Smells like rotation..

Although, the market only made incremental gains to a close of SPX 1335 “R”, the importance of the day likely lies in DJIM’s morning market update…

“….Hard pullback to note from open-10am on momo', notably internet linked names with mkt green.  Some kind of profit taking or/and rotation?..Financials JPM bid, Semi's trough?....we'll see….SINA SOHU BIDU TZOO PCLN APKT NFLX AMZN OPEN LULU  all over~5-10pts down reversals”.  

Strong names of late like MCP PANL CTXS  joined the selling parade after hitting fresh highs off the open. The afternoon and close did nothing to alleviate pressure as most names finished near lows of days.  It would be a mistake to see only marginal losses from previous day's close and not see the losses made in first 30 minutes off highs..

As the day progressed, evidence of potential rotation was becoming more evident.  Money wasn’t only coming out of earnings/ momo’ names, but also out of energy and a few other recent leading sec’s.  More proof was the late push in XLF and JPM,GS closing near highs of day and SOX outperforming the comp/NDX, 5:1 .  Throw in some Dow 30 mega’s like  CSCO >5%, HPQ AXP JPM, MSFT outperformance and the day’s puzzle  starts to come together.

Only yesterday, we discussed…..”The market needs leadership and if a trough is around the corner for the semi’s, it might get some money off the bench and a follow through to chase higher beta growth would likely follow”.  Well, not only did leadership come from SOX , we also saw money come off the bench/ profit taking from momo’earning names into the Financials  (other big leadership group investors like to see).  Played out a little differently, but nonetheless we saw fresh buying, likey the bigger $$ flow we've noted as the lacking buy conviction.

All in, it almost seems too perfect if we get this rotation coinciding at these technical levels, so you have to be prepared for all trading possibilites..up or down.

Global Central banks in focus Thursday, notably ECB and what Trichet’s commentary will expose on pace of further hikes after iniital .25bps tomorrow.

Shadowlist

■Financials  - RKH, regional bank ETF usually works well if this to continue, better than trading XLF.  GS, JPM.

■Momentum/ earnings/ winners of ’10 – Last week cited Opticals/fibre had that bottoming feeling until EXFO earnings.  Now, OCLR report wasn’t any better, but analysts suggest growth will resume 2H.  FNSR  OPLK  JSDU >4%-9% in the first hour and held up to close.  The reaction was typical ‘baked in’ as the stocks followed a different road post SANM EXFO earnings.  As far as profit taking in momentum names…there is plenty of money to be taken from other sectors and so it may not last long in high beta momentum because earnings are around the corner.  Still, it’s best to be prudent if trying to find a bottom point as money comes out faster on the way down then up in this group.

■Consumer – retail numbers on deck Thursday morning. ANF and BBBY tonight provide a nice floor so far.  WYNN, LVS  should not fall into any further momo’ selling as the picture here has turned more fundamental since Macau report.