Back door

A nice way to kick off ’11, but still something to be wary of as the 1^st trading day in 09/’10 produced even better results.  Still, despite the >6% rally of December the market hadn’t seen a >1% day since the first days of that month.  As pointed out last week, all the ‘illiquid’ action was irrelevant in respect to inability to cross SPX 1260 “R” and not seeing conviction off eco data to help for that to occur. Today, 1260 was crossed easily as the market rode to 1276 highs until volumes fell off later in the day.

• Catalysts- as noted last week watch for a China PMI, if lower M/M it may wake up the market on ‘coolin’ factors. Importantly, inflation sub group of number fell 7 pts.  Also, Euro/US ISM came in strong signalling a synchronized global acceleration.  The ‘back door’ flow helped as well with most global markets closed.

Shadowlist

• Momentum/earnings/ winners of ‘10 – woke up,  led by an article saying FFIV >3%  RVBD >7% APKT >9% were M&A targets spread to traders chasing other higher beta names for first time in a month.
• Commodities-   Although Ag’s links lost steam after 3 days late in the day, the analysts are raising estimates/tgts on names as we had been looking for.  AGU  on Friday, today MOS (reports Tues.).  Coals , WLT, CLF >4% outperforming on Australian floods.  Steels  should also benefit from floods.  Precious metals, copper rolled over in PM. The ‘rare’ metals stepped up again as Dahlman Rose following in their own footsteps with another outrageous target of >80 on MCP >15%(did this with AUMN late last year, a gold stock we had up). AVL up >20%, REE >6%.   Looking further into OSN, it’s actually a nice growth stock with a ‘Rare’ connection, but notably a ‘steel’ stock that has to do with every China infrastructure aspect from highways to railways etc.  It’s also cheap and a fresh IPO importantly.  Still, it has issues as little China co’ are being exposed to fraud noise since December.  Everything else like CHGS CDII is definitely considered ‘junkyard dogs’ stuff here. 
• NCH's- GTLS, JOYG, VMW, ROVI, HOLI, QLIK, ARB ARUN are just more Shadows putting in new highs intraday.
• Financials- continuing December streak into earnings,  GS  breaking out
• Consumer- Casino  sub group had very good Macau numbers and WYNN  finally got over 105.

Don’t pay much attention / trading decisions based on Global markets, thus the ES to start the day as most markets will be playing ‘catch –up’.  SPX 1280 as next ‘R”

Expectations rising...

Coming off an overnight low of 1255 ES,  ‘dip buyers’ came in for an impressive ~20pt reversal as investor sentiment was bolstered once again by ‘stronger than consensus’  eco’ data, notably ‘jobs’, ADP numbers on the heels of initial claims last week.  Higher revisions to GDP likely once again..  In all, as concluded yesterday… "..any further broad market hiccup would be buying situations".

Wary- Never hurts for watchful prudence in the markets, even when all is seemingly hunky -dory. Heightened expectations for NFP # now, consensus moving up to approx.. 200+.  If it doesn’t come in 200+K, markets holiday party might be curbed.

Shadowlist

• Momentum/earnings/“winners of ‘10 –  the star of the day goes to recent list add, BSFT +14%  as it fed of all things 4G related coming out of 'CES Vegas’.   This one is ‘nutcase’, so it’s all about entry timing. (eg.9ema).  Newsflow is driving the group as a noted possibity to start the week…QCOM/ATHR marriage, RIMM pushing higher on Playbook unveilings.  Small caps-Software/networking stocks act very all. (APKT CRM FTNT ).   Addition to list: CAVM, this one could have been added easily last year, but there were enough names to trade.
• Commodities -  Nothing new to add here. Even with a precious metals, some base metals in a higher USD environment the Ag’s-Coals outperforming.  LNN,, pushed higher early ~4% to recent gap before fading some.
• Consumer -  Retail numbers in focus Thursday, hopefully wakes up group for some trading oppy. 
• Financials - streak continues after a day off (BKX >3% YTD)

...EPS EPS

While the ES/SPY traders are mired in a tight ‘digestion’ range today, it is the strategy of focus on earnings linked stocks that provided most of the excitement.  Although some may see it as “R” at 1307’ish at work, it is also natural for the market to go through a digestion process after a big spike ahead of some potential catalysts ECB-Trichet, Bernanke , NFP #.   All in, it’s a wishy washy diagnosis for the broad market.  Tonight, judging by ES, market is turning a blind eye to Egypt and region, which could turn costly if too complacent.

Shadowlist

• Momentum/earnings/“winners of ‘10 –   last section update, APKT  was noted as one to watch off earnings and today it seemed to be the play of the day, but it wasn’t the only one as it took fellow DJIM’ BSFT  for a similar ride up to >20%.  Just like last Q post EQIX meltdown, earnings are once again stabilizing the sector along with M&A activity (TMRK and NAVI).  SMid caps are definitely having the best earnings reactions in the marketplace, even though the RUT is not making new highs.  QLIK , if you follow a narrow band of stocks per Shadowlist, you get a feel of a stocks habits.  In this case if volume comes, it’s usually signals a move pretty soon and that’s why it was alerted to watch.
• Commodities – All DJIM stock links to Ag/Coal/ steel are simply on cyclone watch worries.  CLF coming to new highs.
• Q4 earnings update –  AMC, SFLY  OTEX  strong reports.

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.

..U.S a little too respectful maybe?

Firstly, DJIM covered that earning worries were slowly being put to rest in Europe (>2% today) with solid & broad earnings over the last 2 days.  Unfortunately for many trading US markets this was put under the rug as all media reporting was on CDS spreads widening in Europe and poor reactions to US earnings that came in, good or bad.   What was supposed to be an important micro week turned to the Macro until earnings/outlooks from many market behemoth’s hit Tuesday night putting many worries (Japan impact/ death of the PC) to rest on this side of the pond.  Naturally, we’ll still see misses and not so rosy outlooks this Q, but it will be company specific issues. Not all management is created equal and this Japan tragedy definitely tested some CEO’s grit.   Besides, misses, bad outlooks occur every Q, not just after a crisis situation.

This (earnings) is one ‘what if’s’  we discussed in DJIM #16 as an Upside risk  and reason to rally.  Knowing the ‘Upside risks in the market plays into alerting SP1295 was likely a buy point while market digested SP downgrade Monday morning.  Considering, the market has melted up 30 SP handles and about 5 more post AAPL-EPS in 3 days since,  it has caught many on their heels.  The question is will they step forward and help push the market over SP1340 or will we continue to be range bound?

Well…not to spoil the exuberance, but we may see overnight ES highs be the highs tomorrow.  Recall, we noted we may have exaggerated moves in either direction this holiday-shortened week.  When a move is fast and furious as this one is with all focused on an overnight supposedly ‘healthy’ semi/tech, it is very easy to overlook a few things in the underlying market.  A few of these are negative, a very heavy bank index (multi month lows as loan growth is disappointing, Mortgage insure biz as well) and the Rails to a lesser degree. Add the fact not all think semi concerns are over with and once a lot of the short covering is done with, expect longs to take this gift rally profits instead of buyers to come in with conviction.  Also, those who have vacated their desks early this week will be in line.  Note, semi sec is still way off Feb Highs with many underwater waiting for a life boat. This rally might be it.

Of course, there is the endless supply of ‘Macro’ headwinds on the table, at least Micro won out for a day this earnings Q.

Shadowlist

■Momentum/ earnings/ winners of ’10 –  Semi’s up ~4.5% led the buying in broad market, DJIM’s '10 momo names were led by VMW  earnings supporting peer names here like  CRM  APKT  FFIV,  >7-9%.  JNPR  was one stock where a disappointing guide still found buyers (this was noted as something important to look for in Tuesday’s AMC reports), helping FNSR and peer optical plays.

■Consumers-   Our lux apparel FOSL UA  RL TIF  >2-4% had very nice morning with all hitting intraday fresh highs. WYNN  was the highlight off earnings.  Noted broad strength in an update would likely include Autos linked stocks, components up 4.5%, Auto 3%.  PII - Polaris Industries, Inc. earnings standout.

■Commodities –  Action could have better considering USD was getting whacked. Ag’s Ferts/Steels under the tape.  ALB -  Albemarle Corp. , old DJIM standout Earnings in materials.