..is it over yet?

The earnings momentum engine was losing some steam before market open (BMO), but no one noticed luckily as the Bernanke show overshadowed today’s lacklustre earnings. Simply, the very positive results from Tuesday couldn’t be matched, it’s best that earning reports today took a backseat.  As far as the ‘show’, it’s contents minus any potential screw up by Bernanke were released at lunch hour and market responded positively as everything and anything dovish is ‘easy money’ and was ‘confirmed’.  The USD started to get whacked lower at 12:30 and that was the tale to be for rest of day.  As much as this conference was and will remain fodder for debate, the reality is it was a non-event.  If austerity was 2010 word of the year, one of 2011 finalist might be ‘transitory’ after today. Enough said, let's move on, it's over with. 

This week’s enthusiasm for earnings and FED likely gets digested for rest of week after hitting SP 1355 level. Attention should turn to big April eco data/Macro starting next week, including ‘debt ceiling’ noise as recess concludes.

Shadowlist

■Commodities –  The beneficiaries today were clearly the PM’s as they exploded higher.  As far as everything else, Copper was weak and base metal stocks (coals, steels) didn’t participate in the USD plunge and underperformed.  Nobody is talking about the Shanghai now, but the 4-5 consecutive down days and technically negative below 50ma is something to monitor for our markets and commodity groups (possibly more tightening on it’s way)

■Momentum/ earnings/ winners of ’10 –  There is a lot of discrepancies in how tech linked names react to earning, so it’s hard to know what may run or not.  APKT  ran off a disappointing guidance that only matched their 'own' guidance, while a peer ININ  beat Tuesday and gets sold off.  KEYN  is another one that should have done better today as well as BIDU after hours.   AMZN  likely confused a few in it’s impressive comeback. Opticals, JDSU and FNSR  (noted here recently for eyeing gap) outperformed.

..may they all be like CRR, FTNT,SFLY,N!

A day of digestion as the market rests on support provided by a ‘positive’ earnings season and a FED that gives and gives.  Most of the incremental gains for the market today are due to managers going after the lagging groups  as is always the case.  Thus, leading sectors in the market today are the Black Sheep groups, while the Nasdaq lags.   This also relates to a note a few days ago…”.bring inflows from the sidelines due to technical (indicies potential breakout)..” . Combined, it is all ‘PA’, performance anxiety into month end.  If the breakout the other day isn’t enough, today the TRANS were making fresh highs, which garners support from the Dow Theory cult. 

Another quiet day tomorrow likely, next week as discussed we will find how long the market can rest on it’s laurels. (earnings / FED).  There is no sign of shorts in the market and it’s hard for the market to go much higher without them being around to get squeezed.  The market would need a lot of money to come in the market to offset their absence.  Maybe, eco data will wake them up next week and/or wake up complacent longs.  Recall, what we said about April PMI's (tagged) showing what March PMI's didn't ( post Japan/Crude price escalation). 

Considering, DJIM has always been an earnings/small cap orientated place,  we still have something to look for as R2K earnings take over from the mega caps.  If today is any indication from Shadowlist (tagged to locate) earning linked plays, we’ll have something to look forward to and initiate new stocks. CRR, initiated last Q at $110, hit $169 today, SFLY, also last Q addition at $40 to $67 today and FTNT  from August at $18 to $48.  All were  >15% pops today off another round of excellent earnings. Makes you wish you were just a buy and hold investor....

Update on Friday, April 29, 2011 at 02:36PM by Demi/ YourPersonalTrader

Nice earnings from small caps, QLIK  play here and others like ACOM (now at of hand), ARBA , but one we played as an IPO in software Netsuite is best, N, headline is nothing # special, but inside is great 'billings growth') and definitely an add to Shadowlist.

DJIM #18 2011

Coming into earnings season, we noted investors need see and find ‘value’ in stocks to keep the market rolling along.  This was essential as there were enough headwinds to knock the sails out of the market. (Japan impact questions/ escalating price of crude/ rehashed sovereign debt / Washington/ SP downgrade/ GDP lowered outlooks off eco data ).

All the above ammunition for the Bears proved futile as earning season has been a success, plus corporations were busy with M&A/ buybacks/Dividends to give investors more reason to find ‘value’ in owning stocks.  The ‘80%’ of surprise beats premise laid out here before this impressive peak earnings week led by industrials has exceeded this threshold in the most of the critical sectors, even in tech despite a handful of blow ups by mega caps.  The ‘top-line’ trends in cyclicals has been very strong and was an unforeseen surprise following crude/Japan impact.  Thus, any weakness in Global PMI’s may be somewhat offset by the strong earnings season.  Also, recent Shanghai weakness attributed to potentially more tightening may now be relieved following China PMI’s.

As far as the trading week, we outlined the shift back to macro from micro  in last Journal.  The outlier in the market for DJIM' is the pick up in mid-small cap earrnings   As we saw on Friday, while the market digests recent newsflow, we’ll have earning linked stocks to trade if the last few days are any indication….ACOM N ARBA QLIK  on the heels of  SFLY FTNT  from Thursday.

Still, let’s not fool ourselves, the FED/USD continues to play the pivotal role for investors risk appetite.  Broad market eyes will likely be glued on the USD.  The market is likely to be back to the days where USD moves dictate the equity price action at these SP elevated levels.

Update on Monday, May 2, 2011 at 05:20AM by Demi/ YourPersonalTrader

Re: Friday Update ....Netsuite is best, N, headline is nothing # special, but inside is great 'billings growth'and definitely an add to Shadowlist.

Barron's article on this point.

Netsuit(ticker: N), a provider over the Web of enterprise software as a service, known as SaaS, reported solid quarterly earnings last week. But the company's decision to cut its profit outlook for the full year by a few cents a share grabbed the biggest headlines.

The slumping dollar is to blame for the damped profit outlook. Roughly half of NetSuite's workforce is based overseas and paid in foreign currency, so a weak dollar eats into the company's profits.

But that really isn't the story. NetSuite is finally starting to grab traction as it begins to attract more customers. The San Mateo, Calif.-based company is winning bigger customers and charging them higher prices, which shows that its business model is starting to work after several years of investment. Billings, an important measurement of growth for SaaS companies, rose 30% for the quarter.

Wait and see mode..

An early market move off Bin Laden news sunk as quickly as he did.  No conspiracy theories on the market (can’t wait to read Bin’s pockets and compound were full of silver on Zerohedge).  Instead, a simple go away(May) and take some profits with you played out with earnings winding down leaving broad market with little reason (catalysts) to head higher at elevated levels.   

As discussed last week, the market knows all the trends within sectors and upcoming companies will not change the picture as far as corporate profits are concerned.   Macro side, Global PMI’s mostly slightly lower today, but best described as ‘better than feared' in market lingo.   Wait and see mode in effect today, same trend as in April with the Black sheep groups, ie. Health care outperforming today, while R2K was a definite underperformer.  Let’s give R2K a break after making all- time highs just last week.  It doesn’t hurt for some of the stocks we like this Q off earnings to consolidate and buy lower from this mid-small cap mix.  Also SOX was visibly weak all day, software, networking, but without a known catalyst, don’t put much into any groups action today.  Some profit taking is all it was.

Update on Tuesday, May 3, 2011 at 12:35PM by Demi/ YourPersonalTrader

China internet stocks weakness due to RenRen IPO newsflow. Likely overblown in respect to peers, nobody really seems to know why sell off yet.

http://online.wsj.com/article/SB10001424052748703922804576300901773800620.html

R2k weak again, not helping

Momentum raid...

If the Japanese earthquake shifted the earth’s axis, today’s profit taking in…commodity plunge (energy, crude), silver annihilation, a R2K high beta slaying, China crumbling wall did the same to the underlying core of the market.   Yet, anyone just glancing over the market final boxscore, they’d think it was just another boring day, DJIA flat, SPX -4.   

What does the drubbing to the underlying market mean is the question at day’s end?.  Is it rotation, hawkish exit strategy (CNBC report) diverging from last weeks statement /QE link or just the fact we passed ‘peak’earnings with mediocre eco’ data coming in at these elevated SPX levels. All this, while coinciding with go away in May seasonality hitting everything that has been in the recent ‘winners’ circle.  You pretty well had nowhere to hide to avoid being hit unless you’ve been bunkered in ‘financials’ and mega PC caps related stocks that have lagged badly.  Risk was unwound big time, money left high beta momentum, included was rotation into big PC linked tech from high beta mid-small caps.  As far as the widespread China internet clubbing, we pointed out the main culprit in the afternoon, which after all the frauds in mid-cap space over the last 6 months, Renren IPO audit revision gave an excuse to raid this sector.   Briefingcom didn’t run the story till 3:25pm to explain what most didn’t understand all day, it takes a few shouts out to them quite often.."…the revision did act to remind investors and traders that there has been increased scrutiny regarding some of these Chinese companies' auditing procedures and financial controls.".  Maybe when this is digested overnight and Renren IPO goes off decently (and/or) traders will realize it is stupid to box the BIDU’s/ SOHU’s with the recent China crap, MOBI (new piñata today).

A lot of the movement has been USD based as speculated here heading into the week. It’s found some support this week, but it really needs to rally for the risk trade to be off long.  Until, a chill pill is likely in order as USD did not become the ‘safety’ trade overnight. (so continue to watch the USD closely). Doubt today’s action is real rotation starting, just a matter of not wanting to sit in cash and so money flows went into financials/ old school PC nasdaq stocks.  

Also, probably best to stay away from fresh earnings now as the majority of decent reports will be sold off ie. IPGP in the morning and many AMC that may seem okay at first glance may succumb to profit taking/faded. If the co’ the misses, the stock is in in big trouble.  Lots of big declines in high beta AMC, LVS FSLR OPEN. A shift from micro back to macro  was clearly underway.

Update on Wednesday, May 4, 2011 at 10:26AM by Demi/ YourPersonalTrader

SPX now at 1347, Feels like SP 1338 support in the cards, although wouldn't give a signifcant bounce a chance before going lower. Kinda looks like the start to correction fearing here once April data hits.

in cash and not calling for bounce like last 2 times here at 1250/ 1295.

Momentum raid... day #2

The same trends outlined yesterday continued sliding the market some ~ 30 SP handles in total, since Sunday overnight highs. Only difference is the free fall in the USD resumed, but the commodites acted as if the reverse was occurring.  If the market doesn’t act right with a declining USD, the market is left with little support as ‘fresh’ catalysts are unforeseen at this stage to help it get back on track. This was the worry this market in updating a visit to SP1338 and possibly lower is a possibility.  The ferocity, sharpness of the weeks declines in ‘momentum stocks/sectors will draw quick traders for a bounce play here and there, but true buyers are unlikely to return just yet.  

This decline is being done with profit taking, we have not seen short sellers even try to press this market lower as they’ve been bitten over and over again and are quite wary.  If the market continues to give out ‘bad eco’ data like today’s non-ISM( showing a significant slowing), confidence will built and with no buyers likely on 1338SP front, a move sharply lower could ensue from shorts finally pressing the market.  All  in, a tale of caution at this point with signs of waning momentum in the US eco’data.  We recently saw the Shang go below 50MA and other Global markets have been much weaker vs. US markets.  A little US catch-up to the downside is likely the prognosis.

Momentum raid...violent day 3

“…SPX now at 1347, Feels like SP 1338 support in the cards, although wouldn't give a significant bounce a chance before going lower. Kinda looks like the start to correction fearing here once April data hits…..in cash and not calling for bounce like last 2 times here at 1250/ 1295…Wednesday, May 4, 2011 at 10:26AM

Maybe the correction hasn’t hit the S&P yet, but in just ~24hrs since update above, we’ve experienced a historic day as far as ‘corrections ‘go in the commodity world.   They’ll be talking about these numbers for awhile...USD spike over 1.5%, $10 knocked off the price of crude to below $100, SLV off another 10%, copper off 4%...All week, we’ve been saying all eyes will be on USD,  yesterday’s note on USD falling and commodities still light was the red light for becoming cautious early on.  Today, even after 2 days of selling in commodities, the mother of all unwinds in the long commodities- short USD occurred after Trichet went ‘Dovish Ben” on the markets with no ‘strong vigilance=hikes talk causing the trade to blow a casket. We’ve talked a lot about Hawkish Trichet and Dovish Ben in the past, well today the market saw them starting to come together. Add the CNBC report noted the other day regarding the FOMC more hawkish vs. statement, once you add Trichet dovish and the markets see ‘s them as bed fellows.

As far as the broad equity market, many will point to the outperformance of R2k, tech today.  The question is was this just a condition of being put to slaughter already this week equals a bounce or just a case of the masses in the commodities plays that R2K/tech just weren’t paid attention to.  Single stocks outperformed in most sectors, including single  commodity stocks vs.respective commodities.   Even with this out-performance , the SP still cut through 1338 easily (see no buyers note at 1338 support),  all the way to SP1329.  All in, the percentage declines early in the week in single momentum stocks, even those off excellent earnings could well be considered a ‘correction’ in single stocks.  Also, companies are helped by lower commodity prices, but the consequences of a strong USD on the companies was really not factored into the equation today. In the long run, one offsets the other.

As important as NFP#  just became after another round of poor eco’ data, the market will wait on clues from the FOMC and if the CNBC (exit policies linked) story is fact or fiction.  A bad number and single stocks may not be so lucky,  a surprise closer to 200k will likely generate a bounce. Still, we’d expect it to be short-lived as focus will turn to FOMC in the coming days(2 doves speak friday/week before and into May 18^th minutes release.  A few reasons possible to bounce, but it wouldn’t signal a trend change.

DJIM #19 2011

March Global Eco’ data surprised with little impact seen from Japan/crude spike, but here we speculated it would lag and show up in April’s data.  So far, excluding even Japan impact, the numbers are sharply down and the premise for a correction back when written first here is unfolding.  We’ve already seen a ‘historic’ commodity correction last week as a warning.  Even, if the drags on the economy are only “transitory’ per Bernanke, it doesn’t mean the market can’t correct before 2H economic strength resumes.  If you want to argue the NFP# 200K++ surprise offsets the recent downtick in eco data, go ahead, but action on Friday’s tape which included a big gap and even bigger fade job of 20pts from peak to trough tells you it’s not going to be solely about jobs numbers going forward, …”a surprise closer to 200k will likely generate a bounce. Still, we’d expect it to be short-lived … A few reasons possible to bounce, but it wouldn’t signal a trend change”.  Last weekend, we guided it would be about USD for the week and it certainly was for the markets as we saw a big unwind in the USD short trade.  Interestingly, the thing to watch this week to give clues where this economic tug of war is going,  is the ‘retail sales’ /real consumption figures.  

In all, including technical weakness, a cautious premise from last week is maintained.

Smoke... but where's the fire?

It seems every asset class had had a major reversal recently, USD, commodities and even TSY’s are on the cusp of saying something is wrong in the economy with yields at recent lows.  You can throw in weaker Global equity markets w/ China recently, Russia down 10% =correction territory and even today as example, Europe was comparatively weak vs. US markets.  Still, US equities clings range bound since early last week.

Take into account the 'red flags'...the poor GDP, more GDP downgrades, Jobless claims, non-manufacturing data for the US economy recently and you seriously have to wonder how the equity market is hanging in Q2!.  It’s hard to sit by idle at this point as it looks like the market will show it’s resiliency once more as we’ve pointed out month after month since ‘09.  But note, every correction since the rally began has been a one-time event and/or natural disaster that you know the market will reverse soon as history proves.  This is why shorts have been gun shy to press as they’ve been burnt time and time again.  This time may prove otherwise as a greater question mark lurks and that’s the ‘economy’, transitory or not. Market is literally hanging on a thread (our health  20MA benchmark) and one more ominous  headline and it could be a slippery slope due to all things already coming up as ‘red flags’.

In all, as far as today, it was bounce day for commodities off a USD decline post 99bln market value beating last week. It wasn’t much of a surprise as all major players pumped commodities to recoup some of the huge losses.  The strength in the market was ‘narrow’ as the majority SPX top gainers were all commodity linked. (Transports/Financials/SOX) all underperformed the tape showing how narrow the strength was.

Nice to see RUT outperform for Shadowlist as some went after real beaten down ones like CRR WTW  and others in our retail composite ie LULU ACOM GTLS QLIK AZPN  look decent overall.

not so narrow tape..

Today’s intraday tape was replicating Monday’s until a quick short covering surge at ~2:30pm of 7pts.  Lots of possible newsflow reasons, but nothing concrete and worthy of being a true catalyst to move the market as it did.   You’d like to see a catalyst behind a move, but it seems via recent short interest, shorts did press a little too eagerly during last week’s commodity meltdown hoping for contagion in equities.

Although the broad SP tape action was similar, the underlying tape was very different versus Monday’s ‘narrow’  tape.  It widened with Retail (noted to watch into week), Financials/Transports/SOX up 50bps.  Also, notably for DJIM, small caps (RUT)  outperformed the large caps for a 2^nd consecutive day by 90bps showing pockets are there to trade.  All favourable signs, but we are close to levels SP ~1365 zone, where last profit taking began, so you figure some will want to exit here for many reasons if the ‘red flags’ are a concern. 

Shadowlist

Consumer-  This week’s important retail #’s got off to a good start with the retail SP index closing on all time highs as expectations are coming in pretty good so far and more M&A activity is brewing.  Notably here, FOSL produced a big earnings beat and exploded 13% to ~$106.

Earnings linked-   This Q’s additions N, ARBA  traded to fresh highs, last Q’s OPNT  produced another good Q and traded up over $40.   ROVI, which tripled here last year before being removed in February ’11,  has fallen from mid 60’s to mid 40’s since.  An excellent report AMC, not only because of a nice beat, but the deals it struck during Q inc. youtube, so it’s back on to the trading list.

Commodities-  Despite a USD closing at day lows, the China import #’s were below expectations..coals, steels etc. traded down.