June starts with a big bang...

This might not be the first day of summer officially, but, we officially kicked off the "slow" summer trading season with a very loud bang.  The positive China PMI  data led to strong overseas trading, the news of GM Chapter 11 (finally closure), and a couple of upgrades in the morning were enough to gap up the market on top of Friday’s strong close.   We noted the importance of China PMI midday Friday and pointed out the impetus in Journal for a move from the month long trading range today… The “holding pattern“, we think is the market waiting for China to make the next move literally. It’s been pretty quiet lately after the initial ‘leg’ up and now we wait for signals for the global , eco’ outlook from China. This will (if positive) include help for the tech outlook and definitely the commodity picture for the 2nd half of the year".    Today, it was the fuel for the impressive global market melt up, no doubt about it!!.   The US ISM number (5th consecutive mthly increase) came out at 10 am and pretty much sealed the deal for the bulls.   The "deal" we are referring to is the official breakout of the recent ‘May’ trading range.

Mid week around SPX 900, “…….we could be getting rotation into consumer driven NAS/tech coinciding with last weeks positive data points in tech conference/eps. So a close over 1430 $NDX can be very bullish and we could be on way to SPX 950, a clear break can be over 915, 920SPX, it may be useless and be a little late to enter after breakout levels we've been talking (930’s May highs)".   What we are pointing here is the $SPX literally made a move under radar in 1-2 hrs of trading of 40-50 pts to a high of ~947 and you’ve missed it,  if you were not positioned in low’s 900’s last week to take advantage of the stealth move.   Considering, we literally hit that ‘on way to 950’,  it's an excuse to take profits off table and re-position.   We’d welcome a pullback to re-initiate many positions, whether it is tech, commods, china linked stocks.

The volume across the tape may not be as super strong as a breakout volume would've warranted, but we’re pretty sure many still can’t believe their eyes and continue to sit on cash.   Money is sipping into the market slowly,  but the world has literally missed the rally.   The statistics don’t lie as many refuse to believe we are in anything but a mild recovery.   The world is underweight, including hedgies, 'whales' and will eventually lead to more upward pressure on equities in the future.

As we have been pointing all along,  a break to the upside has always been the more likely scenario.   Someone has to give up and there was too much "upside risk"  for the shorts/ Bears weighing in on this market.  Technical this time.   Recently, we've had way more positive eco' data points compared to the negative ones.   The earnings have been better than expected and action in the emerging market lately is nothing short of superb.   This is also coupled with the fact financial issues are somewhat behind us.   Everything that has happened lately is viewed as positive development for this market over the long haul.   Therefore, in our opinion, this breakout was inevitable and hopefully our bullish stance at DJIM has payed off for members lately and since March.

So,  what's the trading strategy now?   Although,  we aren't in a mood to chase anything new today, we are mentally prepared to buy stuff back on any worthwhile pullback.   Basically,  the price level that you've seen a few times when SPX was at 875-880 level may not be there in the next little while.    We have to be comfortable with the idea to 'move up' our own buy trading range.    Earnings plays are still the same and those that showed exceptional technical strength are our favourites.  Techs, Commods and China syndrome are back in full force these days.   Besides the obvious long standing commodity/ tech stocks (most on shadowlist link),  we had some recent add-ons such as lodging play HOT  (last alerted low 20's) for a breakout top range move, EJ, china earning play breakout recent tops, CVLT, a tech play is near 2009 high, slow crawler BWY  is back near $15 highs after a pickup here at ~$11.

Oh yeah, were you a good trader and monitor these potential earnings plays we put up early May in a secondary shadowlist?   Some nice pullback buys emerged in what many called a terrible chop trade in May, but as we said it's a stock pickers market going forward and many were making fresh highs today...eg, SFLY, STAR, TNDM, CTV.   Stocks on list like DDRX  NEU PENN GMCR  were already in play at DJIM and are likely on our shadowlist link.   Patience is a virtue and pays off well if you have the right earnings stocks.  It is also quite a safe trade and lurking a good pullback works well.

http://www.djimstocks.com/djim-journal-09/2009/5/6/new-eps-this-q.html

Oh yeah, did anyone catch the AH news that EMC is coming out a competing bid for DDUP?  Remember, we picked up CVLT  last week as a secondary play here.  To be honest with you, we haven't seen this kind of action in the tech land in a long time.

Summer trading, fortunately is also slower paced and has lower than average trading volume.   This is actually better for us to not have to worry about chasing some wild strength.   We don't believe this market is capable of going straight up at this point, so there'd be plenty of opportunity to get in on this leg.   However, when the setups do present themselves, you don't want to be shy away either.   Bottom line, we are feeling very confident and comfortable with what may come the next couple of months.   Summer trading, once again may become fun.

Hug me...I'm tired

That’s basically all the SPX said to the flatline today as the tape rested after ripping nearly 50 handles in a few hours the past few days.   Surprisingly,  the selling/ profit taking was very orderly,  despite the second day of financials lagging.   After a break of over a week on issuances, the banks- brokers began tossing new supply out due to new rules by Treasury to exit TARP.   Shorts are trying to paint a picture of this lagging group in the advance as a fuse to breakdown,  but it’s not working as the market is saying the banks-brokers got this rally started and it’s healthy that we can move 50 SPX handles and than rest today without their participation. Still, watch carefully if all this new supply and more becomes a noise 'concern'

One of the big leading groups has been the commodity linked stocks as the PMI #’s and a collapsing USD are responsible for the latest advance and the high beta group of stocks we follow surely would be the first to take a breather.   If this is all the breathing space they need today, we’ll ..then we won’t get our welcomed pullback to buy cheaper.  But, we doubt that.   You have to be realistic here, no matter the PMI #’s forward look for the sectors, the USD has sunk about 12% from March highs and unless it’s dropped as the reserve currency overnight the equities can only rip so far before resting.  The USD, strength in it will most likely put pressure on the linked equities, so we’ll wait for such to re-initiate positions.

Some defensive posturing was underway today, but as we said a few weeks ago when those disbelievers tried to get a defensive rotation going,  we’d hang up the phone on you if you tried to request such from us.   Look back now and see what you would have missed if you let Briefingcom and such to your talking for you at that point. “ garbage rally..signs of froth”,  May 12th…The DJIM safety/ defensive trade has been a focus on earnings linked stocks,  you may say.

http://www.djimstocks.com/djim-journal-09/2009/5/13/a-healthy-tape.html

Today gave an opportunity to look around and what we found was quite a few plays, only now possibly setting up for moves such as SAFM, ARUN  that really didn’t participate in this latest rip because they have been consolidating their earning reports.   Both pressed to 2009 NCH at close after notes today. The best rip and right out of the gate today was the 17% shuttle from CVLT ,  last Wednesday we alerted it as DDUP connection and today this was highlighted by a firm and led to the burst.  A 25% move since.   Again, this pinpoints selective stock picking, we think we have accumulated an excellent group in May that has been safe (meaning you’re not losing money holding) and with good pullbacks, they pay back well if you want to book profits.   Of course, most are earning related.

On a group we haven’t covered for awhile is the Haynesville Shale grp, E&P stocks. GDP  had very strong well results Monday night and stock outperformed energy linked stocks.  PVA, last night had v.good drill as well and may react similarly off the bell.   So, we'lll monitor this theme for any further potential in days to come as well.

If today is any indication of the next 2 days leading into the NFP -employment #'s,  we`ll take it, but realistically after this rip we need to digest more than what we saw today and a stronger $USD (commods’) & possible concerns on more supply issuance by banks- brokers may provide such.

A little healthy pullback so far...

Even the most die hard bears have to consider today's weakness as nothing but a healthy pullback.   In the big picture,  we trade this tape higher as long as the bullet points hold in our, “The Premise”.   New members may find it here, http://www.djimstocks.com/djim-journal-09/2009/4/30/the-premise.html.

The pace of this run-up,  we feel is going to be slower than what we have seen since March.  This is good news!?.   It gives us opportunity to re-enter positions we've cashed out.    Today's was a good day to get into some of the positions, excluding commodity linked equities for now.    Right now,  it's not about timing the perfect dip.   It's about buying on big dips, coupled with low volume in a rising market.  As noted in the last hour of trading,  we felt the selling had almost abated in banks-brokers this week.   Also, we felt the broad tape on low volume was not at risk / limited damage and could turn because of this.    A nice squeeze into the close ensued to frustrate the shorts some more.   This close may have some follow through in the morning,  it should withstand commodity-resources weakness if it continues.   You see, banks-brokers, tech, crude-energy can carry the tape without many commodity links.

The commods got some bit nasty action today,  but as we said we had to an excuse to take profits after Mondays melt up to ~950 after a 3-4 day move in the group.    Everyone here at DJIM had time to exit Tuesday or at worst at the bell today in one piece as we warned of USD strength to hit commodity linked stocks.    The USD had its biggest 1-day gain since January and the CRX followed suit with the largest sell off in a month.    We have seen this action many times over since we started trading commodity stocks.     The big up-moves are almost guaranteed to be followed by a meaningful pullback,  so it’s always prudent to take profits.    Of course, if you went  'long'  late March when we said the inflation trade is on,  you’re laughing holding through to now.    It just hurts to see nice gains over days evaporate in an hour or two, most times like today 7-10% across the board.    The key is that the entire commodity group has moved up,  week after week in a pretty consistent fashion and we‘ll re-initiate sooner than later.     We simply have to accept the volatility in the group as a fact and as well as an everlasting opportunity.    Fr now,  we need to recover our commodity index $CRX  to above ~635 or get a further dip to consider the high beta commodity linked stocks again.   List includes,  Coals (ANR, MEE, JRCC, WLT), Steels (X,RS, SCHN), Ag- Chem (MOS, POT), Solars (FSLR TSL STP), Copper (FCX), Shippers (GNK). We think the BDI (dry bulk) index might have peaked, (Intraday day note),  so we’ll see if this spreads weakness / weighs on the sector next few days.

The most interesting group out there today is the Banks- Brokers.  It has been under- performing the market during last couple of days,  but we might be close to a move.   It may have started late today.  Without the participation of financials,  it's hard to see this market getting anywhere close to SPX 1000.   For now, we simply have to believe that the financial group will move up soon barring bad sound (noise) bites.

Chinese stocks have been particularly strong lately and we simply have to contribute the strength to their economy and as well as the optimism in Asia.   In addition, many of the China plays have come out with some stellar earnings to back up their move. We wouldn't be hesitant to buy stuff like EJ, CTRP, SNDA, CYOU etc. when opportunity presents itself.    Techs, are also a group we'd consider favourably on buying the dips.

Bottom line,  if commodity stocks take a further breather, we have other sectors to trade.   We have plenty of plays (earning), BWY EBS ASIA  outperformed today,  others held up nicely covering a wide range of sectors.   As we’ve discussed heading into summer, we will have groups to trade/ rotate.

Day 5 ahead?

We mailed in our request Wednesday afternoon for a bank-brokers led reversal and today it was stamped as the group followed through in the morning bringing along the rest of the SP tape.   An impressive ~3% SP Financial rally tacked on to yesterdays 30 minute move accompanied by Crude (yesterdays E&P plays PVA GDP  tagged along) and slowly commodity stocks began to bounce as the USD weakened. (becoming too closely related the USD moves).    Was yesterday’s big sell off just the usual hiccup?   Maybe, but Shippers stayed red into close.    If all this action wasn’t your scene,  the DJIM earnings/ story scene is enough as more Q’s plays,  DDRX  OGXI  EJ  (co’ cnbc guest) all had 10% -20% intraday rips higher.    A few others were on the cusp of/ and breaking monthly/ recent  highs  EBS TSL SAFM ARUN.    The buy pullback theme remains pretty clear on all DJIM plays.   Basically with the majority of these you can use the ‘hit and run’  play by taking profits and switching between names while waiting for a pullback to get back in something you sold.  

Chart: SPY move/ SPX reversal off 200ma

Once again the shorts are thwarted as they can’t get enough downside days to get cocky and initiate new positions to press the market lower, but this has been one of the bullet points we’ve pointing out since SPX ~800, so it’s nothing new!.

Ahead of NFP  #'s tomorrow,  we have a few things roaming in our crystal balls.  As we know the ADP # (532K losses) handicaps the NFP (-520K consensus),  so you’d expect a similar number, right!/?.   Well,  we’re feeling a little squirrelly and think we may get under 500k.    Something also interesting is the Banks-Brokers, we’re seeing and using the XLF  here.   Considering the action in the group in the last few hours, if this is only the beginning of a move,  it would soon be kissing the 200MA.   The last time this occurred was in prehistoric times;)..2007!.    So, is this the missing link to push the tape higher as most indices are over 200ma now?. 

Oh yeah,  we are moving into a possible day 5 with SPX over 200ma.   This is crucial as this confirms for many the breakout,  we‘d actually probably just prefer this occurring to close off the week to avoid excessive bullishness setting in and instead take baby steps.

Chart: DAY 5 SPX?

DDRX - BWY - CVLT- EJ alert plays in May

At DJIMstocks.com,  besides maintaining a ‘bullish’  posture in our Daily Market commentary since late March for the broad market (SPX) detailing reasons for such as we progressed higher."  This is almost a clincher and what will drive this market closer to SPX 1000.…03/24/09”,   We also initiated a trade in commodity linked stocks-groups at the same time,  followed by the probability of the small caps trade off earnings.   Below are a few examples of alerted plays in what was to many a boring ‘chop’ trade in May.

DDRX, alerted April 30 trading in the low $9's. traded to a high of $18.75 in 25 trading days.

BWY, alerted at the open May 5th at ~$11 as an EPS play, traded to a high of $16.75 in less than 25 trading days

CVLT, alerted as a DDUP secondary play May 27th, ~$11-12, traded to just under $16 in 8 trading days.

EJ, alerted at open ~$13.50, traded up to ~$17 in 13 trading days.

DJIM #23 2009

Market’s behaviour Friday morning brought back memories of past FOMC/statements where the market behaves wildly in both directions afterwards.    Even our squirrelly possibility of a NFP # below 500 was off the mark as we got a very low 300K number that melted up the SPX futures +15 pts premkt.   Unfortunately,  we saw this market get too bullish (recall we said end of previous Journal, we wanted to avoid excessive bullishness) and most importantly have the report take the $USD for a ride up.  We warned before the open to be ‘careful’ and hopefully, we all avoided chasing and just watched the big fade job of the tape begin immediately at the open.    The highlight of the the day became the very strong USD, unfortunately for many this was too late before the consequence of a low NFP # was figured out.    Still, we finished a 5th day above the 200ma which is quite important as it confirms the breakout for many with a technical view of the market.   We’re still going to be hesitant here for the broad market tape as the market is showing 950 level is formidable, we’d start the week maintaining Fridays premkt note to be ‘careful’.

So..that’s’ one market, the broad market!.    Meanwhile back at DJIM farm, the underlying market of small caps was outperforming as some of it’s animals continued to run freely.  EBS  noted at the beginning of the week as one setting up finished the week up 25%, other notables +4-7% gains Friday..ARUN, STEC, EJ, BWY. 

Despite the commodity linked stocks reaction to strong $USD, a clear trend emerged and that was the early strength in Steels..AKS, SCHN, NUE, CLF, X  held and outperformed the coals, ferts. Oil/ energy.  A little digging and we figure the RIO/BHP deal is beneficial to the US steel producers bottom lines (EPS..especially X) as higher iron ore prices are on the horizon from this massive deal.   We say horizon, not tomorrow or next week.  Right now, we may continue to be at the mercy of a USD bounce in the very short term.

One scenario we possibly see ahead is on a ’psychological’ level that may just rhyme with the technical picture at this point.   We have 3 weeks till Q end and we may have a ‘Little Blue Pill’  theory to keep this market strong and potentially take out 950 to 970-980 range.    The LBP theory is the performance anxiety that must be felt by money managers who have refused to ‘believe’ and will have to show something on their books for this 40% rally.   They are still very underinvested!.   One way to do this and what we would like to see is a ‘sharp’ decline to 200ma  very soon and have them hammer this mark with vigor and vitality.    Once again, we would than see our premise of an underlying bid prevailing as has been the case since March.   Once MM’s are given this entry level they would have even more reason to buy push this market higher to squeeze out better numbers for their books by Q end.

Good trend in tact...

Every couple of trading days,  we get a day where the Bears seem to have an upper hand in the early going,  ONLY to give back all their gains in the final hour.    In fact,  this isn't a new episode we witnessed today, but a pretty consistent show that comes every few days for a couple of months now.   Since March,  we’ve been pointing out an underlying bid at 20MA coming in,  now it’s seemingly ~200MA levels  on day 6 over this important technical level.   We were still quite short of the 919SPX present day 200ma (7pts).    Today, overwhelmingly an underlying bid came where the breakout occurred last Monday‘s (200ma level).   Even on those days where the Bears do claim victory, a failed follow through day puts the ball right back into the Bull camp.   It’s never-ending and frustrating to say the least, for those Bears.    If this hasn't been a continuous classical buy on dip kind of rally, we don't know what is!.    In fact,  all these little mini back and forth action simply put this rally in a much healthier state than the Bears would ever hope for as we grind higher.  

Still, as we said 950, even 940+ is quite formidable for the Bulls for now without a positive catalyst.  Also,  putting the move 3pm move into context,  it was following a very low volume day to that point and the ensuing move was purely SPY  and a few other ETF’s related.    You will understand this as you look at your ‘shadow list’ and see little follow through/ little movement in individual stocks/ sectors after 3pm.   One sided move so far,  we would like confirmation by seeing some follow through action in Asian/ FTSE mkts in am before getting too excited for more, just yet.

This is, in fact, is a Bull run that gives us plenty of opportunities.   As long as you trade with the trend, not with your feeling, and not with your disagreement with the state of the economy or policy makers, you'd be doing fine so far.    Is there manipulation in this market by the market makers eg. JPM, GS or policy makers as cried by the Bears?   So what if there is!!   If you are a trader and consumed by visiting blogs to clog your mind,"blogs that clog",  you will see these useless cries.   Think about for a second,  if you have another gig to worry about other than trading and come home in the evening, what do you see?.    You see a market going up and up,  that’s all !!.  Sonner than later, you call your broker to buy!.   If you read the WSJ, your local financial print or just tune into CNBC,  you don’t hear this manipulation noise.    We are simply here to trade with the majority (trend), regardless of what the minority opinion is on the 'net'.   The most ridiculous aspect of these ‘conspiracy’ theorists,  is if they believe it sooooo’ much and are so sure it is pushing this market higher for weeks now …why do they not just trade this trend up and make money off it!.     It's a daily laughing matter to us to visit these characters when we don't have nothing better to do sitting in front our platforms for hours on in daily.  

In this market, it's not our personal opinion that matters on the bigger picture,  it's the majority of everyone else' opinion (money) that matter. 

As far as individual stock action goes, we are still finding a lot of good dip opportunities from our earnings plays.   SAFM ARUN STEC BWY GMCR.. all were making fresh highs today, some dip a little, some don‘t.   Most of the Chinese plays look buyable too on dips.   If you are uncomfortable or unsure about some of the commodity dips, then it's ok not to buy them.    After a few days of strong $USD ruckus,  we may have a good commodity linked trade back very soon.  Not counting Oil/energy plays related to(if) higher crude prices,  we'd stick to 'steels' over the other linked commod' groups.    In the meantime,  we have plenty of "sure" plays on our list that can be justified as safe dip buys, only problem is some don't dip and that's why it's essential to do quality 'stock picking' early to make the bigger dollars as has been the case with our small cap 'earnings' plays this Q.

In AMC newsflow, TXN  guided higher on a optimistic call.    We are wondering if this is a sign to come for many tech' companies.   After all, if there's some growth business segments from a big one like TXN, it has to be the same case for many other smaller players.    Basically, we don't expect TXN to be the last one to pre-announce good guidance, we already had CREE  be the first recently.   Bottom line,  the ball is seemingly never in Bears' court for long.   It’s hard to press new shorts lower and lower because it's hard to get their brothers and sisters to do so when the declines only last a few hours, or a day.   As we said, the volume is light across the tape today indicating the shorts are not confident to press new positions even when down big for a few hours.    We are hoping for some more grinding action in order to set up a more powerful leg up down the road.   Yup, still...that's our 'bullish' plan.

Lull them to sleep and attack…

That’s exactly what the market is doing to the Bears as it’s grinding them into one big fur ball!.  First, they moan and groan in disbelieve of the latest closing manipulative buying,  now it’s the so-called boring market closing exactly at where it was last Thursday at SPX 842.    What they really should complain about is that their comrades don’t have the cajones to press fresh positions and try to push this market lower when the opportunity arises as its done a few times in the past week.   This is the " upside risk",  we have been talking for months now in the premise of this markets health and they are simply afraid of it.    What happens is the Bulls have it easy to reverse the market as seen by buy late buying and also lull them to sleep before attacking 850 in this case with a little help from our overseas allies.   An attack from the rear is likely coming!.   Simply,  the Bulls army is entrenched and the Bears are on their heels.   After 2+ months of a blitzkrieg rally on the Bears/ shorts, a directionless and worn out group lies in wait.   Their continous short-sightedness over the past few months can be linked to many a fallen “General”.   The beauty of trading is the correlation to almost anything in life, including war!.  Trading strategy deals with time, force, distance, the same as in war.   If you don’t use the ‘ psychological’ aspect to trading,  you won’t know WTF is going on and will be at lost as the many novice or wannabe traders we see get hooked by the mentality or lack of,  in some forum-chat like blogs.   Their minds clogged as they learn to read the markets by ones self absorbing hosting ‘gurus’ ways/views.. technical, political, whatever and not getting anywhere ..educationally or financially.

We know our day in the sun (40% rally) will eventually concede this summer as we go back to pre 2007 summer trading days with liquidity drying up., but until a clear signal, we march on like Bulltroopers!.  What we see now with low volume is a sign of these dog days of summer returning.   Many a hedgie, many a retail will most likely take it easy this summer and hold on to the gains of this rally until we truly correct.     Actually,  we feel slow trading in the broad tape will be a sign of stability and rationality coming back as we come to an economic trough, recession end.   A sign of confidence.   In no way do the slow, grinding indices like today mean you can’t money this summer.   It actually might be better as traders flock to what’s working, a sector, a group because that’s where the action will be!.   What’s likely to continue and probably pick up is ‘selective stock/ sector’ picking, we said was the way to go back in late March after Treasury news.    Major ETF trading will continue to go down % wise.  Today’s is a primo example as we’ve been talking about the ‘steels’ since the BHP deal a few days back.  Since that Alert,  CLF  and now X  have been given upgrades as the firms come to analyze the deal and it’s potential for US ‘steel companies’ down the road.  X +8%,CLF +6%, AKS +9%, RS +10%, SCHN + 7% .  

So,  while the 4 horsemen (RIMM etc…) slept today, while the Banks-brokers TARP was somewhat sell the news in an orderly manner,  we still had an underground market in Steels leading by hand other commods’ with the USD weakness. 

Charge...!!!

Be patient...

So far, month of June has proved to be the exact sort of thing traders remember from the old days.   The old and golden days that is.    Sure, for those who are itching to see a big pop,  followed by a violent run-up to SPX 1000,  we feel that it'll come eventually.    For now,  we have to be just patient to let the market work its range out.    As a trader, we have to trade this market in a rational way, but not in an emotional one.  We commented today before the open that things seemed a  'little unsettling' and it got a little too unsettling at certain points of the day as the 'fade' occurred at the open, but continued and continued till late in the day

The approach we've been working on the past few days is to think about buying stuff near 200ma which happens to be around SPX 918(today) and letting some go (fading the early strength) near SPX 945-950 (formidable again).    It's not that we don't have any faith in a potential breakout.    Absent of any major catalyst, we feel any pop which lacks volume should be sold into, which is exactly the case today.    We are more willing to buy dips than chase strength these days.    With the exception of a few China plays, most of the stocks on our list obey this SPX range.   We do have a very strong bullish bias, but we do have to treat it in an intelligent way.     This market is very much a grind your way higher kind of one.   It isn't gap high and chase higher kind of momentum market we used to trade a couple of years ago.

For now, mid SPX 930s seems to be the no man's land while SPX 920s is the area we start to buy stuff.   We really like the Steel area (again outperformed today) and some Techs as they're a big story of the recovery process currently.    Chinese plays seem to be the safer area to go aggressive on dips as well since their economy is more of a sure thing than ours.   One of these days,  we'll break out of the range and march higher while massive skepticism will keep the pace in check.    Think about it, without the skeptical view of many market participants, we just would not be able to buy stuff on dips these days.    When the market has a two sided view, it's generally considered a healthy market.    While week after week, month after month, seeing where SPX ends up gives us the notion who's really in control of this market.   Shhh, just don't tell those skeptical bears that they are wrong so they stop shorting.   The last thing we want, at this point, is for everyone to be bullish.   Now, that'd be a scary thought!

Just a tease

By any means, today's gain can not be classified as anything but a tease.   We did manage to break out of SPX 950 for a couple of hours but ended up giving up most of the gain at the end.   This is exactly the sort of pop we are reluctant to chase into.   At the end, nothing has changed and we are still back within the trading range.    We wouldn't read too much into today's action though.    There wasn't any major positive catalyst that can propel the market higher so we basically ended flat.

Afte reviewing many of the charts on our watchlist, we feel that many plays can use a pullback before they can move any higher.   This further gives us reason to consider buying stuff only on dips as oppose to chasing things in a reckless fashion.  

Newsflow is slow today other than the "much talked about" 30 year treasury bond auction, which went really well.   There isn't much news to look forward to tomorrow either so we are expecting a quiet day as well.   As we have said in the past few journals, we are being patient and are letting price come to us.   There's simply no rush to anticipate a huge move at this point.

DJIM #24, 2009

Treasury auctions, oil over $70, 10 yr TSY/ USD weakness/ interest rate jitters, optimistic Eco'. data points.... Oh yes!...we had a lot of fluff last week.    We had some news where Bears point out that the market is doomed and we had some news which suggest market ought to rally higher.   At the end,  we ended up flat at the end of the week with 950SPX staying as formidable resistance.   Also,  important is for the SP financials/ XLF to get over 200MA for any resumption of this rally, most likely.     So, a lot of fluff, but no real action?    Are we truly at a tough stand off, equilibrium point?   Does that mean this market has fully priced into every conceivable notion, idea of every market participant?.   Well, the credit markets are outperforming the SP by a wide margin since Lehman default days (usually moves in tandem), suggesting we have further to go.  It just may be later than sooner.

So folks,  the long and short end of this is that 'we have only been at it for merely TWO weeks'.   What's 10 trading days of this after over a year of 5% speedy swings.  It just doesn't mean that kind of volatile trend would continue forever.    Maybe, folks out there just can't accept a serene market after all the turbulence.    It's not going higher and it's not coming down, either.   What to do now?

We wait!    We simply wait this holding pattern out and respect the fact with caution that we‘ve lost momentum.  The smoothness and speed of this rally finally showed it's unsustainable over the past 10 trading days.   As far as the strategy lately, we know where to pick up a little stuff near SPX 920-924 and we know where to back off or sell a little stuff near SPX 950 or so.     Even though, we are still very much bullish longer term on this market, we want/ need to see a major catalyst/volume to have a chance to drive this market higher.   We need to respect the probability of a profit taking correction finally from those participating since March to allow latecomers a chance now to get in.    Considering,  we've been those early birds here at DJIM,  we see no need to get too caught up and over analyze this holding pattern.  We'll let it be.. Remaining selective/ rotating in stocks/ groups if an opp' arises.    A pause is still okay when the trend is up.

Bottom line,  this is typical summer trading pre-2008 and we do not expect daily excitement from this market.   When the trading pace is slower than usual,  we have to adjust our strategy as well as our expectations.

..respect SPX/200ma & equities/9ema

When the market slides about ~2% in the opening leg of a trading day and never recovers,  you’d think there was one piece of negative news flow catalyst to account for such a broad based drop.  Unfortunately, today you cannot find a single concrete catalyst to cite (only mixed lot of small ones) and you need to look for the real underlying reason for such a negative tone.   In trading,  you only have to go technical analysis/ charts and figure out the culprit.   Yesterday,  we said last weeks range trade off was a caution that we’ve lost momentum.   It is clear today,  Thursday’s failed attempt over 950SPX has slowly installed a negative tone (see alert-comment intraday post) leading to a bigger broad sell off a few days later.   You could clearly see this pattern prevailing in tech land.  SOX  , predominately, as the index has declined on average of 1.5% a day for 3 days.   The question now,  is the last 3 days the beginning of..???...“We need to respect the probability of a profit taking correction finally from those participating since March to allow latecomers a chance now to get in“.   Well, we need to break 200ma for this to become a ‘real’ possibility!!  Simply, we see 200ma as the critical level as after 10++ days over the mark, it will be a huge disappointment to close below and will surely lead to more selling and shorts pressing fresh positions.  Back to today's action,  part of our reasoning today that 920-923 gap is vulnerable is any single negative catalyst will trip this level and eventually test ~200MA(now 910) for an underlying bid,  today was not a day to look for a reversal based on Euro stocks close.  Thus,  no reason to buy as ~950R looks like a stretch now (possibly summer high hit at 956) after losing 929S today.   As we said before,  it will be selective stock/group picking this summer (even if this was the summer high).   Meaning, there will still be very good opp's to make $$.     As far as individual stocks, simultaneously most we shadow have slipped below 9ema in the past few sessions and if you've been with us since day 1,  you know we view this as a negative until the level is recaptured.  This is a possible show leading the market to 200ma.

Instead of guessing and/or assuming we will continue the 10 day holding pattern, trading the range by buying 920~, selling 950~,  we rather wait and see what a few earning reports say this week.    We have BBY  tomorrow for the consumer , we also have ADBE  Tuesday/ RIMM  Thursday for tech.  In other words,  we rather be buying a ‘positive’ catalyst for a trade,  albeit in earnings or some other news flow.    Still, we now fear we might be running into a ’cooked in’ Q,  especially in tech’s.   The reaction to reports will be crucial.   If we get an excellent report and the reaction is eventually a sell on the news soon after,  it will be a sign of a profit taking correction in full swing.  If the reports just plainly 'suck', it will paint a broader economic picture and the rally will not be renewed soon.

Until the reports, keep in mind,  we know any good news flow can really bounce this market as the volumes were relatively light, (todays sell off didn’t come with a volume spike), therefore we can easily melt back up over 929+ and sneak in some intraday trades.

Cautiously optimistic...

Number wise,  market's drop this week has been the biggest since March.    Has it really been that long since we've seen this much downside volatility?  Yes, it has!   Normally, after yesterday's big drop, we'd hope to see some stabilization in this market and find some entry points from our plays, but it just wasn't the case today.  The ' late day' buying has abated this week.  We’ve been cautious heading into the week and gave further caution intraday Monday.   So, we haven’t been stung a bit and those that ’short’ by our market commentary have had a nice few hours.    We noted heading into the trading day that most of our shadowed plays had dropped below 9ema in this slide.   Obviously, the drop yesterday carried through today pushing them lower.    From SPX  side, we did become “vulnerable” even w/o bad news and broke through the short term support at the SPX 920-923 breakout gap and went straight to next support at 911.   The declining 200ma SPX is now at 908 and we aren't that far away from the 900 "psychological" support either.     Remember, a ‘bullet point’  to our premise of a bullish market since March has been an underlying bid prevailing first at 20ma for a few months and most recently at 200ma.  Well,  that’s in jeopardy as buyers didn't come around this time at gap 920-923 and need to show up here at 200ma or we eventually go to April highs (~880) this summer.   After, “losing 929”, we now have it as 929Resistance on any bounce in the near future.

Given this much decline in such a short time frame without much of a catalyst, we feel that a bounce may be in order very shortly. (5% off 956SPX now) is as good as any.   Of course, we remain very cautious at this point because we'd rather see some stabilization first before getting our hands back into plays for any duration.   Still,  this is more of a profit taking correction from jittery longs than shorts getting overly excited and pressing new positions in anticipation of further downside.   Shorts/Bears need ’bad news’ to get giddy once again as they’ve been burned badly for 3 months due to ’upside risks”  ruining their days after they decide to get off the sidelines and press.

The drop from the commodity sector, in our opinion, is much needed and had become too reliant on $USD lately.   Notice today was the first time the $USD -commodity link correlation did not work and must have fooled a few to step in the morning on the USD weakness only to get stinged.  This gave credence to watching 9ema and avoiding such a trap.   Financials also look very weak and they can potentially wreck this market even further if this group deteriorates further.  Their quietness is a little uneasy.

Despite the fact that the market is under some pressure and with any good newsflow not being used to rally the individual stock and/or market,  we still remain optimistic longer term.    After all, a meaningful correction after such a long bull run since March has always been a possibility.   We've just avoided this belief until this weekends DIM journal.   It's particularly hard to speculate on the trading range now that we've broken the recent 920 gap support   We have to be prepared to widen our SPX trading range to 40 or even 60 points.    Right now,  we are simply waiting out this slide and waiting out the reactions to earning reports this week.   BBY  was really a sell on a good report and so we’ll continue to monitor if our fear from yesterday continues.

Since the market is looking a bit vague at the moment, we have to choose to focus more on individual plays at this moment from our shadowlist.   Today, one must have lid up on top.   You have to like STEC 's guidance and chase some in spite of a 20++% move.   Over the next few days, we are going to be looking for those plays that can reclaim their 9ema.   We are very interested in the decoupling going on now and will be cautious in the very short term, watching if this continues.   What we mean by ‘decoupling’ is good news is sell news and an opposite reaction of commodity linked groups/stocks to USD is occurring.  One or both, can't be too good for market sentiment.

..not bad at all

There is nothing like getting something over with!..?.    Something in this case is a generous meltdown for the Bears that hardly feels like a drop in the bucket for the Bulls.    Despite, a drop of ~6% on the SPX from recent highs to todays low,  we must admit it hasn’t been anything to lose sleep over.   Well, that is if positioned or in this case non-positioned in anything commodity, bank-broker, simply any High Beta liquid equities.    These HB's are always the first to encounter profit taking due to the flock comings and goings as they please due to liquidity giving easy access to such movement.   

How did we get to 200MA and lower intraday so quickly?.  A few notables have occurred, since we alerted Monday, our worrisome view on Banks-Brokers have produced a decline of about 5% from that point and …“As far as individual stocks, simultaneously most we shadow have slipped below 9ema in the past few sessions and if you've been with us since day 1,  you know we view this as a negative until the level is recaptured.   This is a possible show leading the market to 200ma“.    It’s not a coincidence we saw stocks such as EBS STEC CVLT  putting up 5% moves intraday as they have continued to trade above 9ema during these downside days, while the commodity linked stocks under 9ema were given the pile driver lower.    Okay, so what now?.     Barring any terrible eco data points tomorrow,  we’re glad to get  this first leg of a correction possibly over with as we regained the SPX’s 200MA.  We should trade range bound now between  ~903S-920R-929R.     Just like consolidating upside moves, a downside,  should be as well.   

What we like about today is despite what looks like a flattish day,  we broke/ regained the 200ma (meaning little conviction amongst shorts to press) and got a further beating to the commodity/banks- brokers all in one swoop.  (We still feel this correction so far is..  profit taking vs. giddy shorties)   Simply,  we can get cheaper shares now at what could be a short term low put in on the SPX,  possibly leading to a reversal bounce.     So far this week any bounce attempt has been tepid,  either the volatility including those late buying closes are gone (which is fine as we can just grind up to next R), or we’re due for a nice pop, especially in bloodied commodity linked stocks.    Giving credence to such a move coming is the sale sign went down in Techs (Semi’s/SOX) , Retail closes at highs as it saw some buy interest and Transports reversed later in day despite FDX's premkt crappy guidance.  If we’re flat through the morning eco data points,  we’ll look for a tradeable bounce beginning in the morning.   If this is the case sooner than later, you can't ignore buying those 'still on sale today' cheaper shares below 9ema in whatever group leads for a trade to begin with.

Sign of stabilization?

It's way too premature to talk about the resumption of rally at this point.  Let’s not get too excited because today was the biggest one day gain covering a span of 10 trading days!.  Wow, that’s frightening (biggest gain) considering all we did was tack on a whopping 8 SPX points, despite favourable Eco data points.     The gap breakout 920-923 proved to be the ‘ new’ formidable wall today.   In all honesty, it was quite disappointing because we had reason for a nice bounce (oversold high beta sectors +positive eco’) and only managed another tepid reversal.  We’re confined to the idea of trading between 903S-920R-929R for next little while as noted in previous Journal.

The volume across the board was very light all day with the exception of a few commodity names.   Most of the action today was in the ‘safe’ groups.   A major hold up to any push higher had to be the Techs not participating.   Reasons range from concerns of China slowing 3G and rate orders from chip companies slowing.   Recall,  we noted SOX was down 3 straight days /avg. 1.5% and this pace continued today after a bounce yesterday.

After a few days of hard sell off,  we expected commodity + banks - brokers (“still on sale group“..under 9ema) to lead a reversal if it came in the morning.   The steel sector is the one we’ve concentrated on lately and it showed some life.    We are referring to some of the usual names here such as X, CLF, RS, SCHN etc.    Still,  the best group, in our opinion were the Financials as buyers came out their caves.   Even though the group does not have the kind of trading lust from couple of months ago,  it does help to stabilize this market.    Seeing strength in the financials,  usually signals a stop to a correction.  

As far as DJIM is concerned,  we are still in a process of finding new support, so we are still sticking to relatively safe plays as we've talked about last few days.    RIMM's earning is not causing too much of an impact from the look of its AH action,  even though it‘s a sold Q backed with good guidance.   Tomorrow's witchy Friday expiry day,   too much noise (expectation of volatility) accompanies this event as usual.   We find it to be the most uneventful trading spectacle imaginable.    If the short term low was seen yesterday, then we have to be optimistic about this market because there's not a lot of damage done in this correction.  We've always highlighted a 5-6% SPX drop off highs as a correction end posibility since March and it's worked.    We've had 3 of those so far and hope this is the 4th such correction.   A question circling our heads is if the window dressing was done early for this Q to (956),  if not, we could see some more action to close the month.   It's an interesting question mark to ponder, right now.    It would seem wise for money managers to take advantage of this quick slide and do some more book juggling before months end, wouldn't it?

Chart below outlining 903S-920R-929R, large view in Chart section.