Fort 1100

Tighten that helmet chin strap..SPX1100 in the futures is in view again!.  But, this time the helmet is not to be on the defensive and to be bounced around,  it's for a possible offensive soon to Fort 1100 for a battle! 

How that happen overnight?.  Well, the market participants can be quite rational after a good nights sleep.  Sooner than later, the market realized there was NO FUNDAMENTAL reason for Wednesdays sell off and once 1075 held (the gap we`ve noted 1079-1075) our beloved underlying bid took over.  There was NO Fundamental reason for the ramp up in the afternoon, a few reasons will be cited, but just like Wednesday's reasons they will be forgotten and the market will act on something new.   

Despite a bunch of DOW co`s positive earnings reports premarket , the market continued to sell off after the opening bell.  Why???.....As we noted, those not involved in the selling in the previous days 1 hour sell off would initially add to it the morning.  The positive DOW reports were being ignored and some calming fundamental eco data, as well.   Why???...  The sentiment was just too awful in the morning after the fast sell off,  nobody except say a place called DJIM was looking for a bounce.   Once we tested the overnight lows and previously noted gap,  the market found it's footing and a reversal was in motion.

Right now, after DOW components eps',  some positive regional bank eps (PNC STI), Cards AXP & COF, most notably…..AMZN's  incredible… huge Q (N.A sales up 23%, International up 33% blew away consensus and Guidance implies 21%-36% revenue growth).…Wait till you see some of the price targets increases on AMZN!.   This upward EPS momentum trend may rest with MSFT for possible follow through or not in the morning.   A second day follow through from the recent underperforming Financials is also needed for a chance to battle at Fort 1100.   It looks better now for sector and the possibility of follow through exists because the Regionals relieved some of the fear generated in them by BAC C credit trends.   Everyone felt better today making this the leading % sector.  

After 2 failed attempts at SPX ES 1100, the Bears will be in force to defend.. 

DJIM #43 2009

So far, this earning season is coming nothing short of expectation.   Sure, we still have many companies from SP500 that have yet to report, but many of the bigger V.I.P names have already done their showing.    What a showing it‘s been!   From technology companies such as GOOG, MSFT, AAPL, INTC   to retailer giant like AMZN, financial companies such as JPM, GS  and commodity names such as FCX  and AA.   Just about every one of these V.I.P’s has beaten the analysts' expectation in a marginal way, both bottom and top line and has allowed the market  to bang at SPX 1100.    So, as far as the earning reports are concerned, everything has hit the mark so far.

Ok, now lets talk about this market outside of the earnings.    Before the earning season started, we were hoping that this round of earning can give investors some extra optimism and perhaps give this SPX >1100 a a run for it’s money.    So far, we have been trying to break the 1100 wall off the back of great earnings of some of the best companies in America.   The result?   It isn't very successful.    Right now, we have to be mindful of the action that took place last couple of weeks.    Yes, we have been praising AAPL, we bolded AMZN’s  great numbers/ big price target increases to come before Friday’s giant squeeze and as of Friday morning MSFT's great earning has helped these individual share prices. Unfortunately, this isn't translating into overall market advances.   There is no sympathy plays or index action to go hand in hand.   This was evident Friday, we didn’t even come close to a battle at SPX ES 1100 due this fact and the fact the financials couldn’t put the back to back days of needed out performance as discussed.    The fact we closed the week down near the SPX 1080 acts as a little reminder that even meeting high expectations may not stop this market from having a pullback. But, as every time before it may not be happen at all or just not be severe.   We’ve stalled after clearing SPX 1090 two weeks ago, we’re leaning towards a general pullback from this market unless we clear ES1100.  A pullback we think may be the best thing for long term.     If we absolutely needed to have some positions in this market now, we'd not hesitate to find some big names to park some cash into.

This market has acted great despite a few things, including lack of action from the small cap side.  It’s surprisingly lagging,  but earnings are still ahead for this class of stocks.  In the meantime,  if we can get can get some nice points off AMZN or BIDU maybe or AAPL without having to worry about giving back 10% the next day, we'll take this opportunity.    Right now, the focus is still on the big names as the recovery theme carries the most significance with them. 

Bottom line, until the mid-small cap world starts to report, most of our attention will be focused on the bigger names or sector plays.  (Only small caps that come to mind off our list with excellent EPS last week were NEU  ATHR ).     We've had two important innings of earning season thus far and we have a few more innings to go.

Gap shredded on volume

SPX 1065--We've pointed out the 1075-1079 gap here,  you can see by chart above how fast it went (bearish technical reversal from Friday confimed).  At ES 1070 (=1075 gap low on SPX cash) over $12bln trades surge in volume!.  Unlike last week when gap tested on 'no fundamental' reasons and gave us reason for a bounce chance that followed next morning, this one coincided with fundamental as in $USD rip and comes with technical damage.

...backing and filing..

No matter what may be the cause for today's 200 point reversal ,  the fact is such a reversal intraday move is never bullish short term.    Most are blaming the strength in USD/ Euro dipping fast below $1.50 (we watch FXE),  some the recent failed advancement of market off strong earnings >1000SPX,  some the break of the transports uptrend,  some a possible BAC secondary, some Wash. D.C,  some their dog!.   We have it all, today!.  Put it all in a blender and you have a “Bear cocktail”,  every media guru tonight (even Bulls), is getting an early start dressing up as a Bear for Halloween.   In any case,  we feel having a further pullback of this market isn't a bad thing at all, we're hardly negative as all seemingly became today.  

Morning rush was simply a mutiny away from riskier assets, but rest of day was hardly panic.   This possible move is what we’ve been preparing for since Oct 15 /1st break of Dow10K saying the obstacle would be SPX 1K.   So far, it's a filing and backing move that will/ needs to play out.  Technically,  we have closed below the SPX gap support which invites more filing and backing in days to come to next gap SPX 1058-1060.   

As far as this market is concerned,  a lot of funds are sitting with a healthy gain on the year and for many HF’s the year end is coming up.   This round of earning is giving them a good excuse to lock in some gains.  (We also know of a tier 1 institution that made a 2-5% USD correction call beginning November over the weekend and this may have led their institutional clients to initiate it before months end.)

We still believe there's going to be some excellent underlying bids sooner than later.   Why?   This market is no longer working on the foundation of fear, but it's on a solid foundation of optimism.   Unless of course, you’re a losing Bear since March, who is saying tonight that this correction is the ‘big one‘.   There is a sense, evidence of calmness in the markets.   The recovery is working as intended and we know this economic cycle will last a long time, but, rebuilding this market will take time after 2 years of turbulence.    A declining $USD has been a vote of confidence from the market of a global recovery and so it will remain an important catalyst.   Corporate earnings are improving for bigger caps is a sure sign that investors look for when it comes to allocating their funds.    We'd love to see some plays at lower levels anyways.    Frankly,  it makes trading easier when we are dealing at a better valuation.   If this market keeps on going the way it had been last couple of months,  it would only setup a huge disappoint down the road because no company can meet the sort of expectation investors are hoping for after their stock price rise a further a >20%.   We aren't in an economic expansion era, by the way.   It's going to take some time just to return us into a "normal" economic environment.

In after AMC,  we were anticipating a report, but it became irrelevant by the close.  We are talking the BIDU  report, which did not inspire a good reaction due to its lacklustre guidance.    This is particularly interesting as we are able to see which companies can execute and which companies can’t in the same competitive sector.   BIDU does not come close to being a Chinese Google because their operating model is just so different even though they are both considered "search engines".    

Going forward,  be careful picking stuff to buy off a potential pullback.   As we’ve said many times before, the Bulls are patient bunch and will always wait for things to calm down after a drastic move such as today‘s.  Stick to bigger names as we said yesterday, avoiding high beta cheaper stocks.  Today, we saw many micro-mid-some small caps get drilled that have been outperforming.   Stocks that have upcoming reports performed best today, so have a look at our earnings list for possible quick trades into reports.   Also, be careful jumping into excellent reports with both feet immediately.  Wait for reaction to confirm buyers will still eat up growth stocks.

..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.

Ominous signals rear it's ugly head...

Market proved today it’s what’s inside that counts!.  If you’re feeling sickly internally as pointed out by yesterday‘s ''ominous signals" of widespread deterioration despite a relatively flat SPX,  it will come to surface eventually manifesting into a bad rash, spreading all over the market.

Typically, on a day like today, investors will draw up all kinds of negative speculation on how much worse this market can get.   Today, might’ve been déjà vu as it had a remnants of October/ November 2008 in it.   Oh yes, that feeling is simply normal given the kind of damage this market has endured in such a short time.    You can't blame people for having this kind of talk/ thoughts because you tend to extrapolate your assumption after a series of down days.   Fortunately,  we have seen this many times before it's no different this time and it‘s definitely not Oct/Nov 2008.   Still,  we don't expect the same type of reversal as seen most recently in early September and October to new highs in early November.  Sentiment has changed and it needs to consolidate.  Underlying bid is in locking gains menality and will likely continue if we move upwards giving further moves resistance.
   
When you are dealing with a hard and fast correction, and believe us, we are going through one, things tend to get negative in a hurry and it stirs up people's emotion.   The kind of emotion, we are talking about are frustration and fear.    However, trust us, this is nothing compare to what took place late last year.    So, lets just be all rational about this correction.     Good thing is,  the correction will end at some point and more likely than not, we'd get a bounce.     We aren't sure we'd like to play a bounce, but we do know that at some point, some plays are looking very attractive as a long.     SPX took out its 50 MA today and it closed way below the previous support(1060-1058) we have discussed.    Of course, tomorrow's big GDP report may be a driving force for this market,  but we think much of the damage has already been done to this market because GS revised down today to 2.7  and investors remember their NFP employment#  revision that was on the money recently.  Investors/ traders also remember the bounce that ensued after NFP#.    If this GDP is priced in now,  we should see a bounce emerge as low 1040’s  have many short term TA aspects to it.    Still,  any start to a bounce won't be the usual underlying bid  we`ve relied on weakness for months,  it will be a TA trading bid.   This has changed for now as the underlying`bid is turned on protecting gains as we`re seeing by Hf/MF's fiscal yr selling.


So far, earning expectation has been holding up and the only thing that's taken a step back are the stock prices.  This is perfectly understandable as many plays, big or small, have taken on some big gains since the summer.     For those stocks that did not meet the earning expectation, the consequence is loud and clear.  Today, nobody discussed the positive comments out of V on the consumer and NSC(rail) on a bottom.   

There's currently lots of noise out there about this market as we had a “Bear cocktail“  blended early in the week.   Some analysts are still calling for some optimistic target on SPX by the end of year, while others simply don't really know what's going on.   We also have this seemingly unstoppable rally in USD that's simply putting more pressure onto the equity market.    The truth is, we are dealing with a correction right now after a long rally and that's about it.  Some facts are emerging during the first half of this earning period.    Bigger cap stocks are outperforming the smaller ones both in terms of their earning reports and stock reaction.      Not all companies are enjoying this economic recovery.     Therefore, we do have to take our time to separate the winners from loser when it comes to stepping back into this market.

Bigger the safer?   It seems that's the kind of message we are getting from the market last few days.   Stocks like AMZN  & MSFT  have been outperforming others, on a relative term.    Commodity stocks are under tremendous pressure due to USD and some poor forecasts of some key companies.    Small cap action has been dismal and has led this market down internally.    The conclusion for us is that we'd stick to bigger caps when we start to step back into this market.   So, there's no need to feel depressed or bad about this market because it will eventually be business as usual.  

Torn again?

When we said a few days ago the market awaits GDP, Homebuyers credit resolution for direction,  little did we know it would become seemingly ‘skitzo’.  The GS whisper # ran the market down and the real # pushed it back up.  Oh yeah,  make sure you relax this weekend and get your anxiety levels down if you thought it was October 2008 all over again.   Why?…if you thought these last few days were whacky, wait till next week as we have FOMC meeting tweaking language game and NFP employment report to deal with!.

Simply, the game has changed from earnings reads back to economic data and we actually welcome this change.   Lots of noise of Bears about the GDP 3.5% surprise was the ‘clunker’ aspect to it, well, our Bull noise is remove the ‘clunker’ and the economy paced at 2.5% GDP.  That’s just under GS # 2.7% overall, take out ‘clunker’ and their number would read as 1.7%.  Get it ?  2.5% vs. 1.7% is a surprise and the market reacted.

One thing the GDP/ HB credit tax bill should do till next week’s noise and probably did today was show relief in the market.   It definitely provoked a huge squeeze on those overzealous Bears who became to eager pressing the market lower from 1070 (recall huge volume post here) and another at ~1060.  As we said, any short damage was done by GS whisper # with many TA intertwined  channels/ supports in low 1040’s.  

Once again, the market showed “it’s no different this time“.   But, only to a point so far. meaning the market has the ability to reverse easily.   We don’t think this was much of long only underlying bid coming back, but instead a squeeze.   The sellers this week did not all of a sudden turn to buyers today.  Why?.   Well, it was mostly an ETF led rally as individual stocks of importance really didn’t do much.  Yes, DJIM’s list had some big gains ( mostly stocks under $10-20, eg China stocks and commodity linked stocks moved to the USD game), but after the beating for a few days it’s hardly anything to get excited about here as they are nowhere near the prices from last week.    So, as we noted yesterday, we think a bounce will be more TA related and protecting gains will be the resistance to higher high’s.   Of course, this may change if we get positive catalysts from eco data points in days/ weeks ahead. 

After today's action/ GDP,  we can only say investors remain will be "torn again"  between a desire to take profits and reduce risk into year-end or risk missing potential upside once again off a GDP suggesting positive payrolls early 2010 or even sooner!

Let’s not get ahead or too excited, we are still down quite a bit on the week and face a long week ahead.   One thing we hope for is a few sector plays emerging to takeaway from all the SPX stuff.   AMC, we posted Casino’s, our DJIM list includes..LVS MGM WYNN  (LVS was low 14’s post time and closed in low 16’s after some ‘bottoming’, group business coming back noise) and CLF,  which posted a ‘clean’ eps and gave strong guidance,  bullish outlook  for iron ore volume, which is also a positive for integrated steelmakers.

DJIM #44, 2009

Having just witnessed one of the most volatile trading week (-4% SPX) since before the rally began, we can't help but think volatility is back for the time being.  What matters now is what happened late last week, notably Friday's (-2.8% SPX) day.  Of course, many will say $USD was the culprit, but that's only part of it.  Coming into Friday, we had a negative slant here on the preceding day's rally.. We cited that Wednesday sellers did not all of a sudden become buyers during Thursday’s rip up.   Reasons for doubt was we felt it was an ETF based/  short covering rip,  individual important stocks did nothing and we added any move upwards will be met by ‘protecting gains/ locking in gains.    What we think we witnessed was this squeeze (sellers) without “conviction” ( buyers, no underlying bid on Thursday) gave another day for MF’s to unload into the strength for their fiscal year end.   A winning year for them after a horrible 2008.   Wouldn’t you as a money manager pack it in last week and start fresh next week putting cash back into the market.  Unfortunately, this has led to a bearish monthly technical end and needs to be paid attention to, especially since FOMC, NFP#  report that will likely cause more volatility next week.

Longer term,  unlike many pessimists still out there, we do believe that market has seen its bottom back in March and we are on a long upward move.   We have pointed out many times in our past journals that we feel this might be one of those marathon rallies that could last years.   From SPX 666 to SPX 1100, it only took seven months or so and it's a move we all wished we'd participated in a more meaningful way.  Oh yes, no matter how well we did last little while, we all wished we should've gone "all in" in some great American companies such as JPM, AAPL, GOOG, FCX... back in the early year.  For bullish traders even as we've been,  it's still been a pretty hard fight as this upward battle literally defied some trading logic.    Market kept on going higher without much of a pullback.    Every sceptical view was ultimately proven to be wrong at the hands of market participants.    If things are so bad or getting worse, why is the market still going up?    Two rounds of earning report and months of economic data have pointed to the fact that American economy is improving.   For some companies, they are taking advantage of the market rebound and improved consumer confidence by executing beautifully.   We have witnessed some very fine reports from the likes of MSFT and AMZN.    For others, the improved environment may still be an adjusting period where they definitely need more time to catch on to the rest.

So, here we are at this juncture.   It looks as though the easiest of the easy money has already been made.   What's in front of us may be more of a stock picker's market which is not a bad thing for the experienced trader.  Many analysts are still seeing a higher finish of SPX by the end of this year.    Depending on the economic data,  this market can behave in different manner over the next couple of months.   For DJIM,  we'd be glad if we can close the year at SPX 1100.    All the fortune telling aside, what do we do now after we just had a bad week like that?    We definitely like the fact this market is pulling back to a more reasonable level.   We actually no longer fear for the fact that this market can top out any hour, it has likely topped out a week ago for the short term.    Any positions we are buying these days would not be speculative/ micro mid cap in nature.    Sure,  there's always the story stocks and sector moves we'll look for.   We are more inclined to build more core positions off those companies that had great earning reports.   Having a market to come down and possibly more further downside to go, it's definitely an opportunity for us.    Technically, we are looking at SPX 1020 as short term support with SPX 1000 and SPX 980 as next two major support levels.    Having checked all these, it doesn't necessarily mean that we'd go to 980 or even 1000 at all.   We are simply keeping these levels in the back of our minds in case we ever get there.

November has generally been friendly to investors, excluding last year.    In all honesty, we are just hoping this market finds a true tradable range and consolidate enough till either eco data or next EPS allows for a move.   There's no rush to pile into plays at the moment,  we'd definitely keep our trading fingers only on the quality stuff until the market stabilzes.

No conviction..yet

On numerous occasions on pullbacks (corrections), we’ve said Bulls wait for things to settle down before giving the market an underlying bid and buying with conviction.   This is especially true after big down days and today was no different after the market drubbing (Friday).  Despite positive China PMI, Ford earnings Housing and notably an encouraging ISM# in the employment index that hinted at an upside to this weeks NFP#, the early rally was nothing more than short covering.   Even with a weaker USD, the move waned quickly and proceeded to new short term SPX lows before a late afternoon bounce.   Late move had same characteristics, nothing special.  Still, the selling pressure from late last week seemed to have slowed for now, but with volatility back this may not appear as it seems.   

Today,  the lack of buyer / sellers simply showed the market is waiting for the macro eco picture to make any commitments to the market, (FOMC, retail sales NFP report etc).  In the meantime, the market has internal problems, last week the XLF was down 7% and showed no life again.  This time C weakness dragged on the group and TRAN SOX keep underperforming.  

No conviction, no new buying into this market is what we're sticking to for now.  Some downside momentum may have been lost.  Be ready for signs of buyers for a trade on any retests of  ~1029 today's lows / ~1027 low ES tests or next level support ~1021,  buy stops should kick on break of todays high.

Constructive..

As we opened our platforms premarket and saw “UK bank problems“..Injection by UK treasury into RBS, disappointing UBS report lead to a 2% decline in European indexes..We couldn’t help but think here we go again.  These are the kinds of headlines that bring up bad memories and you’d expect it to spread here to US markets.  Importantly,  US financials held in.  SP futs held the noted support in Journal to look for (1027) by open with the market shrugging off these problematic negatives even with a strong US dollar. ( as per early morning alert at SPX 1038). 

Oh yeah,  we had a big cyclical acquisition by Mr. Buffett, but this failed to give the market a bid (only a badly needed one to TRAN index, now only if we can get on for SOX).   The Bears had a another positive as a huge deal, besides all positive eco’ data lately, could not spark the market.    However for the Bulls,  things started to improve dramatically as the day wore on.    Most of the plays, particularly smaller caps were nicely in the green.   A seemingly flattish close, but the underlying market was pretty good in our eyes.   Just as we pointed out our ‘lagging list‘ over a week ago as a concern that turned out as a prelude to a broad market decline,  today‘s strength in the list led by initially by riskier asset group Casinos (WYNN, LVS ) .   When you see higher beta names moving, you are probably seeing an underlying bid developing. 


So far, so good as we closed at 1045!  A constructive day in our view, financials finished in positive territory and higher beta & smaller cap names performed well, even speculative biotech got a bid.  Go back and see what we said yesterday may happen if Mondays highs taken.  Still, tomorrow's FOMC may change the behaviour of this market depending on Fed's tweaking or not the statement.   Clearly, even if any market guru had the statement in hand as of tonight, they would not be able to predict what the market will do.  Watch the USD$ guru here!.

As far as more action,  we have had a strong day from the commodity land despite the strength from USD.   Oil related names enjoyed a nice day as well as coal plays having to do with BNI/ Buffett.    We lost another DJIM favorite play...STAR recently.   DDRX  agreed to be bought out by PEET and we think it's a very good price for PEET.   We ‘d replace DDRX with PEET  on our watchlist as the action suggests some more bullish momentum in the coming days/weeks.   On the other hand,  STEC ,  also one of our former darlings, has released a report that's very disappointing and it pretty much spelled the end of its story.  Only reason to bring this massacre up is to serve as a reminder why we don’t hold mid-small caps into earning reports.

..got a 'Hideki?'

What do Phillies fans and Bulls have in common tonight?.  …Answer… They both have a “Hideki”!  Get it?  Head-acheee!.   That was easy getting,  the market action is completely something else.    The surprise isn’t the late sell off,  this was a big FOMC and the whipsaw action is reminiscent of a year or two back after a report.    The thing that doesn’t make sense is the big picture and that is what is the market waiting for?.   The catalysts are all there for more fireworks to the upside…eco data, FOMC green light today, corporate reports etc..  It is not as simple as selling on the news or year end locking gains.   Either the capital markets want something or knows something like a geo-political mess around the corner.   Maybe it’s waiting for an employment report to surprise one day and/ or have 10% unemployment hit finally to blend everything together and have a big day leading to the next leg up.  It’s all pretty confusing now.

There was nothing about the dovish FOMC statement that would cause a sell off unless the market ran up ahead of it and sold the news.  This is simply what happened.  This was the play here since Wednesday morning…“SPX 1038/Market might be shrugging off USD strength, ES lows hit overnight off UK bank stimulus negatives may give bounce chance into FOMC.”    Heading into this alert, we earlier said …‘Be ready for signs of buyers for a trade on any retests of  ~1029 today's lows / ~1027 low ES tests or next level support ~1021,  buy stops should kick on break of todays high".     Simply, what we got was retest of 1027ES Wed. morning and than buy stops kicked in at 1050 premkt and we made a straight line to 1060 heading into FOMC.   That’s about 30 SPX/ ES points in just over a day heading into FOMC statement.   Unfortunately,  1060 hit in morning became resistance after the FOMC and sell off on news began from that point.   This has been a TA bounce and resistance is traders locking in profits, we talked last week about this potentially occurring on any bounce.  

Also for the trading log,  we’ve recently talked about the point of our Shadowlist besides having tradeable plays on it is to look for market signals.   Today, we got a new one of sorts.   After FOMC, we saw something peculiar before the sell off.   Did you notice it?.   The USD weakened, but the commodity linked stocks in all sectors on our list..coals, steels, oils etc were not budging at all!.   Tonight, everyone is talking the USD decoupling from the market.   It’s been USD weak, market strong and vice versa.  This sell off was a shift and therefore surprised many by close.   Today our Shadowlist definitely tipped off the sell off and we’re going to make a note of this in our trading log as should you for the future.

Anyways, we’re not disappointed or should be.   The trade was ‘into’ and it worked, the rest was a crapshoot as to what the market may do.   We expected volatility this week and are getting it big time with a NFP# report still on deck.  The market can easily make another move up ‘into NFP’ and get back some of the sell off back.  If we get some help from IJClaims and retail tomorrow morning, we could make it all back!.  

AMC, we got CSCO  with an excellent report to add to potential fireworks one day soon.  The importance of CSCO and what they said is because this is the first JULY end Q, this means there are even better changes one month after all the other big boys reported.   Also, as the recent notes on TRAN and SOX breakdowns, we have had good news this week for TRANS (BNI) saving the index and now we have CSCO to hopefully spill life into the SOX.

Flawless Victory

Perhaps traders, at least the ones from NYC, are in such a happy mood that the Yanks won the World Series for 27th time,  that they couldn't help but celebrate more by bidding up stocks.   More likely, it was Phillies running out the door short covering before the NFP# upside risk.    No matter how you look at today's action,  it was nearly flawless.    We started strong and kept at it and closed at the high.    All of the groups are showing some healthy gains and even the financials picked up (+2%) the pace in the afternoon to make a possible close at a crucial point in our view ~1067/ ~1063ES. 

As forecasted last night,  we could easily make another move up into NFP# and even make it all back (sell off) with some help from eco’ data.   Well, we even got an unexpected ‘productivity data point’ to make Wednesday's sell off disappear and even more.    Add the positive earning report CSCO and kaboom.   The action is also an indication that people are anticipating a good job report tomorrow, but the reaction to the combination of the Jobs loss and unemployment rate is a guessing game and we can’t even begin to forecast the reaction.   This is like playing the Daily Double at the track…what combo’ may be the winner?  What if rate one is good and the other worse than expected.  This time both numbers are important.    At this point, people are anticipating a very good report with their voting already done the day before.    More importantly,  we like how positively this market has been behaving ever since we started the slide two weeks ago.   If this is the best/most bears can do to damage this market, then they are the ones who'll need mercy sooner than later. 

Technically, we are back near the previous support of SPX 1067, a close over this level almost puts the Bull in charge.  Getting over 1075 breakdown levels and 1100 is in the cards year end. 

As far as plays go, everything enjoyed a healthy day.  FSYS  and MELI, are two plays that came out with earnings/guidance that beat the expectation and got a strong reaction by the traders.   Justified or not, these two have always been interesting plays for traders.   We are keeping them on our list to see if there are trading opportunities down the road.

One possibility not discussed is nothing really happens tomorrow after all the volatility and we get a ’flat’ reaction/ close on Friday.   Why?   Since the FOMC decision eyes may have switched to BEN and his speeches on the 16th to get a better read on the FOMC statement.  Before, we have a G20 meeting/letter this weekend that may play a part next week as it may have USD implications and therefore the markets.   This 'exhaustive' outcome would be best of course!

DJIM #45 2009

Some of the words used to describe Friday’s highly anticipated NFP/ Employment rate trade in IBD edition this weekend include…”almost as if market took off early for a phantom holiday…volume slouched..  Market decided to celebrate a silent film actors birthday….near silent…yawn.  

If you waited to do a reactionary trade all week off the NFP on Friday and avoided trading the volatility prior to it,  you were left mumbling the same IBD words and missed plenty of trading opp’ before it.   If you don’t think outside the box in this market, you're left out.   Fortunately, here we try to think ahead, if our ideas don’t work..that’s fine, at least we're all prepared and if the ideas work, you’re a step ahead of the herd.   Last week, this included a potential reversal off 1027, the prospect of the market ‘getting it all back’ on Thursday after the FOMC late sell off and the possibility of a ‘ flat’ trade on Friday where nothing happens and we get an ‘exhaustive’  day.    You may be able to spin Friday’s report to get something good out of it, but, let’s be realistic the numbers were ‘horrible’ and many previously said 10%+ headline would cause a ‘ big sell off’. 

Earlier last week, we were asking what does this market want to move to another leg up. …One thing we thought the market may  need is …“…or have 10% unemployment hit finally to blend everything together and have a big day leading to the next leg up”.    The premise of having a 10% tape finally hit was what the smart money was trading on Thursday prior to release,  the consequence was a flat day as most shorts were already pressed out on Thursday and no conviction buyers were ready on Friday.   Why would any new money come in on Friday after the such a horrible number?   If you were sidelined, you were also just scratching your head and asking what the market was doing not selling off.   This equalled a draw in the boxscore.  Anyways, the question in our mind is if the 2+% Thursday was the "big day" needed for another uptrend without the usual big volume to indicate such a move??.   A close of 1067 or higher is/was crucial for the Bull frame of mind, a push over 1074-1075  puts the ball back in the Bulls court for a 1100+ close into the New Year.  An upside reversal week was completed from 1027.

We have a rather slow eco’ data week,  but this doesn’t mean the volatility will stop.   It might not be as crazy as recently, but the $USD  will continue to provoke moves.  A potential USD correction is a possible ‘roadblock’ and the wake of the employment numbers is still to be determined, eventually the talk may turn to a labour market recovery stall.    Until one or both of these things occur, trading life goes on with what we have to work with day to day. 

In all the broad market excitement, a few names emerged that we like, MELI   following earnings and PEET  after EPS/DDRX combo’

G 'gangsta' 20!

Late last week all the noise was about the NFP#/ employment report, no one was talking about the significance about the G20 meeting in the St. Andrew's hood of Scotland and the communique to be released over the weekend.  Well, global markets proved eyes were on it!.

Thursday.."One possibility not discussed is nothing really happens tomorrow after all the volatility and we get a ’flat’ reaction/ close on Friday.   Why?   Since the FOMC decision eyes may have switched to BEN and his speeches on the 16th to get a better read on the FOMC statement.  Before, we have a G20 meeting/letter this weekend that may play a part next week as it may have USD implications and therefore the markets..."

Today, all we heard was G20..G20..G20 endlessly as it was the catalyst for the market pushing towards recent highs while pushing the USD lower.   The basis of the communique read like another 'green light’ after the FOMC….a pledge to maintain efforts aimed at bolstering the economy until recovery is assured!.   This means ‘continued stimulus’.   No mention of FX didn’t hurt and the IMF gave an accompanying note saying the USD is basically ‘overvalued’ even at these levels.  Thus, Global markets rip and the money that wouldn’t come in on Friday as discussed, slowly entered the market all day as skepticism abated.   This was impressive as buy order flow continued after Europe’s close to US market as often cited here after a big day.

The action was broad based, meaning everything from USD commodity linked stocks to China to Tech to Casinos to  Reits’ were on the run to a 1093 after a surge into Bull territory over 1075 with extraordinary ease (this was the breakdown point/ important retrace level).  No defence from the Bears still shell-shocked after last week's trade.   We pointed out a light eco data week yesterday, so we’ll have little in the way of market catalysts to act upon which is better for the Bulls.   Unfortunately, after a solid 3 day rip, a 5+% rip off 1027 lows and we are technically challenged.   SPX 1000 is not the resistance in our view, SPX 1095  is the level we had problems with recently and so taking everything into effect (3 day rip+ no catalysts seemingly, technical resistance and we should pause.  

As Bulls,  we’ll watch financials for possible signals to direction, we have a Bof A conference and some earnings hitting UK (HSBC/ Barclays).  The financials will probably be the focus as the market digests everything else that has happened in the last 3 days and since SPX1027.   

A few familiar names to the DJIM 'hood to monitor tomorrow/ days to come following strong earning, PCLN GEOY HMIN. 

As we said,  Bulls will have the ball over 1075 for higher 2009 highs.  We don’t think you’ll need your helmets this time as we close in on SPX 1100.  The gap created this morning is first line of defense 1070-1072.  

Rage behind the rally...

After few more days of straight rally, we finally settled down a bit/ maybe only paused today with market ending just about unchanged.    Interestingly enough, we are right at the resistance of SPX 1095, which is the level we've talked about last couple of nights.   As discussed it’s a slow eco’ data week, so we think it’s favourable to the Bulls cause, therefore even 1095 looked vulnerable today/ this week.   It seems the theme with the market so far this year is that the harder it pulls back,  the quicker it rebounds.    For those of us who have played this game for a long while, this kind of market behaviour does make you go ummm!.

Ok, after five straight up days, we didn't really have that much time to review the force behind the latest rally.   It just seemed that everything happened so fast and all are scrambling to play catch up, to a certain degree.    So how did we go from a low of SPX 1027 all the way to SPX 1095 in a mere six days?    As we have written before, last week's FOMC and NFP#/rate had enough of a positive catalyst and it's partially responsible for the drive.    Also, if you look at some of the recent EPS winner, especially from the mega caps side, then you'd have a real answer as to why we are back at this point.   GOOG at new high, AAPL back over $200, MSFT back at $29.... and these are only the technology stocks.   There are also many other stocks from many sectors that are doing just as well.   Commodity stocks, credit card co., Casino... and than just about every stock that had good earning are trading near their recent high again.      Still, the message is pretty clear.    The bigger cap stocks are doing what they can to keep this market elevated.    We don't fault the money managers for quickly chasing those companies back to their current level.    When Fed made clear that interest rate is going to stay at "zero" for an extended period of time, the reality is setting in that equity is still the place to be for the foreseeable future.    Coupled with the "attractive" level we were at from that pullback, it just doesn't take much for those fund managers to bid up the names we mentioned in a ferocious fashion.   Recall,  during the late October MF’ sell off, we said what better time than to put money back in the market early November at lower prices...'Wouldn’t you as a money manager pack it in last week and start fresh next week putting cash back into the market." . We are definitely seeing some of this during this rally. A lot of the the guru media is talking this now heading into year end.

At the same time, we were hoping that some of the smaller earning plays would tag along the wave too.   Although most of our smaller plays are up and near the high, but we think the story of late definitely belongs to the mega caps.    Therefore, we think it's prudent to have a balanced holdings in our portfolio.    It's hard to believe but do we sound like a fund manager even these days?  :)    Whether we hate playing the big caps or not, we feel this is the best way to maximize our return.    In other words, it pays off to buy some AMZN, AAPL, JPM, GOOG  or even MSFT  last week as well as some of our favourite smaller caps.  A few commods’ like CLF  recently off earnings (WLT always liked here), or a high beta yet a consumer play in WYNN  is now $10 dollars up since late October..(." is $20 off highs and has ability to squeeze at anytime is starting to look attractive even as a longer term hold possibility..").   Even a stock like FLR (44.38 close) beat up recently and after earnings looks like a bargain going into year end as its a great company at very low levels and should look good to managers to put back in their books.  Underperformers will likely be chased as much as the winners, but should have more immediate gain potential.

As far as the financials discussed last, the reports out of UK were fine and the B of A conference is helping credit card names as there were "consumer positives" come out of AXP.   It should help sentiment broadly if it gets some noise.  So, we'll keep eyeing them financials for upside kick to the market.

We still have nearly seven weeks of trading before the end of year.    No matter how this market behaves, we absolutely believe that market participants are locked in a high spirit to move this market higher.    So, if we get any more dips, and lets pray we do, we are sure that you know what to do!