..and up it melts

Seemingly after weeks of noting SPX 1307’ish as ‘R” resistance, the market opened firmly on M&A Monday (3 deals) and overshot to 1320 with an eye on 1333 (666X2).  Yep, that’s 2x from what we called the ‘Mark of the beast’ , March 10^th,2009…

”Usually,  we have a case of mouths calling the market bottoms, nobody is doing that now at this level and instead calls for 500-600 gravity pulls are all over the place.    We like this as well for a better chance to get a meaningful bounce from the 'Mark of the Beast' 666 level”.  

A devil of a rally proceeded at that time and after a few hiccups along the way, the market finds itself in a midst of a continuous gradual melt up 2 years later.   The headwinds  of economic data, corporate earnings, money flow away from emerging markets/ bonds, Easy Ben..(Today M&A) outweigh any single ‘day event ‘ tailwind  in the Bulls favour.   There is absolutely no reason for the shorts to step up and risk being thrown under the bus as per recent ‘Egypt’ situation again.  The same premise exists here as it has for months.  As long as this lack of tailwinds persists, any pullback will be shallow as dip buyers will come in.

Shadowlist

• Momentum/earnings/“winners of ‘10 –   Besides AAPL  making fresh highs, most winners/momo’s couldn’t be found in the top SP tech performers on the day as it’s pretty quiet following a nice week.  As said, CSCO earnings are ahead and are being waited in as are some notable ‘cloud, data center’ names for direction. *SOX was a notable underperformer, it’s been a leader, so it’s lack of participation in market making new highs is some crumbs for the Bears.
• Commodities –  mostly mixed, DJIM oily/energy linked plays  FLS, CRR  are holding up well, (GTLS  got a pump Cramer job), LNN  part of our Ag’/fert rotation play since late Dec hit fresh highs while CLF (steel/coal) keeps hovering around new highs.
• Consumer – Our retailer names  LULU, FOSL, RL  continue to trade well /inline with broader tape. SODA,  a Jan alert preceeding its big day from $33 made NCH >$44(new closing high) on addition to IBD 50.
• Financials–  After flat lining all earnings season was today a wake up? $BKX.   Well, a history of headfakes is in it’s blood, so no telling from one day.  It is European bank reporting time, so they will likely feed of their reports.

Quiet bunch

Quiet day on the geopolitical front allowed the market to digest previous day’s big losses and start to look forward to NFP# on Friday.   A combination of a big sell off just prior to a NFP# seemingly always allows the market a few days to position back for a bounce of sorts.  A big gain $>2 today allows for some easing tomorrow and thus market could play right into the bounce idea.  Many are citing this divergence today as a victory for the Bulls, but it’s probably nothing more than a breather following a sell off and the jobs# factor ahead.  Maybe the market was saying it could live with $100 crude, but it better be sure it doesn’t go much higher before putting all it’s chips into that belief today.  (A JPM note on semi’s and GS’ on steel provided the market with something else to talk about and trade). ECB commentary in the morning on watch by markets.

Shadowlist

• Commodities –  The steadiest bunch continues to be the coals, the GS steel note helps out fave’ CLF  here as well.
• Momentum/earnings/“winners of ’10-   JPM note generated a bid in semi’s and AAPL launch did more to hurt to NVDA / competitors than help it's stock price for today.  Other than that high growth linked stocks are seeing no conviction buying even though the Nazzy and small caps outperformed the big caps today.  Going to look at Opticals  again as next trading oppy’ (ALU  hit NCH), whilst the momo’s de-momo.
• Consumer-  The post EPS sell off in SODA ~$40 allows for upside here as there is really nothing wrong with the report that came out on a mkt sell off day.

pile up..

Hey, what’s one more negative (SP downgrade) headline to toss into the market, adding to the pile we discussed in this weekend’s DJIM #16.(escalating weekend Euro debt situation already had ES down 10pts.)

As ‘panicky’ wire headlines hit at 9am and spread into the open thanks to S&P threat to downgrade US debt in the future, most probably couldn’t decipher what it means to TSY’s/Treasuries, USD and definitely the equity market as it fell fast and furiously.

Considering a threat is just an idle threat until exercised, we followed up quite confidently 15 minutes into the trading day that if SP~1295 hit, it would likely be a buy point for today after dissemination of the downgrade.  Of course many would not suggest buying a gap down and a falling knife, but all you had to do was look at the Shadowlist components and see individual stocks were not being sold off.   This glimpse as usual allows you to make a decision even if you don’t know the consequences yet of any seemingly negative newswire that may have hit.  Can’t say we’ve seen one (outlook downgrade) to the US before to know what it may bring upon equities, so today it was best to rely on good old Shadowlist for guidance.  Besides, didn’t we all downgrade US debt long ago!  This doesn’t mean you jump and buy stocks (some names below worked) as much as it means you don’t panic and sell.   Soon after follow-up, market fell another ~10pts to 1295, a re- test and later a decent push to 1307H in the afternoon.  What the early trade demonstrated was it’s an ES/ETF trade again with investors holding on to individual stocks while fast traders play.  

*Although an important week, the holiday-shortened trading week with desks emptying by the hour as we go forward , we can expect exaggerated moves in either direction that don’t mean much as positions in all asset classes get squared away before the holiday.

Shadowlist

■Commodities – Keep seeing excellent numbers in Ag-equipment stocks recently, LNN, VMI, (TITN  initiated today in follow-up section).  So far this month not much is loved as earnings get sold off in most cases good or bad(LNN VMI) in this space, but sooner than later money flow will go into what is showing growth for rest of ’11.

■Consumers- LVMH , luxury goods out of Europe gave an upbeat report after overseas market close helping retailers here, notably LULU, but overall outperformance seen in group.

■Momentum/ earnings/ winners of ’10 –  Very nice reversals in AAPL, PCLN, each 10pts and hopefully a leading good sign.  WYNN, IPGP  as well back to high levels, while  SINA  really popped. Also, like LVMH, Infineon a chip from Europe helped earnings sentiment as it pre-announced AMC in Europe.  Unfortunately, TXN did nothing AMC as most US corps’ so far this earnings season.