than its flat line action from there on in.  This is frankly a bit worrisome.    For us at DJIM, if good earning plays, particularly small caps don't tag along with the index action, it usually signals a top is near for us.    This doesn't mean that we are turning super bearish and going short at this point.     We just wanted to point out that going heavily long at this point on presents a considerable amount of risk.    It doesn't mean that we won't go long, we'd only go "extra" long on those that behaved the best, but, most of all we are preparing for a pullback.  

Bottom line, market is doing its best to give both Bulls and Bears a challenge at this point as to what's next.   It's absolutely crucial for us to stay cool and rational.

''I go 1st..you go 2nd....and than..

...I go again!".  That's the 'Bull' transcript according to our DJIM spies.  The Banks- Brokers start the rally in March, the Techs follow and than snooze after MSFT earnings and than the Banks- Brokers take over again!.  The question is if the Banks- Brokers are really an impatient bunch and want to get this next leg started a little early?...

So..a few ‘ bullet’ points on market action , it’s quite simple…

We’ve been saying, including last before Monday‘s move over 1K, ….”we don’t plan on occupying a level over SPX 1000 for too long this summer, we prefer to make a strong bid to occupy the 1000++ for good in the latter part of the year when a powerful growth spurt will finally be evident to all, including those who are still Bears now.  We think rotation into and leadership will be from the Banks-Brokers later in the year to signal the next move”. 

Guess what’s happening?…In just a few hours this week,  we’ve had global PMI numbers that give credence to a ‘powerful growth spurt’ in 2H2009, which is now scaring away the shorts from pressing new positions.  Shorts/ Bears don’t want to get run over by the growth train money flow that is entering the market just now and we are seeing rotation into the Banks- Brokers occurring the last 2 days (XLF new highs)!. 

Don’t get us wrong,  we love the idea to go higher this summer, but this is a tad early in our view if we want to see and think we'll see in '09 (SPX1100-1200)!.  We have another 15-20% leg from the SPX to use up later this year, we feel.  But, talk about exuberance now!.  Market is acting like 50% is not enough off lows, let's go for 70% now without a pause.    The question is.. will we have to move up the dates of another leg up in our playbook.     It's hard to imagine an overshoot late summer-early fall,  but as we said these are not normal times we've been through, so upside risk remains for shorts and those not participating yet.    As long as we avoid, most notably an overshoot gap open and/ or spike soon,  it would help avoid the beginning of a good size reversal.  (1014 was the level we noted here as possible 1st R, hit ~1007 today).  If we keep inching higher, it will be beneficial for higher highs into late August and back to skool days.    So far, once again the market is showing and underlying bid and resiliency even as we hover around 1k, we watch the A/D line on the NYSE closely. 
 
Also today, we had some life in the mid-small caps and earning reactions were very good (WMS CTSH EMS ).  If this continues we'll feel much better that this is not a short term topping out process as discussed yesterday. 

This is a telling week, just keep an eye on this bank- broker rotation follow through, renewed strength in mid-small continues along with a healthy AD line to power this market higher or not.

Financials save the day...

What looked like a meaningful 3 digit profit taking day in the works turned into a wild choppy trade late in the afternoon.   At the end,  SPX dropped only couple of points, DJIA dropped 39 pts and Nazzy lagged dropping 18.    Across the board, the group that stands out the most is the financial group (led by banks) and it's the only reason why we didn't close down triple digits.    It’s been awhile since we had this group try to take charge of the market,  today the Euro financials earnings provided the backdrop. Come to think of it, we haven't seen this group lead, only tag along with SP tape since MW’s upgrades. 

Is this a good sign where financials are leading while everything else lags?

Look at it this way, there has been some noticeable rotation of funds lately.    It's obvious money flow was into commodities(still) and financials today.   We don't know if this is just a temporary phenomenon and/or any long term implications.   SPX is the biggest indicator of this market and so it’s not a surprise that funds are rotating into various groups of this index in order to push it up.   In a way, we are feeling uncomfortable with this kind of action.    When market (index) goes up, we want broad participation  of stocks.    We want all those companies that are already benefiting from a recovery to do well.   Lately, it seems most , if not all of the stocks that we like for their earnings have stalled going up.    This could be temporary,  but it does provide a short term red flag for us in regards to broad market.

There's plenty of good earning reactions today as well, WFMI, GRMN, TNS etc.  Whether these names deserve this kind of reaction is not something we care to discuss.    The point we’re trying to make is most of these one day reactionary gainers will not have follow through.   This seem to be the trend lately.    Even though we are not admirers of this trend lately,  we still believe in the earning plays listed this Q going forward.  Quality will win out in the long run as we’ve seen in last Q’s plays such as WMS, CVLT and BWY  tonight continue to post quality numbers.

Today's Eco data gave an excuse to take some profit early and tomorrow's excuse may be CSCO's soft guidance.    Whatever the excuse, we just feel that we are due for a pullback.   We’d actually welcome a pullback because at this point it is the healthiest thing this market can do.    Having scepticism in this rally continuing is actually a good thing.    We know the economic recovery is going to take time and we are merely one quarter into this recovery.   The last thing we want at this point is for this market to run ahead of itself.   The sooner it gets to SPX 1050, the sooner the end is near we feel till later in the year.

Bottom line, do we go to 1030 first or 970 first?   We'd think the latter is more likely.   However, if the market decides to give it another push, we'd play along as well, but only if it's broad participation.   In the event of a market pullback, we'd keep our eyes on the new names listed this Q.   The ones that are behaving the best will definitely get most of our bids.

Awaiting the job report...

As the market trends higher, each job report becomes that much more important.   People want to see if the improvement in all of these corporate profits has translated into more job creation.    Ok, it's not that simple.    We know that many companies have achieved higher profit by way of cost cutting.    Cost cutting, unfortunately, also means the cutting of jobs.    According to what we have seen and read, not many companies have stated that they are hiring like mad, or at all, in recent quarter.   Therefore, in order to achieve higher profit, companies simply executed better.    In conclusion, we firmly believe that most companies that have reported good number are the direct result of great execution.

What does this mean for the employment then?   Well, we can very well remain at a high unemployment rate while the economy picks up the pace.    This is not contradicting as companies have demonstrated that they can execute well with lower head counts.    On the other hand, when the economy reaches a point where rapid growth and expansion are warranted, only then the unemployment rate will decline dramatically.    At this moment, since the economy is recovering at an early stage still, don't expect much improvement in the employment area.

So, we feel tomorrow's job report will NOT give us much of a surprise.    In case the job report shows an improvement in unemployment rate,  it's likely this market will take the opportunity to do some further profit taking.  SPX 1007 is stiff R for the mkt this week.  SPX 993 is support, a break and we should see 982 sooner than later.   Ok, so profit taking is pretty much what we have in mind these days.   A good surprise and a bump closer to SPX1014 may be bring out even more sellers.  We've just wanted to avoid a spike gap open this week, so far so good.   Bottom line, no matter what happens, it will be interesting to see people's reaction to tomorrow's job report.

DJIM #32 2009

After a few days of some seemingly stiff resistance or maybe it was just waiting for NFP report, the Bulls used the Bears biggest nemesis during this rally to power to a new high of 1018.   The Bears nemesis since March is improving economic data and Friday this time came in form of the NFP.  One plus one equals two and since March the market is in hyper drive as 1)improving economic data and 2)earning forecasts equal rising equity prices!.   As long as this continues,  we have a chance to see the market near 1050 by Labor day.   The only negative is what we first said coming into week of Aug 3,…“..one more push  ….say to 1014 as 1st possible R before a market reversal.   In our view, the SPX is setting up to blow off some of the premium steam after it breaks 1k into the employment report week.   We hope this is not the case, but sellers did come out as discussed in Fridays Journal and market failed to close over 1014 (8pts below high of day)

Even though we didn’t gap spike open (our fear for reversal), we did have what many would call a spike as we had traded 991 ES futs before the report.   We will point out to a low Nasdaq volume day and GS action as negatives.    We did like that SP 600 and mid cap SP outperformed rising  ~2.7% each while the majors were up ~1.1-1.3% on average.   Of course, we like this as this plays into our niche and avoids being too glued to SPX action day to day.   The healthiest thing the market can do this week is blow off some steam as bullish sentiment is very high.   A broad market stall should still allow for some individual stocks picking, sooner than later money flow should come to the worthy mid-small caps.

A slow eco data week, the most notable will be the IP/ retail sales which is expected to post large July gains and FOMC meet.

Where is this going?

Another late day rally, this time after sellers had taken the SPX down 18pts since intraday Friday.   Even as a long term bull, we are beginning to have doubts about the longevity of this rally at this point.   Seemingly, we have the bullets to take this market much higher from this level in the form of eco data/ earnings forecasts, but there is nothing on these 2 points this week to help our cause.    The question is, are we really in such a hurry?    The ultimate target for our current rally would be somewhere near SPX 1040-1050 by Labor day.  On the other side of things, "losing momo," as we're doing increases risk to break 1000 today's low, 993 would be next and a break there would be a trip to 982 levels for a ~4% correction from high.  A trip to 1050 will have to come much later if this occurs. 

The truth is, we aren't particularly enjoying what's going on out there.

The current rally has no doubt been shaped by the SPX tape.   Sure, it's the gauge of this market and many if not most market participants use SPX as the barometer to reference their performance with.    However, there's also COMP.    To us, COMP  represents more of a growth oriented segment of this market and it’s NOT just technology related.   Recently, as the SPX index inches higher, COMP has largely been lagging.   This also directly reflects in the plays on our shadowlist as well.    This is not to say that we feel this market is doomed.   We are just very uncomfortable with the narrowness of this latest up move.    Sure, SPX may head to 1050, but until more companies participate in this rally as discussed last week, it won't be a rally enjoyed by everyone.

Earning reactions have been rolling strongly still from this market.   This is a strong sign of the health of equity market.    As we said before, having a good earning reaction is still better not having one, but it’s the really the junkyard stocks of 2007-09 that we’d never touch that are getting the most attention now.    It just feels that funds out there are still hungry for stocks and are going for the scrap-heap.   Putting cash by money managers/ retail to work is something we've been saying for a while.  Insiders are selling mountains to take advantage of the rally, but the surplus is being eaten by money managers/ retail.   However, we like to put our cash into plays that matter to us.

As usual, today's standouts include some Chinese plays and a few earnings plays.   We liked how our long followed EBS  followed through with another strong day, and as well as a resurgence of SWI.   We had TBI  breakout for ~6% from alert, but even it gave up gains and makes the breakout look vulnerable.  Consecutive days of good action is hard to find in individual plays.  We’ve seen a lot of failed breakouts lately which also makes us nervous as to the health of market, so take some profits when you do get a breakout after holding or buying something just before such a move.   As we said , this week we’re light on Eco. data, but we do have a Fed meet beginning tomorrow.   The tone of Fed will be watched closely and it can potentially be a catalyst to move this market up or down significantly. 

...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. 

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.

DJIM #33 2009

Coming to the middle of August, we are realizing that summer trading is almost over.  So far, this summer has been anything, but boring and some volatility may be coming due to Eco data late last week. 

We have had a long rally since March and we busted into new trading territory at the beginning of the current earning season.  In fact, there's not a lot more you can ask for, as a bull that is. Recently, we have been preaching for a pullback to give us some better entry points on this market.

Last Thursday, seemingly the market shrugged off the Retail Sales report, we presented the fact we were disappointed and questioned if this was a start to.. ‘Headwinds comin’?.  Despite markets rebound late Friday, we were given more reason that day to believe this as more disappointing data on consumer spending and sentiment emerged.    Since March, we’ve relied on ‘ The Premise’ here, this included tailwinds instead of headwinds for the market.  

Finally, we have some headwinds!.  Another aspect of the Premise was the ever present underlying bid supporting the market.  This will be tested by the looks of SPX futs tonight as global markets blow off steam with aggresive profit taking...finally.   

..1014 was the new 950..

Nothing happened over the weekend and/ or overnight to suggest SPX ES would have been down 22 pts premkt.  Except one thing, the globe digesting the poor Retail and Consumer numbers in US over the weekend and acted by aggressive profit taking.   Simply, this was the primary reason for the follow through action globally and in SPX futures.  Even though we warned here the retail # might be the start of something we’ll look on after the fact as a summer top,  traders/ investors probably didn’t unload due to the market seemingly shrugging off the news in Thursday and Friday trading.  We also pointed out last week another negative we saw and this was highlighted in a WSJ article over the weekend (corporate credit trading).  Trading by our own guts last week instead of following market action would have suited us better.  

Before Wednesday trading….“…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“.  (See chart below).   We are confident this is the case now, a summer top was put in that Friday.  Unfortunately, eerily,  short term the chart looks even more similar now and in the longer term post- Labor day positive.

So,  if you got stung by the gap down of 20pts on the SPX,  you’re not alone.   There is nothing you or we could do!.   We noted last week …“…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".  Well… they were hit before we got of bed and it took us straight down.    It was useless to sell anything into a gap that hits support levels we’ve noted of 982.   As far as we’re concerned,  any losses today are paper losses with the gap hiding 3 actual positives….Empire showing manufacturing growth was above expectations across the board,  NAHB housing suggesting gains in new home sales are still ahead and Master trust #’s.  Maybe the market will digest this overnight, today it was on one track mind ignoring everything positive after seeing a global sell off underway.   These might  not be overwhelming positives,  but they do make the Eco data interpretations that more confusing and unpredictable.   Before, we had positives (tailwinds), now we have headwinds and tailwinds making for an environment difficult for even the best economists to figure out.  

So, what do you do?.  We just hold the longer bull side as this is still 1/ profit taking 2/ shorts not pressing at these levels, upside risk remains for Bears.   Still,  unfortunately, we did have our summer top last week.  We would use any upside close to 1000 at this point to unravel positions unless some great eco catalyst appears.  We would have to digest the action if it gets us there, but at this point that would be the strategy.  Part of the thinking is shorts would begin to put on positions higher after missing this gap down.   Still, we don’t think any action up or down will not be too suggestive of things to come until we are post- Labor day as volumes will probably deteriorate in the next few weeks.  Today was probably a great summer sale on many individual stocks, not SPX.

Today.. supply showed up in small and large caps, nothing was saved especially the China stocks following a 6% decline in the Shang.  Tomorrow, some demand will show up, the question is how much and will answer how far we bounce.

Where's the new 880?

Yesterday we talked about the resistance of SPX 1014 replacing the old 950.    Today we have to give some thoughts on the new support as in the old SPX 880.    Despite today's gain,  we’re hard pressed to think that we can challenge the recent high anytime soon.    Right now, even 1K SPX seems an oceans away, we didn’t see any real conviction buying today and so this bounce may evaporate quickly.

Pretty light volume bounce can be attributed to a couple of things we’ve discussed,  the Financial  led the way(+1.9%), which was a direct result of Mastertrust CC #‘s (AXP, BAC, C, JPM) and the simple fact 982 was not an easy place to press fresh shorts after missing a 20pt gap.    Today's minor rebound doesn't necessarily invite anyone to add to their long positions,  it only gives shorts a more comfortable level to lay down positions above 982 at higher resistances to SPX1K.   After Monday’s pile driver, the longs are hesitant and tentative, including us.  

Looking forward to any potential long positions, rebounds like today give us an idea which plays are following the index more than the others.    Some plays are battled back toward the 9 ema, which is good, others have climbed back above 9 ema, which is even better.   To us, today's a day to paint a mental picture of what plays to add on potential weakness in the coming days.   On the other hand, if this market breaks out off some catalysts, we'd know exactly what to chase as well. 

Just to give an idea of plays that are above 9 ema, among the ones on our list include ABVT FIRE FSYS MAIL ROVI STEC TBI WLT.   Things really don't look that bad out there and we are using our recent theme "wishing for a pullback" to treat this particular scenario.    Now we are getting what we want, we have to start taking advantage of a good pullback.    In a worst case (pullback)scenario, we feel the support is around SPX 940 to SPX 952 area.    However, just because index is capable of pulling back down that many points,  it doesn't mean that all of plays on our list will suffer the same dramatic decline.    Relative performance is the key when it comes to adding on weakness.    No matter how much we liked a play prior to the pullback, how it behaves during the decline will determine which play gets the most of our attention.  In short, we can all be surprised by which plays stand out the most.

Earning season is grinding down and there's really not much else to look forward to other than the weekly Econ. data.     Fortunately, we have less than a couple of weeks before the fall trading season starts.    Bottom line, the best thing we can hope for is the healthy consolidation of this recent rally before we head into post Labor day trade.    So far, things are rolling on target, recall we've always said before 1K SPX was hit, we don't want to spend much time over that level this summer in order to have another run later in the year.

..cheese steak or cream cheese...which will it be Philly?

Despite the calm rebound on Tuesday, our feelings that evening were SPX1K is seemingly ‘oceans away’.   Maybe, it was the overwhelming bearish noise that was circulating after the gap down, but as we said early this week, we should trade by our ‘ guts’..first and foremost and not to be drawn by daily market action or in this case noise!.  We have to keep an openmind and think things through.  By morning with SPX futs down 10 and erasing the rebound, we were looking at things a little differently.  Mostly,  because we were never bearish since March and so why are we being swayed with the tide in a day or 2.  

One thought was about ‘oceans away”..is it really in this market?.   What’s 10 points, 15 points as in premkt to 1K to this crazy market?. Hell..10-15-30 pts is a day in the park and it can be erased within hours or a day as this market is overzealous with 2 things now.    We still have (PA) performance anxiety managers/ retail who want to be the underlying bid and we have shorts now rubbing their hands at the opportunity to short more than we've seen in months.    So, we woke to an article stating the big SPY put action and “Bearish” headline and thought this is probably an opportunity to a squeeze coming.  Why?.  Well, we all know the Financials are a key and considering they are holding steady and had good news early this week, this combo with eager shorts may simply lead to a squeeze.    Even though we said ..“one day soon”, we wouldn’t have posted 10 am, if that one day didn’t include today.    It was funny to see media such as Breifing.com still scrambling for an answer to the squeeze a few hours after we posted..a regurgitated 2nd stimulus idea was the first, a dollar decline followed..etc.   That’s all hogwash really,  it’s purely based on market participant psychology, a squeeze that has no immediate explanations (catalyst) is always a 'short cover' move.     Your first understanding of this is when you look at your watchlist and see minimal gains or even still losses across the board.   If your list is spread from financials to commods to techs, you can easily see this play out.   Even energy related plays after a bullish morning number were hardly up.    So,  if the SPX is leading as it did today,  it’s a short covering move.   We’ve been talking about shorts needing to go higher to lay down shorts because 982 was not a place to start.  Remember, just below 990 SP ES had stops hit.   Well….what better place for shorts to start again.   Tuesdays trade provided some opp' to do this and so once we hit this area today, it was off to the races.   We noted shorts after being burnt last week are still vulnerable to upside risks and they know it.  They hurry to get out like today. 

Anyways,  this market is becoming a roller coaster as sentiment is switching seemingly on an hourly basis.  Since Friday, we’ve led you to 3 separate bounces here stating reasons why it was possible.  Unfortunately, we have no clue to how long they will last.   Tomorrow is critical for this 2 day move to continue and lays with the Philly Fed report, we think.   Not much noise about this number, but it plays into our overlooked Empire positive number early this week.   

As in today’s post,  we think a small gap in the morning is very possible to SPX1K area, as we closed above 993.  We also believe China will rebound off our market with stocks here playing some catch up to the SPY move.   After …it’s all in the Phily hands,  but Initial claims will play some role before the 10am number.   If we trade/ close over 1005 sparked by Philly, we may likely say good bye to 1014 as a summer top idea .   Hard to believe just 24 hrs ago, but becoming plausible.   Just as much is going back to 980 soon if the #'s disappoint.

"V" for victory?

From Monday till Thursday, we literally went in a V shape.    Today's close of SPX 1007 is only a few points away from the recent high and erases the Monday gap down.    At this point,  you simply have to give it to the Bulls!.  Wow!   We were hoping that the selloff that started on Monday would create some good opportunity for new money to enter.    Well,  the opportunity came at around 3:55 p.m. on Monday and went away the next couple of days.   Earlier that Monday in a post and that night,  we pointed out the underlying positives that were ignored.  The credit card Mastertrust number have paved for the Financials to lead this reversal, (including today +2.6%) and the Empire number was a prelude to a great Philly fed # today.   In a Journal following Mondays rip down, we said it was useless to sell into a gap of that size + (at support 982) and because there were ’3 actual positives”,  so we just ‘hold the longer bull side‘.   If you held tight and added, even averaged down, good for you.  

What has clearly occurred (as seen in WSJ SPY puts note we put up), the entire market was waiting for a meaningful pullback and created a squeeze.   Now...What we have is a possible twist on the game if we breakout, one where the expectation of a broad pullback derails anytime soon and therefore more money comes into the market as patience is rotted away from being underinvested.  Underperforming may no longer be an option heading forward to Q4.  Hey,  those that did lose their jobs in this credit crisis, might just get their jobs back if these money managers don’t perform.  Lots of pressure out there on the street.

Yes,  even we feel somewhat disappointed that the pullback didn‘t go any lower.  If you start one, you might as well do a real good one.   That way, we know that it may be the last for awhile.   On the other hand, we are also glad that market is able to push back and end what might potentially be the shortest pullback in recent history.    We’re still a bit worried that the recent high of SPX 1015 is too much of a wall to do anything about, but that feeling is dwindling away.    As you can see, there's nothing but anxiety out there for many traders.   Yup, we can feel that we are not the only ones who are feeling that way.      Perhaps, the notion of "levelling out" this market is becoming a much needed scenario as oppose to just a theory.

Are most traders looking for a break out of the recent high and head to SPX 1030+?  Lots of views changed these past few trading hours.  We just aren't sure if there's enough excitement/enthusiasm out there to push for such a move just yet.   A close over 1005 might just be an end to this correction for technical aficionados.    We want to put new money to work, but we want to see some noticeable rotation.  Yes, financials have played an integral part in this squeeze and we do think they will lead the market in it’s next leg up as we’ve discussed here.  Only thing is, we think it’s a little early.  We may be wrong and this is truly the start, but we‘ll wait.

What we have here then is a standoff that'll probably take a major catalyst or two in order to conclude.    Today's Philly Fed number is what we were looking for, but we are in a state where the Eco data continues to give mixed signals.   Everything went to DJIM script,  Asian market finally rebounded last night after some dreadful action over the last few days, individual stocks played catch up (great breadth) and outperformed the SPY and Phily Fed # was the right medicine.  Unfortunately, scripts get re-writes and we’re not stock whisperers to get our way on most days.  Let’s just say,  let the weekend come with a close over 1005 making it a bullish reversal on the weekly chart.

Some of the plays on our list don't look that bad and seem to be a setting up for a move.    Those plays that are above 9 ema, as we have mentioned before, are all looking like they can follow this market to higher ground.     Tomorrow is likely a quiet day and all eyes are on next week heading into the Labor day weekend.    Again, we are hoping that this market holds its ground right till the Labour day.    There's really no point to break out when there's probably not enough traders around to give it a concerted effort.    We are at this point keeping our "buy on dip" mode and we are willing to get aggressive starting at SPX 990.