leaders 'lead'

One again anything that can be construed as negative tilted news was brushed aside by US markets (globally it wasn’t).  We’ve discussed this since the middle of last week as market turns a blind eye, now it’s continuing the trend at window dress up time and ahead of earnings season.  This is same factor at work as when alerted at SPX1250 and said to watch for negative ‘nuke’ news not get sold off any longer, which would be a positive going forward.  Every bit of negative newsflow is seemingly ignored now as investors tolerance has been built up with Macro global issues.  It's perplexing to many.  It could continue until Friday as investors/traders await all the data/QE2 for that day.

The morning ramp can be attributed in part to nobody finding a catalyst overnight (see yesterday's closing note) to close market below the pivotal SPX 1314.  There was no positive catalyst out there this morning.   It was a matter of Performance Anxiety (PA) setting in as managers went after growth/ momentum names.  Remember, these names didn’t participate in the first leg off 1250SPX and really haven’t played a big part of the ‘missing link’ tech (mostly SOX) rush that ensued afterwards.   Momo-linked stocks like FFIV APKT AMZN SOHU and many more simply caught a bid.  As 2pm approached many probably thought the market may repeat Monday’ s late selling due to no positive newsflow, but ‘leaders’ were at work this time with PA being enough of a catalyst and so chance of sticking the SPX gains was a high possibility unlike Monday.  Technically, it was important to get back over SPX 1314 quickly and the icing is a close of 1319, which could be enough for more points as noted in weekend Journal.

Shadowlist

A stack of DJIM names +>3pts as growth/leaders lead the way today.

• Momentum/ earnings/ winners of ’10-    SOHU +7, PCLN +7, AMZN +5, FFIV +4, (NCH's- SFLY  OTEX)  APKT +3pts  broke trendline.  SOHU, unleashed a huge move, saw no news, only idea of why is…China Unicom's results point to a strong mobile internet ramp in 2011, as BIDU SINA  act well too.
• Commodities – WLT +4pts, MCP +4, CRR nch,
• Consumer-  noted Retail was fine yesterday despite leisure selling,  LULU nch , RL, UA all +3-4pts off recent DJIM PVH +5pt on earnings.

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.

..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.