Alarm bells...

As if ‘long only’ sidelined investors haven’t had enough to deal with in 2011!.  Unfortunately, yesterday’s words are fitting to this market as the European sovereign debt mess accelerated from bad to worse over the weekend spreading to Italy and Spain. Throw in a lack of progress on the debt ceiling and picture is even bleaker. Also, U.S earning reports tonight are not very comforting.

The market will never get through 1350 (now looks like a third fail), if ‘longs only’ do not have confidence to step in.  The only players in the market are the hedge funds who have held this market up (this is well documented). If the European situation worsens and they are forced to liquidate, the market will not only see Fukishma lows, but low 1200’s.  The immediate defense is of a >1310SPX close and/or intraday mark of 1298’ish

In all, once again this is a fast traders market as most of the action is still contained within ES/ETF’s. Volumes do not suggest any panic (yet), Instead, it’s mostly the necessary profit taking in single stocks that was inevitable from those joyriders who enjoyed the nice run last few weeks.  The market will be glued on wire headlines for any calmness provided by Italy and/or ECB.  Getting dozens of European countries to agree on anything concrete quickly is not easy, so this is not going away overnight. Hence, extreme measures may have to be taken shortly to avoid a huge mess.

earnings contagion?

If there is such a thing as a consolation prize in the markets today, it’s the fact ES bounced ~30 handles from 4am lows.  Unfortunately, there is no consolation knowing the global markets could be spiralling out of control while we sleep due to elevated risks remaining.

After 4 days of silence, Italy finally made some official comments providing some relief to the spooked out market. An auction went off as well after rumours it might be withdrawn all together.  The markets seemed almost to capitulate overseas at 4am.

Meanwhile on this side of the pond, we just may have some of our own jitters emerging.  Yesterday, noted.. “Also, U.S earning reports tonight are not very comforting”.  This is the notable takeaway for the markets as MCHP  negative pre-announcement, NVLS  poor guidance, INFY, QSFT  calls drew attention.  In all, it shouldn’t be a surprise as the market already shrugged off tech blow ups and rallied…”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.” June 27.  Unfortunately, these blow ups and poor guidance commentary are going to catch to the market sooner than later.  We need some ‘relief’ (as in some good reports) very soon to change the tide or we'll have earnings contagion. (ASML, a semi and ADTN  for networking sector are earnings to watch Wednesday morning.)

Circus ain't leaving town..

As if this gong show wasn’t turbulent enough intraday, after hours, the theatrics continued with a Moody’s threat.  In reality, what the market seems to be dictating is it needs to go lower in order to pressure the debt ceiling issue into a resolution. This threat seemingly did the trick in part as ES dropped to ~1300 AMC. Unfortunately, this is an overreaction because this review has been telegraphed for weeks if no progress and so cooler heads should prevail. Headlines keep on driving market direction by the hour, hence, keeping the fast traders/ES/ETF game intact.

As far as the trading day, DJIM weekend editions are always a lead into the trading week and the latest made no mention Bernanke “3” appearances, including FOMC minutes because it wasn’t viewed as a potential market catalyst.  Earnings were/ are the pivotal market events to monitor along with European faults.  Bernanke/Q3 hype was not in the script and it avoided being caught in a great fade job this afternoon.  Lets use some street smarts, if Europe is imploding, Washington is a circus and earnings are a concern (from major cyclical/tech)…how could a hint offer of the’ Bernanke put’ rally this market?.  It is not this markets wish to get it out of the bunkers at the moment.

Earnings continued to disappoint with ASML  ~.5% and ADTN  -10%.  You can’t tell by the individual losses, but ASML report/call was actually worse.  Takeaway here is the semi’s expect to disappoint now and so a ‘trough’ theme might be developing for this sub group.

Update on Thursday, July 14, 2011 at 12:41PM by Demi/ YourPersonalTrader

May-June highs trendline hit at 1311..potential technical reverse point.

..micro time?

Markets closed just below 1310(noted this week), also below May/June trend-line, but hanging on to 20MA.  Sentiment should have been better today.

Earnings (GOOG) and M&A activity must be able to hold this level into the weekend. European bank stress tests will play a lesser role now, but a very important one still on Friday. Focus will be on the ownership disclosures expected to accompany the tests and not how many fail.  

We’ll update this weekend, hopefully we’ve started to turn the page to micro (JPM,GOOG) from macro.

DJIM #29 2011

An excruciatingly long and ugly trading week due to markets struggles with ‘macro’ issues on many fronts.  Market was hoping for a few of the cracks to fill this weekend, but it seems the uncertainties will not dissolve heading into a plethora of earnings.

Unfortunately, these ‘macro’ headwinds will not likely allow ‘micro’ earnings to come to forefront just yet, no matter, if they are impressive.  There were some reasons last week ( ie. Italy moving fast, Banks still for sale even after good start JPM, stress tests better than feared, M&A busy week…)…. that should have changed the sentiment for the better, but didn't.  This is a concern as earnings may have same lame outcome.  Hopefully, positive earnings can at least offset the overhangs short term until some resolutions appear.  Naturally, EPS disappointments will only add another negative coat to the market. (noted many ‘bad’ reports last week)

Of course, situation is even more critical as the markets grapples to hold 20ma benchmark.  The last hour ramp on Friday does nothing to relieve the pressure as it seemed ‘artificial’.  All in, all we are doing is waiting for single stock action on company specific positive earnings to play.

...maybe turned 1st page after hours

As market grasped no positives emerged over the weekend to stave off ‘macro’ worries, SPX sunk ~20 pts off the open to 1295(important support) by noon hour.  It was relatively quiet in Europe over the weekend as market waits on a mid- week European summit deal and any resolve to debt ceiling was not expected.  Markets expectations were a little skewed.  

Also hurting sentiment though was the seemingly non-event of Europe bank exams from Friday, which were noted to be better than feared in the hours that followed.  After a weekend of individual scrutiny of results due to amount of public information attached, more faults and failures were found based on their own calculations.

Importantly, (earnings) a lot of noise today was that ‘macro’ factors were overshadowing ‘micro’ earnings.  (cited here yesterday as a possibility). But, the problem runs a little deeper. It’s the actual earnings calls that continue to be messy, so it’s not just ‘macro’ headlines overhanging on earnings (MTG, HAS and a bunch of Euro stocks in am), which besides GOOG and a few others haven't met heightened broad market EPS expectations coming into Q3.  AMC, luckily, WYNN /IBM met heightened expectations (Macau monthly # had been excellent) and did not sell off (sell the news ie. EDU  $133H to $119L)  immediately after running into earnings.  Also, what we’re seeing is stocks moving into earning reports like WYNN, IBM, TZOO, AAPL,China Internets.  As this occurs watch if upside is limited following excellent reports that meet elevated expectations to gauge if market can turn page to EPS.

We might've turned the 1st page from macro to micro after hours, but a summit deal is needed Wed-Thurs and China flash PMI's need to hold 50 level Wednesday night to turn more pages.

Update on Tuesday, July 19, 2011 at 11:25AM by Demi/ YourPersonalTrader

Hermes in Europe strong results, 34% strength America's boosting all our growth /higher end retailers, FOSL,TIF, LULU, UA

'Hope' rally

As been repeated for weeks, the market is a headline watching match for the fast traders.  At least this time it favoured trading to upside on what was really ‘empty’ macro headlines with some micro page turning.

It all started with Europe in the morning with some finance ministers ‘opinions’ (nothing more) raising optimism towards an agreement at the summit (July 20-21).  This enthusiasm was surely to be curbed by Merkel’s comments at the US market open, but market stayed giddy with Housing sale # surprise . In the afternoon another upside leg ensued as “Gang of 6’ debt ceiling proposal made the rounds. Once again, empty headlines with nothing concrete and possibly just more proposals amounting to nothing as usual.  All in, market ran on Macro ‘hope’, but likely rekindled some on earnings follow through from IBM, WYNN last night into the morning with PII,HOGS (disc. spending),OMC,KO and Hermes in Europe. 

In all, nothing macro resolved, but market tested the important 1295 successfully and it coincided with a better earnings picture emerging pushing market back over 20ma benchmark.  It’s too early to draw conclusions on earnings and/or turning away from political ‘macro’, but a rally is a rally and we’ll take it. Another hope is that many were flat footed today and come out to chase despite uncertainty abound. Remember, first leg is always short covering, especially as seen in SOX components today after just hitting fresh lows.

Shadowlist

Consumer - As alerted in morning for TIF FOSL LULU UA  all NCH’s, Hermes earnings put bid on high end, Adidas comments and potential end to NFL strike helped out UA. 

Earnings Q3 linked-   WYNN  post earnings succumbed to profit taking in regular trading hours, but it’s not going off list and will be a buy again.  This sell off possibility was noted to watch following EDU.  PII  added late June at 109 before running 11% to $122, once again put in a very healthy Q   (SHS  ran up as high 23%. Since pulled back, so keep eye out for EPS date).  http://www.djimstocks.com/djim-journal-1h-2011/a-few-names-to-list-into-q3piishsplcm.html.

IBM big catalyst earnings put bid on Mega caps, but also software Shadowlisted CRM  MSTR  to NCHs.

AMC, FTNT, RVBD  demonstrated high beta stocks ran or are running into earnings calls and if expectations are not handily beaten, you’ll be slapped down.

fade jobs..

Considering all week, we’ve noted earning-linked stocks have been faded/ limited upside, it’s really no surprise the broad market joined in and faded an 8pt ES pre-market gain along w/ AAPL, which played a pivotal role in the ES gain.

Market participants finally grasped what we’ve been saying all week and that is majority of strong reports are being faded.  WYNN followed Tuesday and today it was AAPL/ VMW. Same theme is occurring in after hours today. The problem is not only sell the news (profit taking) in names that ran in early July as part of rally, but the fact is no one wants to join a market with so many Macro overhangs.  Long only players don’t want to chase and that’s playing a big part in earning stocks not going higher.  Fading is not just sell on the news(profit taking), it’s a lack of buyers!.  If you want to see why this happening, just look at GS and Blackrock Fink’s comments on the challenging environment we're in.. GS missed because management decided to roll back risk and BLK, world’s largest asset manager said.. “Some of our clients are actually de-risking and are slowing down their investment decisions…what is driving much of this confusion and uncertainty is politics globally…. Nevertheless, it is very impressive for me to watch how corporate earnings continue to be driven. And importantly, this is why I believe those customers who are de-risking….there are many customers who are de-risking because they're focusing on today's headlines, I think it is a mistake”.  

All in, only way to get investors involved is for macro overhangs to lift and reactions to earnings will change.  The positive and reason market held in today again is shorts don’t want to be part of all of this either.  Upside risk on any resolutions is keeping them away as well.

A few days ago, noted Global preliminary July PMI’s to watch mid-week, especially China holding 50 level. Well, we’re here and China's is below 50 (which signals contraction of it’s manufacturing), but hopefully it can be overshadowed by European summit/debt ceiling noise, just like earnings!. How's that for desperate measures!

As far as summit, watch for credit line extension promises to countries other than Greece as a ‘potential’ best news scenario for markets to come out of it. If this doesn’t occur contagion fears will likely rise again and market will react with part of 'Hope'  rally evaporating. A Greece deal is not enough. 

Same page finally..

“As far as summit, watch for credit line extension promises to countries other than Greece as a ‘potential’ best news scenario for markets. If this doesn’t occur contagion fears will be rise again and market will react. A Greece deal is not enough.”..yesterday's lead into trading day.

It might not be the final communiqué, but the summit proposals hitting the wires just after 8am featuring the “EFSF’ expanded powers was just what the market was looking for (as above)….preventing contagion from spreading!.   The components of the proposals take care of the markets big concerns (fears) as EU leaders decided to allow the EFSF to recapitalize banks (even if the Government is not operating in the IMF program) and allowing it to buy sovereign debt in the secondary market. Incredibly, EU leaders were finally on the same page and markets exploded up and really didn’t look back. Now only if US leaders can get on the same page!. All that Obama/Boehner did was take headlines away from Europe in the afternoon with nothing concrete, a deal is now unlikely by July 22 to make actual law by Aug 2 (per Obama earlier)

As far as the trading tape, the most interesting aspect was the lagging tech.  Quite impressive Nasdaq composite still tacked on 20pts with no participation from tech.  In all, it seemed nothing more than investors being tired with the ‘fading’ of strong reports and implosions of growth tech linked stocks that came in line and didn’t guide high. Instead of waiting for future reports, investors wanted out early to avoid more fading/blow ups and rotate elsewhere.

One risk diminishes today while another still looms, but market tape risk remains for further upside as noted yesterday.

DJIM #30 2011

A lot of debt ceiling fear mongering over the weekend has gapped down ES at futures open.  It’s no surprise the ‘unthinkable’ outcome is gaining traction as informal July 22 deadline falls without a deal. But, judging the treasury/bond market of late, we’d say the only unthinkable was if there was no NFL season!.  We’d continue to look at the TSY/bond market for what the market really thinks on the issue and inevitable outcome. Still, rating agencies will eventually downgrade US ratings even if a compromise is reached as it will not reach expectations of the agencies.

Aside from the US political mess, US earnings will be heavily followed on a more single stock basis because the market pretty well can see overall trends in most areas of the economy as most important companies/sectors have reported (financials, industrials, tech).  Notably, a dislocation in mega caps vs. small/mid caps earnings is seen by the lagging RUT late in the week.  Also, most of the gains in SP is dominated by only a handful of stocks like APPL,GOOG.  All in, IBM/GOOG have set a high bar and hence a lot of fading of inline reports and/or blow ups have occurred due to higher expectations.  At some point this trend will end and that is something to monitor to see if sidelined buyers are stepping up.

Shadowlist

Earnings Q3 linked-  added ACTG and DTLK  to Shadowlist following earnings. ACTG is also an under radar play on IP/patents fever since Nortel’s portfolio sale.