..spillage

At DJIM, we put quite a bit of emphasis on reading the intraday /end of day underlying tape via the Shadowlist components to gauge the broad market and if we need to trade the list itself.  Today, the final outcome of 46pt Nasdaq drop, ~10 handle SP downside day to a fresh May leg intraday low of 1327 is not surprising.   Chasing the rally and/or being faded in stocks was avoidable by just reading the Shadowlist tape during the morning 100pt Dow/~14 SP /1 hr rally.  The signals were all there that something was amiss. 

Firstly, the RUT was lagging badly at the beginning of the rally,  secondly, our high beta list of AMZN, PCLN, NFLX etc. were not participating in the move, but instead were inching lower during the rally.  This lagging action despite favourable EURO strength for equities was a red flag as divergence from the risk on/off/currency trade was clearly evident.  The equity trade that followed the currency action was simply failing!.   

By afternoon, the high beta trade had completely fallen apart with AMZN  NFLX off~10pts PCLN ~17pts, AAPL 7pts and smaller caps names like CRM, WYNN  etc. off ~5pts.  On a percentage loss side, many names small cap leaders ended up down 3-6% off.  The biggest victims were those who chased the Chinese internets in the morning as they were the only momo moving during rally.  By end of day, the SINA BIDU and IPO’s YOKU types all had ugly intraday reversals.   Why chase China internets when US internets are trading poorly is not understood here.  Many reasons were cited for internet consumer internet names fall today incl. potential  taxes, cloud security relating to AMZN,  but clearly this is just an excuse for a clear ass kicking profit taking to take down PE’s.   How long will it last? …likely not very long  unless a clear liquidation is unfolding by all those HF’s that were massacred in the recent commodity plight in order raise cash / redemptions ahead,  but that would be a repeat of just a few years back and we are hardly there.

Clearly, today was the spillage  we noted heading into the trading day for a wider correction taking place.. “….  If this cluster falls, it would not surprise if the market fills the late April gap as spillage from the recent erratic commodity/ currency trade may finally hit the broader equity market as a wider correction takes hold”.   The cluster of support was breached, but the late April gap in the (1315 is mid of  range of gap) is likely waiting on FOMC minutes or another catalyst.  This gap is looking more and more like the place to reverse. (~5% correction from 2011 highs). 

* (ES hit 1320 after HP’s news after hours, so that’s really just a few points from gap).  In all,  it’s all a ‘lateral trade’ now, so the market can easily bounce some ahead of FOMC minutes, especially if some value is seen in high beta’s after today’s beating.  Even better would be a negative overnight headline to push ES into the gap.

All in, the selling is still not panicked and there are enough defensive groups in the market holding and defending against bigger downside.   

Update on Tuesday, May 17, 2011 at 10:33AM by Demi/ YourPersonalTrader

RLD , RealD Inc.  ~$33, a good stock that will get attention for 3D summer movie hoopla to add to list. 

Update on Tuesday, May 17, 2011 at 11:17AM by Demi/ YourPersonalTrader

ES hits into gap 1318, SPX next...stocks hanging in well today since open and for bounce oppy'.

Update on Tuesday, May 17, 2011 at 02:31PM by Demi/ YourPersonalTrader

All 3 decent upticks today prompt selling. Mostly ES/ETF driven trade as single stocks are not being stepped into, gap could be re-visited by FOMC minutes.