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.

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.