DJIM #26 2011

It’s a pretty sad market state when the Q-end/month end/into a holiday weekend factor is about all ‘longs only’ have going for themselves heading into the week of June 27th.  On Friday, once again the market came up against, “Now the Hard part” premised during the week of not being able to hold gains as “austerity’ news’ was shrugged off as should have been done the previous day.  Any rally is a sell into strength and dip buying is elusive with only 200ma bringing out a few souls nibbling.

Now with a close below 1280 the Bulls have lost the agenda once more with an inevitable short term visit of Fukishma lows and likely new lows in the cards.  It may not happen this Q end week( if Greece does not provide any more shocks), but eventually it’s a summer necessity as lower prices may only change the dynamics of the present underlying market where buyers are non-existent.  

All in, a few positives from last week.  May Q end earnings had been quite robust early in the week (FDX,BBBY), but a few blow ups from US tech Thursday night and some European blow ups have turned the tide some making for a murky picture ahead.  This is not giving any clarity overall into what we’ll see from June end earnings which only start mid–July.   PMI flash numbers from China and Europe point to weak numbers for Global July 1 official announcements, but markets held up showing market expectations are likely baked in and it’s looking forward to the July numbers in August already.  The performance of Asian markets was the biggest positive, notably China as a soft landing was likely orchestrated.  Crude capping intervention was something we alluded to in DJIM#24 as a positive if it came and still see it that way now that it’s here for the markets as it will give some relief to the consumer. Just call it another stimulus. Now give us a tax repatriation holiday for some real ‘stocks’ stimulus!.  Another positive was R2K outperformance and this shows up in a few DJIM’s flirting with fresh highs, FTNT  QLIK  MSTR , including some of our consumer linked names noted last week.  Unfortunately, all of this is in the backseat, if not the trunk, as long as Greece (2 votes this week) and potential fallout is in the mix.

..a few names to list into Q3..PII,SHS,PLCM

It seems market algos had a glitch today in making up for non-existent volume as DJIA,SPX,RUT finished in a dead heat (982 basis points higher). Regaining(barely)SPX 1280 is fine for the moment, but another possible 1-day wonder rally accomplished by buyers (who are shorts covering) is not a sign of ‘longs only’ coming out and participating in this politically charged market environment.  The current ‘Bull’ lineup has frustrated fans as it leaves runners in scoring position consitently, we’ve seen 2 rallies just last week and at least  4 1-day wonders evaporate completely in 24hrs in the month of June.  Maybe the market can bring out a pinch hitter on Tuesday and change this outcome, but in reality, any more upside will hardly be considered getting the Bull home from 2nd as it will negated by the fact it’s a holiday week in essence with desks seemingly emptying already today.  Simply, market has some hours to work with tomorrow ahead of Greece vote noise.  

All in, a decisive break somewhere over low 1300’s will only change the trend in many minds. As of now, longs have every excuse in the book to remain sidelined.

Some of the positives listed (ie. more Shanghai upside, bad US data ignored etc )into the trading day were cited for some of the surprise upside, but Q end / hedge tinkering vs. USD/TSY exposure/performance over the month was the predominant theme.

At this point heading into earnings season, a few earning linked stocks of interest last Q were not listed here due to market circumstances capping any possible demand post day of report. Weeks later you could see they didn’t move.  Coming into this season with the idea of this market correction eventually ending, we’d watch demand to have them on books going into their earning dates this Q, maybe even some this Q2 end.  Names include PII SHS PLCM.

Holiday Joyride

It’s pretty clear market has assumed Greek parliament has the votes to pass the July 29 &30 measures or else they’d Hara-kiri themselves and the markets.  Even if something goes array, you have to believe EU officials will not let this spread one way or another.   Still, votes passing as reported is not the overwhelming reason this early week upside has occurred or else we’d not see such pathetic volume (holiday week or not).  Simply, what we started to premise(positives) late last week has come to fruition, but you can read about all that after the close (window dressing, China, rotation from TSY’s etc.) in the daily recaps in social media circles. 

In all, it’s irrelevant how the market got here now, so why dwell on it.   What’s important is 1280 SP is support now and 20 ma is breached back on the upside. The best scenario is for dips back below 20ma to consolidate and afterwards push higher into July.  Hopefully, the market sells the rumor next few days and we switch channels to corporate America.  Friday’s Global PMI’s, including US ISM will be horrible and market will show it’s colors post data.  

Right now, market is on a joyride ready to jump off at any moment, meaning fast traders are in this week and longs remain sidelined.

Overhangs slowly being removed...

Buoyant market mood continued overnight/premarket heading into Greek austerity vote as fears dissipated.  A brief sell the news occurred immediately following the passing vote, but the buoyancy prevailed for another day allowing for more upside with 20ma holding a day 2.  The month end/Q end fix was still in effect, notably TSY getting hammered for another day as clearly allocation into equities is undertaken along with USD/Euro hedging.  Slowly, market overhangs are being removed, but earnings/debt ceiling progress ahead need to path the way for this to matter. It’s almost an all or nothing scenario as far as overhang removals to let market roam higher in Q3 and beyond.

Note. Even prior to earnings kick off mid July, we’ll have days of possible pre-announcements (noted Europe blow ups past week) with chance of estimates to be reined in by analysts as bottom up number may be too high. Hence, we’d not expect much chasing of this weeks action as in longs coming out, just yet.

In all, Japan IP numbers showing a V-shape recovery and a few more ‘ruling’ overhangs on financials playing act favourably were the positive takeaways today ahead of Global PMI’s on Friday.  As noted yesterday those numbers should be pretty bad, but what we will probably see is these  #’s ‘priced /baked in as these become possible laggards with eyes on IP numbers (like Japan’s) being the crucial #’s ahead.   Market will likely hold 20ma, if not SP1300 into the long weekend.  Still, this weeks joyriders laid off the high beta names with some profit taking underway today, so we’d expect any further upside to be curtailed in small cap area next few days.  It will be of interest to see if Financials can take on some leadership after a week of positives (clarity) for the sector. The clarity recieved goes along with usual pre-earnings strength seen in recent Q's, so it's possible.

Empty desk..

Canada Day Holiday today, a safe and Happy July 4th to thy neighbour. See you next week!.

DJIM #27 2011

Last we talked (pre-Thursday trade), cited,..”overhangs being slowly removed”…”Market will likely hold 20ma, if not SP1300 into the long weekend. ….. This continued as the latest batch of PMI’s, (Chic/Milw) offset the poor ISM’s in the front half of the month and as usual CHI' PMI foreshadowed the eventual US ISM reading on Friday that consequently pushed the market another 32 SP handles the last 2 days to close at SP 1339. The US ISM  should not have been a surprise due to Chi #, but by this point week long ‘joyriders’ decided to stay put instead of taking part in profit taking, which was the high expectation.  Of course, this expectation is even greater now as most expect a pullback due to technical levels hit end of week.

 “All in, a decisive break somewhere over low 1300’s will only change the trend in many minds.  As of now, longs have every excuse in the book to remain sidelined”. (pre-Tuesday trade)

We didn’t talk of any resistance after low’s 1330’s were breached and we won’t talk ‘R” now as you just don’t know what will occur with market feeling ‘comfortable’ with overhangs removed for the short term. This is especially true, if no pre-announcements hit this week and/or estimates lowered by analysts as discussed last week.  The big question heading into the trading week is how much buying was short covering vs. longs (institutions, retail) coming off the sidelines.  Volumes are the likely answer, but if little in pre-announcements/ or cutting of estimates that may change.   The severity of the week’s rally still kept many ‘longs’ away.  As week wore on, day by day many were disbelieving their eyes and there’s no fault in that.  You only think short covering and re-asset allocation to last so long.  This rally effort just lasted longer and longer, pulling in some of those who think this was a ‘game changer’ last few days and let original fast traders/joyriders hang on and not jump off yet.  All in, it’s likely enough to think 1250 lows are no longer in the cards for awhile as Bulls reclaimed agenda over 20ma in a healthy manner during the week.  Still, we need confirmation of ‘longs’ coming back after a terrible few months, even if many excuses to stay sidelined have been removed and a trend change was underway.

.“Still, a few things to watch as potential drivers ahead of June 20 week, a few noted last week.. debt ceiling progress, any seemingly minor data coming in better than feared before major PMI's early July and a few more in TSY's bottoming at these levels/ reversing and crude capping intervention.”. July 14th

A lot of the above has occurred….of course besides Greece relief, we had a surprising stimulus in crude intervention, China soft landing, Japan V-shape IP numbers/ Financial sector relief noted Thursday, better than expected eco data recently and notably Q2/month end window dressing coinciding with an epic TSY beating and asset allocation into equities.  Also helping market Friday was rumoured progress on debt ceiling giving hope for deal by July 22,

As far as Friday’s single stock trade, although many momo/ small cap winners did well on Friday with broad market, once again many didn’t like OPEN VMW CRM closing red. This is similar to early in the week action when other momentum types didn’t move either.  It’s hardly a perfect underlying tape and suggests hedge funds picked a few stocks a day to run during quiet attendance. It’s something to watch as this action suggests window dressing was dominant.

All in, the importance of last week is we get 'macro' relief and can concentrate on earnings linked stocks ahead (which should be strong) without all the noise and worrying about the consequences of cracking SP ~1250.

..feelin' comfy

Just as sentiment turns positive due to ‘overhangs’ removal,…”Here we go again” was the likely frustration echo heard in the afternoon as Moody’s D-G'd Portugal.  Instead of acting upon this fresh news by taking profits in already overbought conditions, the market decided to ignore and keep the rally intact.  Even before this negative wire hit, the market expectation was for a pullback to begin today as was the case the late last week, but as noted yesterday, “…we won’t talk ‘R” now as you just don’t know what will occur with market feeling ‘comfortable’ with overhangs removed for the short term.”.  This Portugal 'shrug off ‘ is an example of markets being comfortable right now as it’s believing sovereign issues will be resolved one way or another.  How long this ‘comfort zone’ lasts is an unknown in respect to Europe.   Also, we need to see how Europe reacts tomorrow as this came after their markets closed.  A shallow pullback is still in the cards, but it’s not a concern due to action in individual stocks (below) and with earnings on deck. (no major pre-announcements today)

Despite the choppy and meandering action on the major indices,  as many as 15 Shadowlist stocks were hitting fresh highs intraday.  ie.   It’s no coincidence these were all listed here due to earnings  at one point.

Quiet is good..

Absolutely nothing to add in respect to today’s action that wasn’t covered yesterday or on the weekend.

In all, a good thing as the SPX recouped some morning red to close +1.33 pts as sellers are still nowhere to be found despite some incremental negative newsflow today.  You can’t ask for anything more as a’ long’ trader as last week’s gains get digested.  

Seemingly, both sides are sidelined gearing up for earnings kick off next week to possibly make a move, ECB (Thursday) and June jobs report (Friday) are unlikely to point to any market direction.

linear move...

Another day, another rally as the rocket surge continues this week off the ‘feelin’ comfy’ sentiment expressed here to lead into the trading week.  In this premise, we avoided techncials-“resistance’ talk and the week has blown out every ‘R' discussed out there…(Head & Shoulders,1339 April 8 high, 1344 Feb 18 high, Feb-June highs and many more.  

A day after shrugging off negative news, the market buoyed off positive US ‘macro’ news (ADP,Jobs claims, June surprise retail #’s) tossing in some Global positives as well (Japan, China). In all, 'transitory’  is winning out!.

There is not much the Bears can do when it’s a 2 headed ‘bull’ coin being flipped day after day!.  All they can do is wait for the overdue profit taking, today’s rally into Friday’s NFP# may have played right into this.  It’s inconceivable this straight up rally won’t succumb to profit taking, but we’d expect it to be shallow with dip buying format to return.  Whisper #’s are now close to 200k, so hope ADP was not another headfake. 

*Note, some ugly 6-10pt intraday reversals in SODA ~$70's, TZOO, CRR  (precursor to broad market profit taking).  Also, a few mid-caps tech ‘blow ups’ AMC, but they might be looked upon as ‘company’ specific  items (and mostly handset related) and thankfully not ‘bigger’ cap pre-announcements, which was the worry.

DJIM #28 2011

Just as the ‘macro’ picture was becoming clearer with investors starting to feel ‘comfy’, a shocking payroll setback has potentially shaken the apple cart opinion for Q3.   Okay, maybe this is the case in most of the headlines you’ll see over the weekend or heard on Friday, but not this cart …Why?.

Earnings season around the bend...

DJIM noted the payrolls would not be a catalyst for market direction due to earnings season around the corner earlier in the week.  Still, the stunner number hasn’t changed DJIM’s view.  The sudden higher expectations from ADP followed by a horrific NFP# within 24hrs has really whipsawed the now red faced economists, but more importantly, probably kept the sidelined ‘longs’ away for a little longer.  As if ‘long only’ sidelined investors haven’t had enough to deal with in 2011!.  We saw this theme play out Friday … ‘longs’ stayed away vs. aggressive selling into earnings.

The ridiculous discrepancies between ISM employment components, ADP and at last NFP# is conflicting enough to possibly give hope due to the market literally shrugging the event off.   Some 'shrugging off' was seen in the late day bounce, the precursor was written all over the Shadowlist wall as single stocks were hardly damaged at the open giving the possibility of the eventual outcome.  Still, we wouldn’t expect dip buyers to appear until some earnings calls give reason for such actions.

We noted the market over-stretched and likely played right into NFP# making profit taking almost inevitable with either a ‘whisper200k # or what was eventual reality number that was the perfect ‘excuse’ for some profit taking.  In all, one NFP# does not justify a negative trend change just yet  The number is so conflicting that the market will need to average out 3-4 months of numbers to get a true read.

…   Let’s move on and not lose sight a recovery is underway with global IP lifting…also, most importantly earnings season is likely to be a positive catalyst…luckily, DJIM trading methodology surrounds earnings linked stocks and the season for finding and trading ‘winners’ is around the bend.  Finding fresh ‘winners’ is all we should concern ourselves with and leave the uncertainty of the markets to others to grapple with.