...what's it going to take?

Tuesday, March 10, 2009 at 08:02AM

Despite a broken tape in Asia/Europe overnight that had the US futs looking broke as well in premkt, the opening bell provided a quick squeeze that led to a flattish day till late as we closed off -7 SPX points.  As the case recently, every uptick succumbs to a supply of sellers.    Simply once again, no conviction buying follow through.    It seems those expecting a bounce that see a mkt going down later in the day,  just use the next uptick to get out their supply of shares and sell instead of waiting with another night of overnight holds to chance again a real move upwards.    Patience is slim these days.   One good thing we are seeing is a pickup in M&A activity, recently we had some potential deals in the AG-chem, the MRK deal and DOW- ROH went through.   Of course, most of the rumors deals will be of the prey on the cheap side,  but at least some noise is visibly back.   We also like less noise from D.C the past few trading days, maybe the less they do say or try to do, the better chance the market can bottom on it’s own.   

Usually,  we have a case of mouths calling the market bottoms, nobody is doing that now at this level and instead calls for 500-600 gravity pulls are all over the place.    We like this as well for a better chance to get a meaningful bounce from the 'Mark of the Beast' 666 level  and so the same premise exists as in yesterdays Journal of sticking to the SPY/SSO/OIH  trades.      As far as the OIH trade, energy is the best performing sector on the day outside of Financials (S&P Energy+0.5%) as Crude ran up nearly two bucks to $47, main reason being cited is speculation of upcoming OPEC cut.  As far as the recent stalwart tech, we can only hope TXN  mid Q report is decent enough to get this sec going on.

Sooner than later this week,  the hope is the House hearing on Mark- to Market (M2M) should make for a pre-earnings type move in the financials/ brokers ( the laggers JPM, GS  eyes on) with market in tow.   The anticipation trade is our hope this week.   We also have G20 meeting this upcoming weekend that could make for some favorable action later this week.

Curbing the Enthusiasm...

Good probability does pay off in this market, or in any market!    Basically, the trading thesis for us during the past few days was buying ETFs in anticipation of a rebound.    Today's the day, we "cash out" most of our chips.     Reason is simple, in this environment you have to sell on these "300+" rally days,  just as you would buy on a "-300" down days.     These days,  short term is usually 4 hrs and long term is like three to five days.   We’ll take whatever profit we can get out of this tough, miserable market.     Frankly, this run- up isn't one of those "one can time perfectly" kind of bounces.   But, you could see it coming as optimism around financials (C is just the latest bank to tell investors the current Mar Q is tracking to plan or better , (BAC, WFC, COF, PNC, and others, have all made comments to the St in recent wks signaling an on-track Q).  Citi was just the weakest stock and this news just exploded the sector.    This really should have started off WFC last week.   There's also been a divergence betweeen CDS spreads and the sectors stocks,  today these tightened across the board and helped the cause.   As far as tech, we noted TXN  could light up the scene here again and it's update didn’t disappoint.    Add these 2 sec's together and you get the biggest move in the SPX since November.   Still, we feel fortunate and somewhat lucky to get this kind of a point gain in ONE day without waiting another night or an extension to 6% over days.   Also as far as luck is concerned,  it didn't come as pre-run on M2M, but still was led by the banks- brokers..."pre-earnings type move in the financials/ brokers ( the laggers JPM, GS  eyes on) with market in tow".         For that reason alone,  we'd do the right thing and cash out the majority of our winning.  Back to our recent trading thesis, and it's all about probability.    If you ignore all the doom and gloom talk from every corner of the financial media,  it was just inevitable that we'd get a relief bounce from a trader's point of view.    If you followed the market pundits' never ending DOW 5k and SPX 500 call, you'd go nuts going long in this market.     We just had to stick to our trading discipline and play what's probable and NOT what's emotional!    Just remember, we bought stuff last few days not because we like this market,  but the fact we are playing for a bounce, nothing more.   We noted the supply of sellers on every rally …“…those expecting a bounce “(like us) … just use the next uptick to get out their supply of shares and sell instead of waiting with another night of overnight holds to chance again a real move upwards “(not us). …Well,  those that sold these latest upticks,  missed a big opening bell run -up and profits.   We do admit though,  separating our emotional feeling and trading discipline can be very difficult in this turmoil filled environment.   Strategies have to change as we go along.

Technically,  we are pretty much 3/4 of a way through toward the major resistance of SPX 740.   The climb toward SPX 742 will be much much harder in our opinion.    Right now, all kinds of possibilities are open on the table.   We can consolidate or we can inch toward SPX 742.     As far as news flow, we felt the M2M hearing and G20 events will now be non- events as of early today.   See midday forum post.

As far as plays go, all of the sectors on our list got a boost today, it’s hard to trade lower today, the most hated recent groups traded best (financials, industrials, materials, casinos).   Traders were not into ‘safe’ groups/ stocks.  We are still focusing on our usual ETFs and few selective techs/commods for coming days,  if buying opportunities presents itself.    If we can close the week higher than today's closing,  it'd be very encouraging.   Potentially, it can attract some sideline money back into this market.

Hump Day...

Did we get over the hump today?.   Besides "curbing the enthusiasm", we still wanted, what every wannabe bullish trader wanted and that was to see a follow- through day to Tuesday's rally   Considering this rally lasted longer (morning to close) yesterday,  we wanted to see institutions, MF’s step up to the plate today and carry this market further.   Equities opened strong suggesting some Instit’/MF’s don't want to be left behind.   You can only miss so many 5% gains in the books you show to clients every Q, so we had hoped they’d chase,  adding fuel to a rally.    This soon slowed and an overall boring choppy day ensued with the SPX closing in a tinge of green with no evidence of late day "whale" buying.   This hopeful whale of a day had no hump!. 

We noted early this week that we had liked the less talk days from D.C,  letting the market deal on it’s own to find a bottom.   Today,  it changed as O&G’ made an P.R. appearance and the market coincidentally or not (yeah, right) started to drip down from highs of day.    What still may encourage some is we didn’t give up the gains as a rule to recent past short covering rallies.   Honestly,  that's little consolation prize to us right now!.    SPX 740+ is needed to get traders thinking this move may have legs,  until,  we’d remain cautious and even leaning to short some ETF’s (SPY eg) for the cautious or some Banks-Brokers intraday for the more risky until/if we see this latest squeeze continue past 740.    We always talk about conviction buying,  a break of 740 would bring out memories of Tuesday’s rush to buy/ cover if it comes "soon".    As far as tomorrow,  the dull close with no whale buying seen should bring a lower open,  it also seems implausible for banks-brokers to outperform for a 4th straight day and lead the market higher by close unless the M2M surprises.   SPX  needs to stay above 715 for any positive bias to remain throughout the day.

Once again, 3rd straight day, we had banks- brokers outperform and Tech was not far behind.  The longer we can’t take out 740, the better the chance of some negative newsflow to come from the financials, especially overseas making for a quick end to this move.  Pessimism will return, outweighing the positive newsflow from WFC,C etc on this side of the pond.  

At least, we had some play on a shadow listed alerted stock,  AXYS  at $33 that gave a ride to a high $39.  The rumor was confirmed AMC by AXYS and we think this is a nice hold if you got in 35-36 or lower. The reason is this stock had fallen to very cheap levels as CEO noted in release and this has draw suitors to inquire and it has only about 11mln outstanding shares which a huge Defense integrator like L-3, Raytheon etc might find cheap even at $50+ X OS.   Basically, its undervalued even at yesterdays close.   Of course, AXYS can pull itself off the market and the stock would fall, but that may only occur when prices are substantially higher and it wouldn’t matter cause we all should take profits along the way.  Still, if doesn’t get eaten, it has many pending contracts in the works that are not included in growth projections.

AMC,  we had STLD  lower numbers, we are even more negative on this steel drum band of STLD, AKS, NUE, X  than after X’s earnings (Jan 28/29th Jrnl), just before the recent market collapse started .  X has dropped from $36 following EPS to a low of 16+ and we think it will revisit those levels.  This sec’ may shadow the Shippers to some degree with debt issues.  That's the short end of it as long as the market doesn't show more upside.

Optimism Justified?

We are asking this question tonight as most of us have been just utterly speechless about the market action today.  It wasn't the fact SPX +29 busted through the 740 level with ease and finished at November closing lows,   it was the fact that the rise was led again by the financials (4th straight day).   It may be an understatement to call this a rally because things have happened so fast.   Will good ole’ key SPX 751 be as easy?.   That’s the current question as this remains a very technical market,   so every level of R/S is essential to watch for a turn.   Now at the third day of the rise,  this markets long term trend may be over.   We’ve concluded this past year that a long term trend in this market is no more than three to five days and this may be a good area to stall.

A lower futures premarket turned as positive newsflow hit and continued:

• GE downgrade removed an overhang as it wasn’t as severe as feared.

• retail sales.

• M2M surprised some as congress told FASB to issue new guidance within 3 weeks.

• Swiss franc action suggests relieve of strains on C/E European countries.

• BAC/GM newsflow.

Honestly,  volume isn't that impressive outside of the financial area.  Today’s action is mostly ETF’s / banks-brokers with individual stocks in other areas not having much activity.   Biotech is 2nd best sector riding the M&A activity brewing we noted as a positive for market early in the week.  We were negative on steels and coals before the trading day and they could’ve done worse,  if they didn’t get caught up in the tape of the melt up.   Ag’s had a peer in Europe give a bad impression (earnings).   Still,  most of the red you see today is from this essential groups(s) for healthy action going forward.   By today’s action, you have to think its telling us something about Global activity.    Also, tech was a relative laggard as it didn’t get caught up in the broader tape action as much as you’d expect or like.     Today's action is still the result of the oversold condition during the past few weeks.   Now that BAC- CEO Ken Lewis gave us a similar outlook of its company to Citi and JPM, we don't know if there's any other good news that can potentially lift the sector any higher into their earnings season kicking off in April.    At this juncture,  this rally seems to be one dimensional (banks-brokers, ETF’s) and pretty quiet all things considered.

We have been pretty patient with this market last couple of days.   The enthusiasm has to slow down or stop at some point as this is a technical driven market.    Right now, we are taking things literally one trading hour at a time.    Although a bit unrealistic at this point, the next major resistance after SPX ~750 is 780.   The trade does favor the fading of any further rally.   Tomorrow may be a good time to start poking shorts if the idea of "locking profit" still exists these days.   

There was some negative flows showing,  but they were ignored today as equities outperformed the credit market, which wasn’t tightening today.   Same divergence here as pointed out recently.   We’ll see if the ‘whales’ come and push this higher,  if they think this is purely a banks-broker short lived rally,  they won’t come.

DJIM #11 2009

Since the start of March, we were highlighting on the Journal.. ."the shorts have no reason to cover and take profits as they see a market with no buyers lining up.   Shorts just press until proven otherwise“.    This all changed as the covering started off an internal Citi memo and continued with more of the ‘2 month profitable’  headlines thoroughout the week from the banks-brokers following up on the previous Fridays postive report from WFC.   We headlined a “squeeze lurks” and were positioned well as we started to get a meaningful bounce from the "Mark of the beast 666SPX",  unfortunately being positioned in advance of the rally led to taking lots of the chips off the table as the first 300+ / 4% day occurred.   Of course, in trading there is always the ‘could’ve..should’ve..would’ve’, second guessing yourself game,  but after so many feeble short covering rallies in the past weeks that ran out of steam hours later,  we can’t really blame ourselves or anyone in taking profits as they come in this environment.

So, where are we now after a sigh of relief in the markets last week?.   Well, the sigh of relief is not because the outlook has improved overall,  it’s simply because equities rebounded 10%.   The pronounced weakness of global goods demand continues as all indicators are down in industrial/ international trade meaning the global GDP will show similar traits as the recent Q’s decline.    Also, the consumer is under extreme pressure, the bounce of retail numbers, household spending last week does not mean the labor markets are improving!.    We have to be cautious as we start the banking earnings season this week as this move can reverse at the slightest newsflow excuse to do so.    Last weeks bank-broker newsflow is not enough to change our sentiment on the sector so quickly.   Understand, nobody is all of a sudden turning positive, ‘Bulls’ and 'Bull markets' are not made in 4 days.

A busy week ahead with news flow to be coming from all directions…will FOMC respond in any unusual way to a deepening recession?….will the alerted Credit card Master trust data figures to be released this week bring the financials back to earth? ( remember the Jan. # crushed all financials after, inline #'s probably won't cause the same)….will the seemingly lacklustre G20 finance meetings disappoint as the communiqué really says nothing concrete or respond to U.S wishes or anything else.   Will the market like the toxic asset announcement this week?.  This might be the big catalyst to direction of market this week.

Again,  despite the huge squeeze in the most beaten sec’s,  the laggards were quite noticeable as they comprised the tech and commodity sectors.   Even though, we closed higher Friday with the big 751 SPX holding,  it was done in what seemed like a holiday trading session.   Some profit taking was beginning and fatique seemed to be setting in.   The reason we are drifting higher is because shorts were/ are not lining up new positions just yet.   See Chart Section for SPY chart as to level we are looking for a potential top to this 4 day move(circled).   Downside 740-ish SPX is where we’d want to see support to remain in this positive trend.

Just way overbought...

Some may say it's no big deal day as the market barely closed down 3 points.   For those that were still chasing financial stocks in the mid-day, it just may not be a pretty close as the SPX dropped 769 to 754 off a downbeat Mastertrust credit card data from AXP  triggering a possible turn we alerted.  This was the possibility, we noted late last week to end the rally.  We'll see what commentary this gets tomorrow.  Most of the day this premise wasn’t cutting it because COF  reported first and posted inline numbers and actually beat a few expectations, but other reports weren‘t as positive throughout day, most notably ending the day on a disappointing # from AXP.   This was the perfect medicine to curb the high flying banks (BAC,C ) to set off an broad sell off as these names relate to the credit card picture.   Now, we have some renewed concerns on the group into earnings (DFS eps Thur.) and this may rub the whole financial group the wrong way as we saw earlier in the year.   

Well, what did they expect anyway if not a sell off sooner than later?    Did some people think by getting into banks- brokers on the fifth day of run-up would net them another 20% return?   Of course, we are dealing with a market that has a beast of an attitude right now, but enough is enough to this one-sided rally.    The early weak signs were all over the place to suggest that we may not get a good close.    Nasdaq stocks were weak at the get go and the best of breed in banks-brokers (GS,MS ) just never participated early in the day and all these were heavy into the close with the broad market.     There was an influx off good money still coming from the latest so called safe havens to the high flying banks as we alerted in this 5th day of this rally,  some seemed to think this would never stall out and chased.   It probably seemed like that to many of us as well, a good degree of patience was required not to go with the herd in the late innings of this so called game-changer rally.

The AXP #, coupled with a very oversold market (3 day RSI over 90 (overbought signal), simply was the making for a big intraday swing.   Market ran to SPX 775 today (right at circle on SPY chart from this weekend) from a low of SPX 666 or so just a few days ago.    No matter if everything was positive going forward this kind of one sided rally at this pace is just unsustainable.    In addition,  we still haven't seen any positive action from the government in recent days to encourage this rally,  it’s purely, better than expected earnings and subsided fear of nationalization thanks to the CEO’s of the banks-brokers. Technically, this market is due to a pullback, but we’re still not seeing new shorts because upside risks seem to outweigh downside ones at his point.     Basically, the rally may not be dead, but the chart candle today suggests that we could be done with the up until we get more newsflow.    It's only the first day of the week and we are hoping this market would settle down so traders can get some sensible trades in for the coming days off new newsflow, eg, gov’t and /or Eco’ data where the broader market participates, unlike, this recent over- crowded trade.

...broad strength

In front of the trading day,  despite the late day sell -off on Monday, we noted …“Basically, the rally may not be dead,  but the chart candle today suggests that we could be done with the up until we get newsflow.”  We’ll... it didn't die,  but it was quite surprising and we‘ll see what news FOMC makes tomorrow!.   The FED is likely to announce something new to look proactive to the deepening recession.   One thing is even though they don’t announce purchases of MBS/agency debt at meetings, they might this time.   If the market is anticipating the FED to buy treasuries on the heels of the Qilt U.K buying,  it will probably be disappointed.   Maybe its anticipation of the bad bank/toxic assets news upcoming this week,  but , if the market is putting all it’s eggs in the Geithner basket once again,  we hope he doesn`t cause an omelette out of the market once again.   

At least now, we know where to look for support as the market found a bid around 750SPX and despite low volume continued to be bid up and closed above the pervious peak of 775 at 778.    A range is seemingly built here at Nov lows (751) and 775 where we banged our heads back in Feb before downdraft.    A follow through is looking quite important for tomorrow.    So the question is what newsflow allowed the market to rally back to previous days peak?.     We don’t think the ‘housing’ number was the key,  it’s quite skewed and like the retail numbers will need another month of data to consider it a game changer of sorts.   It's hard to pinpoint a true catalyst today, maybe it’s the anticipation noted above.    So, it’s not specific news flow today, simply, what it is going on today is investor confidence is still increasing as upside risks are taking precedent (not participating) over downside risk of going back to recent lows as we’ve been noting.    This allows for a steady drift higher as shorts are not lining up new positions due to upside risk to news.    A positive today is the market move is getting broad action as money is slowing coming out of the cheap banks and back into better names- sectors.    This is essential for continuation of this rally, a one-sided rally would not have legs.    The market can’t rely on bank- broker ‘updates’ that have been happening since late February when JPM made the first signal.    It will wear thin sonner than later.   Even the credit card data , Whitney’s critical words of banks updates was shaken off by the market.    As we concluded in the last journal.. “we are hoping this market would settle down so traders can get some sensible trades in for the coming days off new newsflow, eg, gov’t and /or Eco’ data where the broader market participates....".   This is seemingly what we got a start of today as participation was broad.     Still, this market continues to be overbought and the odds remain for a tick down to rest.   Will it be here at the recent peak or will it be at 800 or ??.     Considering the volume was quite low to the upside, any negative newsflow or sell on the news of FOMC- Bad banks decision and we’ll see big volume on the downside, most likely.    Also, now the market is absorbing bad news and going forward as witnessed today.    That is a positive, but how long can that last before reality sinks in again!!.   The credit card #, the terrible material sector prognosis AA- NUE , especially, is nothing to sneeze at!.

...and finally, the kitchen sink

Shocking, stunning and overwhelming!.  For sometime,  we've felt that we are going through an unusual period where the conventional method of thinking just do not apply to this market.   Seems the FED was thinking the same in what could be thought as an act of desperation in days to come.    We said the FOMC is likely to announce something new to look proactive and even said the market might be anticipating to buy treasuries.    This latter still seemed implausible, just ask every currency/ bond/ trader feeling jolted tonight.     Lately,  it's getting to the extreme side of unconventional,  this direct intervention hasn’t been seen since the 1960’s.    As a trader, before you enter a trade or plan a trade, you ask yourself, "what's the probability of this and that?"    There was little probability of this FED act and is somewhat disgusting as they hinted away from this treasury buy as late as a week ago making for a stunned marketplace today.   The coupling of the market coming to a technical key (SPX 800) and with the majority of traders thinking of a mute FOMC announcement it looked like a sell off in the making.   A question is what do they know that we don’t know, maybe it’s something on the banks, TALF may take more time to get going than previously envisioned and/or of things to come in the economy.   It's definitely a sign of alarm over the FEDS heads as they couldn't wait for the TALF to spur things.    We can only hope this bomb will be viewed as a positive in days, weeks to come and we can concentrate on trading individual stocks/ sectors on the long side as before than trying to manoeuvre around the SPX and the ETF’s.   Hope is to get away from the technical trades that have consumed most retail traders due to lack of any concrete group action.  Hopefully, a beneficiary group will emerge due to these FED actions.

One lesson learned here and for many again is the old basic of not fighting the tape of the market!.  If we see and say for days ... shorts are not lining up new positions due to upside risk to news.`...why do even bother looking at all those technical levels as possible reversals.   It was the trend that was signalling fear of upside risk on newsflow outweighing the downside risk to previous lows.  If we had stuck to initial ideas of conviction buying coming in on a break of 740 and a meaningful bounce possibility from the Mark of the beast` 666,  we`d have no regrets today.    Everywhere you look tonight many are second guessing themselves, either because they did not follow through on first long ideas or going short, trying to fade the market at higher levels.   Simply, the tone had changed towards equities and no resistance levels mattered after we continued the squeeze through 740, but with continued head-winds and remembering all the failed rallies in the past months, you were somewhat programmed to think the same would occur instead of just going with the trend, herd.   When we traded our themed earnings winners, IBD momo stocks, it didn't matter these stocks had way overbought RSI's,  we just continued trading the trend very profitably.....the market indices have shown it is capable of the same this week.

The "good probability idea" trade is staying mainly on paper as the risk of being rolled over is too great.    The Fed delivered a big blow to shorts by announcing this big spending program as they boosted their balance sheet by another 1.150 bln, a balance sheet that is set to grow to about a 1/3 the size of the economy.   This will ensure that the rates stay at an exceptional low level for an extended time, so the economy can get back on its feet.    The FED has basically bought more time for this to happen, it’s helping everyone from the small business owners to mortgage payers to lower their cost. This is by no means small news and arguably the best news we could possibly get, but pronounced headwinds remain.   Let the debates begin and hope this time,  it finally becomes the game changer move.

The trading result is equities went over SPX 800 before pulling back some to close at around SPX 794. This is just wow kind of action and reaction.   The centre of the action again was focused on the financials.   We have been having back to back to back.... gains from some of the familiar names in the past few trading days.   Right now, there's no point arguing whether the move is justified or not.  What's done is already done and we have to settle ourselves into a good trading frame of mind going forward to dissect all of the recent events.   The market has been in an over extended mode and there's no telling how much longer it will extend.   The short covering continues.   We will watch the next couple of days to regroup ourselves and watch/ digest of what may or not work going forward. We have to look at this as a potential fresh start in going back to basics of trading.   Again, there's a lot to take in right now and we have to think thoroughly on our main trading strategy for the next few weeks and see if a posiitive group emerges.    We know a lot of other traders are in the same boat as us and it‘s best to be sidelined.   Despite the huge gains recently,  we know for fact most traders aren't having big trading gains unless they are into extreme daytrading.  This market has become a "trader vs. investor" lately and we have to be extremely cautious when deciding our next course of trading action. 

This is going to be one of the most remembered Fed days in history. The heads are spinning to this jolt.

...day after

As expected,  a good nights sleep,  maybe some nightmares after the FEDS big bang and the euphoria died off in the marketplace today.   You have to be encouraged by the muted tired feeling action, it's better the recent market gains are digested and not relinquished today.   Support at 775 never threatened.  It’s actually funny to hear the word ‘catalyst’ come up again today.   Now, it seems the market wants /needs another catalyst to go further.    Well, let’s put it this way, the FED essentially used it’s last bullet and we’d better get on with life.   What a greedy bunch we traders/investors seem to be,  why not just give the FED "big bang" sometime to take shape.   What did emerge today and what will be the buzzword going forth most likely is inflation.    So, as the market contemplates the stiff ‘800’ SPX (50MA today) at overbought RSI levels with banks-brokers rolling over as the short cover buy demand has abated today, note (seems the Citi pref-common swap trade went against some big hedgies (short common/long prefs., which caused a vicious short cover rally in many of the banks),  you either continue to get caught up in this technical driven market or as we pointed out start looking/ hoping for a group/ sector that may benefit from the FEDS stunner and move away from the technical trade dictating your every move.     The market will do what it needs to do!.    At this point, there are still upside risks as we come into month/Q end for the shorts and that may keep the market from a major pullback and instead break the 800 hurdle later next week.     Right now, we’re going to concentrate on a basket of inflation linked equities and the inflation expectations noise.    Maybe , it’s too early, but the market is quite giddy and it may just rotate quickly into a commodity trade.   It’s only a guess or hope,  but.  with Q end coming it is the perfect time seemingly to get the hedgies to prop up their books.   No better way to do it than try to move the heavily shorted beaten down commodity community..steel (SLX- etf), coal (KOL), E&P, oils, Ag’s-Chems.   

As you remember when we traded with those sectors in the first half of 2008,  the market on a daily basis did not have be green for these stocks to be in the green at the close.   Those days we didn’t care what the SPX was doing, we just went with the individual equities/ sectors.   It might be a dream that months later we can have the same outcome,  but today with the market pullback our shadow list is pretty well all green with many in double digits % gains.   We’ve updated the shadowlist today (link on left at site),  putting back more of the stocks we followed and discovered before many 2X or 3X last year.   

Still, understand that there is NO current bullish news in the global steel/ or iron ore business etc.. The physical market is still slowing, but with stimuli effects in China slowly emerging and with this inflation buzzword coming into play, sooner than later the stock markets participants in these areas will have to start looking forward and not pinpointing day by day activity in March of those markets.  The risk-reward ratio is much more appealing now than it was days/weeks ago for commodity levered equities.

DJIM #12, 2009

Heading into the last trading week of the month, we can't help but feel emotional when looking back at the events that have transpired up to this point.      The biggest question on people's mind these days is "have we seen the worst?"    Nobody knows!    What we do know at this point,  is that there is a sense of stability returning back into the financial system.    Of course, none of us really have the first hand knowledge on how things are or going to be with the financial system in U.S.    Judging by the action from the government, the announcement from various banking CEOs, and most importantly, the stock action itself, you can't but feel that we may have seen the "worst" in these financial companies.    

Just a couple of days ago,  Fed announced some drastic measure to pump another 1.2 trillion into the system.    This weekend, there's news that Geithner will announce details of the long awaited "toxic asset plan" as early as Monday in more attempts in putting a stop to this crisis.    We have often said in the past,  it will take time to fix a broken system.     As long as the system (financial) does not break down due to total lack of confidence,  then everything else is recoverable.     At this point,  we have to believe that the government is doing everything it can to restore confidence, unfortunately,  bonus bill is getting a lot of negative headlines after the Treasury buying news.   We may all not agree on a lot of details of its plan(s) and even go as far as question the efficiency of the plan(s) going forward.    However, we have to agree that they are at least on the right path and it's all we got.     For now, we simply don't want to bet AGAINST the government.

Over the past week, shorts have been literally vaporized by this market.    Market itself has pulled back on profit taking to the SPX 770 area.   We view the action Friday as a healthy 'tired action' pullback, primarily because we're not seeing shorts reload, we've been highlighting in bold here recently... "shorts are not lining up new positions due to upside risk to news".     The toxic asset leaks this weekend is one big risk for the shorts.   As traders,  we are looking for the strongest sector on this pullback and we really like what we saw from the Commodities, even on the pullback Friday     During the next little while,  our trading thesis will be focused primarily on the commodity sector, maybe the financials will again be in focus if the Geithner is liked by the market.    We have explained in the past couple of Journals on why we like the commodity (buzzword, inflation) sectors going forward.    Oil and oil related are a main concentration, but we are allowing everything from coal to steel to get back onto our trading list.

There will be some economic data in the coming week.   We'd also have a good glimpse where the short term support is for this market.    For now, we are definitely looking to trade up on pullbacks within the commodity sector.

"It's all in the details"

How’s that for ‘Upside Risk’ shorts?.   We told you the weekend leaks were one big risk!.   All we could say is Mr. (yes, it’s Mr. now), not whipping boy, Geithner, why did you ever bother with the sketchy February 10th - 4 point plan,  if  you had no specifics to revive capital????.   It’s all in the details..details !.    That day the SPX closed at 827,  today we surged through the 50ma and closed well above this 800 mark.   This close is a big positive and the Bulls finally should have the upper hand going forward.  On a technical view,  the next big TA levels not until the upper 800’s.   

The premise since late last week was that shorts were leaving the market to figure itself out by not taking new positions.. "shorts are not lining up new positions due to upside risk to news".   Those are the smart shorts, the ones still helping the market go higher by short covering are not so smart looking today.   Last few days as the market slid slowly back under 770,  we believed this was just a healthy tired action as recent market gains were being digested and not relinquished …“The market will do what it needs to do!.    At this point, there are still upside risks as we come into month/Q end for the shorts and that may keep the market from a major pullback and instead break the 800 hurdle later next week….”.  Without going into the small print of the programs introduced (we‘ll send you a PDF file if requested),  we also had positives in the Housing data and more M&A activity as the biggest deal came along since 2006 in the oil sector.   Can you believe that ?.   The good ole days are back of M&A Mondays;).    Okay,  maybe that’s a stretch,  but if you add up a few things this rally is different from all the others we’ve had since all the bailout rallies that failed.    Why?.    A few differences is now we have M&A activity on a weekly basis,  Oil running to 4 mth highs and sentiment is much better.  Confidence is emerging,  but the confidence in your politicians is going to be a possible cloud if they keep sticking their noses into the wallets of Wall Street!. ( a 2:50pm headline helped the rally…Senate could delay debate on its bonus legislation until next month to give more time for consideration).   
In the morning to make the gap work and extend,  we got what we posted premarket as a 'key ' to the plan …White House National Economic Council Director Lawrence Summers said that investors in the Public-Private Investment Program won't be subject to the compensation limits  applied to banks rescued by the government.   Once this headline hit CNBC,  the market sighed in relief and started its move to tackle with 800.

What’s the next big catalyst?.  You got a sniff of it late today and that is if bankers- brokers raise capital through private equity deals to exit the TARP!   This is amost a clincher and what will drive this market closer to SPX 1000.    Did we say that..1000?..lol.   We'd definitely buy the market the day we hear news like this.   GS  helped this rally late because the WSJ reported that Goldman was considering selling part of its stake in China's ICBC and would use the proceeds to pay back the TARP.

Into the trading day, we noted Financials will again be in focus if the Geithner plan is liked by the market.  Did it ever (+18% financials)!  The move recently has been great in this group and it's arms,  but there is a lot of upside left, we're only back to February lows.    Long term money flow,  if believing into this market story have a lot of room to maneuver into and profit.   The only thing is now to let some settling take place.   So, while this likely occurs tomorrow,  we'll continue to focus on the commodity, energy trade from last week.   The stalwart (tech) of 2009 is back after a short hiatus and is tradeable once again.

We have more legs to this rally,  we have the upside risk due to events unfolding in respect to, "...with Q end coming it is the perfect time seemingly to get the hedgies to prop up their books".   This is of course now more than ever relates to 'Whales' doing the same (MF`s Institutions).   For potential vibrations in the market this week,  watch out for DC and budget draft resolutions.  As we know, lawmakers can dampen things pretty quickly, but view any negative items as an opportunity to buy on the pullback.

..sticking to relative performers...

A tough close into the bell, still the whole day seems nothing more than a market loosening it’s belt after a very big meal.     Digestion.   So what's going to be the deal here?   Do we consolidate or we keep churning higher?   First of all,  we should dismiss yesterday's super rally as a one time event.    Performance like yesterday just can’t be repeated, there’s little ammunition left from the Fed-Treasury.   While the market pulled back within a few points of SPX 800,  we feel the market would still be in a pretty healthy shape even if it drops to SPX 780 level in the very short term.    Still, as we noted mid-day an underlying bid was present on pullbacks.   We’ll see if the late slip is bid up at the open tomorrow,  if today’s tape is any indication, it should be.     Right now, it's just difficult to imagine we'd visit the early March low anytime soon, or ever,  so keep a bullish view.    Of course, as things change, we'd definitely revise the previous statement.     As we said these lawmakers can dampen things and today’s late slip was on the heels of some budget draft noise.   Unfortunately, this is a  D.C sideshow the market has to deal with on a daily basis now.

The key in this trading environment, is to follow the overall trend.    You can make money as a bull or as a bear.   But when the market is clearly on the uptrend,  you'd make money ten times easier being a bull.    This is just about the complete opposite psychology from a month ago.    What we have on our trading list these days are a lot of "oldies"!    We brought a lot of them back because that's where we find many of the relative performers in this market.    Today we got a nice early gift in EBS , even though we didn't anticipate such a volume (2mln) move so soon,  we'll take it as a signal something is more imminent that we thought.    In the commodity space, steel, agri. are quite strong.    We've been busy trading some, eg X CLF MOS.    Given the huge gains yesterday,  oil linked plays also had a relatively healthy pullback.     If you look at $CRX , which is the commodity index followed here,   it shows that we aren't that far from 6 months high.    If we can manage to break out of 550 level, who knows how much higher it will go.     This of course all follow our recent thesis of "lots of money being pumped into the system and commodity are being picked up against future inflation".

Financials provide traders with mojo these days, but we feel there's enough plays out there that can be as attractive to play with lower risk.   Names in our shadowlist is where we stick to.   Tech’ space ..semi’s, hardware are providing pockets to trade.    We are strictly back to sector and individual plays and away from worrying about the technical side of the SPX as discussed late last week following the FED big bang. 

Also note, we are into preannouncement time for earnings.  It will be interesting to see reactions of individual equites reporting such and it’s sector to the news..good or bad.

underlying bid prevailing..

Underlying bid prevails today as the bigger fish go fishing...

Just some scattered trading thoughts,  mostly due to fact many aspects of this market/ plays remain the same since late last week.

Two characteristics of the market still showing,

1) Shorts are NOT starting fresh shorts due to upside risk of news.  Ones that pressed with downside were left dazed and confused.  Also we still feel the Hedgies/ Institutions, MF’s pensions (whales) are chasing equities to pretty up their books month end/ Q end.

2) We kept mentioning the underlying bid providing support yesterday, we thought and got it in the morning as we extended higher (helped by durables, housing) after not such a nice close on Tuesday.  We alerted in the afternoon, we were aware of Whale buying the Industrials in the morning (this spurred by eco‘ data), the idea was they would come into the closing broadly.   Remember, this is mostly the time whales buy,  this is why last 30 minutes to a close is such an important ingredient to the health of the market.    Besides, we didn’t think the low volume downside to under 800 or the Treasury auction news was all that important.   Other news providing some headwinds was Trsy asking for authority to seize hedge funds and worries they won't just let banks leave the TARP in near-term.    Almost to the minute of alert,  we got a V-shaped bounce started which scurried out any shorts that pressed into this downside move thinking this rally was broken.     Again, the underlying bid is there for now.   

Remember,  instead of scurrying around the find a stock that may work during/if we get a big move such as this 140DJIA +reversal in minutes,  just go with SPY/SSO or even better go to JPM/GS  to get the most out of a move.    We’re having some trouble getting through  ~820SPX area,   but this kind of close will make everyone think twice..the bulls (encouraged ,confidence) and bears (losing faith, jittery).    This is looking like more digestion above 800 before a move higher, instead of indigestion.  A meaningful break of 820 very possible tomorrow. *eco data tomorow morning.

Sec's

We had short covering early in the steels , again X  leading the way.   Considering,  we are about a week into the inflation linked equity trade,  we succumed to quite a bit of profit taking as the broad market sold off.    Always remember,  if your stock/sec has been fastest to the upside,  it will be one of the fastest down as the broad market turns.    This trade will have hiccups, so as we answered in the forum last week, everything is still a trade, not an investment, so take profits along the way.   We've all learned the past 12+months this a traders market.    As far tech/Naz related stocks,  we had SMH $SOX  breakout after the opening bell,  but it got taken down with the tape.    $SOX,  we'd like this 230 broken convincingly to attract more interest,  including ours to go into the high beta's stocks.

More tailwinds than headwinds...simple for now.

Good ole days ...

At least, judging from the performance of this market during the last few days, we got a glimpse of what the market was like back in the good ole days.   No matter how you see it,  the trading lately has been just crushingly painful for the bears (shorts).     Maybe, they are also responsible for this never ending rally we are currently enjoying.    We closed at SPX 833, going out near day highs.   Everything except the financials rallied today and the action was pretty broad based.   It's great to see others step up to the plate and lead today.  Transports broke through 50ma and the $SOX SMH  passed the hurdle noted yesterday (good signs, now hold!).   With regard to the financials, we aren't worried a bit because the monstrous gains they had during the past two weeks really need to be cooled off a bit.   Today the best performers of late and those that surged late yesterday took the day off, some profit taking, some rotation into other arms such as Asset Managers has been seen lately.    Even today's alerted stock ICE ($77 to $81 day high) benefit from recent headlines as they will eventually play a major role in the CDS clearing markets.   As long as the financials consolidate in a good range, everything has a chance to go up.    This is pretty much the underlying theme for this market lately.

At this point, we don't really care how high it can go or how much longer it'll last.   Until the market sentiment changes, we are staying on the long side.    Believe it or not, for the longest time, it felt this market had unlimited sell supply and therefore neverending selling pressure.    The last few days felt money is being poured back into this market.    We really haven't had such "late day rally and take out day high" kind of action in a long while.    For this market to demonstrate this kind of behaviour in spite a recent 25% gain already, it's just remarkable.    This is where we have to make up our mind and perhaps change our mentality towards a more neutral, if not a somewhat bullish stance on the outlook for the remainder of this year.     Financials so far have been stabilized as a result of more money being put into the system.   It may not be the best solution, but at least most of us agree that given time, it can work.    With recent news that home sales are picking up slightly, that's also another positive sign for the bulls.

Commodities, all of us must be loving them these days.    Everything from FCX  to POT  to CLF  are having a great run recently.    We already discussed this in detail last week on why we like this sector and this week has been proved to be nothing short of great action.    If you look at the 6 months charts on plays such as MOS MON POT (BHP for POT??)  *( March 31st is a very date/ USDA supply and demand planting preview), OIH or the index itself $CRX,  it's as if we are on a verge of a major breakout.    The potential is there and we just have to wait to see how it plays out.    However, we do have to keep an open mind here because alot of the news lately has been quite bullish for the sector.    If the breakout is going to happen,  now is actually a good time.

Approximately a week into April, we'll officially kick off the earning season.    This means we'll get a more in depth look of the corporate earning front and as well as gauge the investor reaction off those reports.  We have a strong feeling that we might actually get a few nice earnings winners this time around.   Considering how bad equities have been beaten down, we might get a nice surprise or two and ignite some serious buying interest.   

A few days still left till Q end and todays broad action was a sign of performance anxiety from the 'Whales'.

Oh yeah, speaking of good ole days, today's Solar frenzy  is assuming the best, important details are missing in the China paper.  Also, a China subsidy would not be a revenue pop for US based solar co's as it would favor 'in- house' co's.   A short play possibility here as firms most likely to knock this.

DJIM #13 2009

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

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