DJIM #1 2011

Instead of a recap of 2010 as everywhere you see this weekend, let’s get down to business as if January 3rd is any other day during the trading year.   No sombre violin playing for the Bears/ Shorts for the futile year they had and no Party like it’s 1999 by Prince celebrations for being on the ‘right side’ in 2010.   Yes,  2010 turned out to be the year of the momo/ growth stocks, which at end are cited as the ‘winners’ of 2010.   All in, just go back to DJIM Shadowlist in January/ February to see if the SPX 500 top 20/best performers ( FFIV, NFLX, PCLN, CRM CMI WYNN ARUN AZO CLF ) were amongst the 40/50 or so stocks in the DJIM composite at the beginning of 2010!.  Add later DJIM additions being involved in M&A this past year such as (BUCY, NZ, CML )  and the list dwindles some more for stocks to trade in 2011 as we can't expect repeat performances from the majority above.   That’s the beauty of a fresh trading year, new stocks and new sector groups emerging!

As far as the last week,  the notion to start the week of China hike offsetting any US market window dressing played out as the SPX was never more than 1pt up or down on any days close. (~1257-1259 close range).  Very  slow profit taking continued in the ‘winners’ growth stocks right into the final hours of December.  Sometimes it’s not what you trade from reading the Journal every morning, it’s what you don’t trade that keeps your accounts in check.  The potential lag in these higher beta stocks is something we covered here from the start of December.  Also, the flow instead trickled into Banks (BKX >15%) and other laggards (economic sensitive) as a product of investor confidence right into year end.    All in, as discussed we were no putting much into anything last week due to an illiquid market…incl..(SPX1260 “R”, no conviction after excellent eco’ data.). 

Mid –week,  we put focus back on Ag’ and related stocks/sub groups and an outlook for a China PMI that if ‘cooling’ to potentially wake up the market.  The number came out this weekend and it cooled off 1.3% from November.  A good start with US ISM on deck for Monday.  Other things to watch, the sluggish December for tech sector may finally get some newsflow starting with the Vegas CES (6th-9th) and possible pre-announcements into earnings season.  Casino Macau numbers out Monday/Retail and Auto later in the week.  NFP# out on Friday, add of +135 is the consensus.  Many major markets closed on Monday, incl. UK, CHINA, Canada, Australia leaving only money flow into US through the book door and thus a possible good start to 2011.

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”

RUT of a day..

A few things to be wary of heading into today’s trade played out.  One was not getting overzealous off the 1st day rally as it’s been the case the past 2 years, this coincides with not chasing the open based on Global markets that would be up playing ‘catch-up’ and finally, the real market ‘noise’ today was the steep rollover continuation of…”..Precious metals, copper rolled over in PM”,  down 3% on the day.   The open was the high 1274SPX and it was all downhill to last week’s highs for ‘dip buyers’ to come in.   The 1260-1263 support might be thin ice as it was generated through the ‘illiquid’ holiday market, so 1254 might the real support test (approx.between 9ma -20ma gauge).  The probability of a need to test 1254 is due to a wary and it wasn't the precious metals selling.

• Wary-  the ‘big’ underperformance today of the “RUT”, which had been the leader during December’s grind higher.  Something to watch, but, maybe just a natural performance spread narrowing between RUT/SPX. Interestingly, the Shadowlist which is comprised of mostly smaller caps held up much better(with reason).

Shadowlist

• Momentum/earnings/“winners of ‘10 –  held up (reason) due to anticipation of “CES Vegas” and possible news flow.
• Commodities-  Our list unaffected by the steep commodity ($CRX) decline due to our focus on AG’s/ Coals (75% AUS. Mines halted).  Favorites in the groups such as MOS, POT, CF, CLF> 4%, WLT  all outperformed. LNN (irrigation) >4% had a noticable bid to any dip.  MOS’s earnings AMC should generate more of the sector upgrades we’ve been noting.
• Consumer-  WYNN, LVS  >3-4% continued to move off…(Casino sub group had very good Macau numbers and WYNN finally got over 105)

All in, the trading notables off our list held up with reasons, any further broad market hiccup would be buying situations.

...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.

..hangin' tough

The “Bull” stomped it’s toe early morning to 9ema on the SPX and immediately was helped by dip buyers to get back on it’s course!. The markets resiliency day after day is simply impressive and why shouldn’t it be?.. Just look at today…a strengthening economy as more good Eco data came in, v..good micro # continued, an unwavering Bernanke, a less hawkish Trichet, a surprising consumer who shopped rain or sleet or snow(retail #’s), what more can you ask for?. Okay, just one thing and that is a ‘surprising upbeat NFP# and the market we’ll find itself at pre Lehman Aug ’08 highs.  It will be interesting to see what the market does at this symbolic, if not ironic juncture!

Shadowlist

• Momentum/earnings/“winners of ‘10 –   As discussed , if earnings from “cloud/data..”improve following FFIV’s disappointment, the groups share prices will improve as last Q. FFIV’s past 2-3 days are all you need to see.
• Commodities –  cyclone wavered and commods were hit early, only to make an impressive comeback!. Would not be surprised to see follow through from names like CLF, X (steel linked)
• Consumer – Was today a turning point? If so, we can look at LULU FOSL TIF RL names to trade soon.
• Q4 earnings update –  OPLK, OPNT put in 3-4% days after consolidating post-EPS. AMC, JDSU  put in one of best big beats this season.

Advance..

A day on pit road and right back on course racing to take another checkered flag with a close above SPX1333!.  The same catalysts that have motored the market for months were in effect today.  All 3 were pointed out heading into the day.  1) M&A FDO,  2) tech earning /pre-announcements from DELL/KLAC, 3) more strong euro fin earnings (SOCGEN) on the heels of Barclays.   Also, Bernanke (minutes help) didn’t stray from inflation mandate out for 2013.  The tapes color remains the same in respect to resiliency, shallow dips being bought etc.  Gauging by the Shadowlist components accumulation is present, but stocks are not being chased.  The leads to ~1% gains in the majority with a random single stock pop here or there on any given day.

Shadowlist

• Momentum/earnings/“winners of ’10-   previous days losses were negated as noted by Tuesday’s AMC newsflow.  Incremental upside in all sub groups (hardware, semi’s ,networking, opticals).  Incremental closing highs in AZPN IRF,  these EPS’ may not be runaways, but are as safe as they come allowing for greater size buys/ and almost definite dip oppy’s from these 9ema tree huggers.  NVDA,  strong guide, but its been in this momo name of 2011.
• Commodities –  Fresh highs in our closely followed CLF,X and a further 10% pop AMC in CLF following EPS.
• Financials – Euro fin earnings are keeping the U.S linked stocks in the game.(SOCGEN this time). JPM  fresh highs.

Oily patch

Once again buyers showed their new found disdain for stocks as the selling picked up in individual stocks.  Our Shadowlist has provided all the clues since intraday Monday to this continuing as it showed in an uptick in individual stock selling unlike the Egypt sell off which was purely ES driven.  Anything high beta (momo), anything with healthy earnings this Q is seeing money being pulled out slowly generating >5% daily losses across the board.

Yesterday, noted the sell off was only half of the 3% dip in January.  Well, today that was quickly matched as supports fell quite easily and brings up the possibility of 50MA as buyers are in ‘No Rush’ as titled yesterday.  This dip is looking more like the November one to 50ma eventually instead of the January one.  Short term- Saudi Arabia is the wildcard noisemaker here, if this turmoil doesn't spread there, SPX 1295-1300 cluster of support may hold.

Shadowlist

• Commodities –  Since noise is around $100 crude, it is surprising plays around coal are not being used.   Look for trading opportunities here on the energy play as this quiet reaction should change. (CLF, WLT, ANR ).  After peeling back sharply since mid-Feb, Ag’s Ferts were the first to see a buy interest reversal.
• Momentum/earnings/“winners of ’10-   Last week…".While some momo’10 names notably lag today in a melting up market, (maybe something to monitor for broader mkt)".  This has turned to not only lagging, but selling in 2010 ‘winners’ this week and now this Q’s winners are hitching a ride.  Hope is PCLN  EPS reaction AMC generates some buy interest on this pullback.

Dollar store rally day...

Maybe today’s rally will make "SPX 1250 hit, could be low for awhile” hold and stabilize things some, but overall it was a disappointing underlying tape.  It can simply be summarized as a ‘bargain hunters’ bounce as our primarily high beta Shadowlist didn't do much away from commodity linked stocks ( notably coals, GTLS,CRR).   The ‘risk on’ trade was back, but not exactly everywhere you’d like to see it.  Just by glancing at the list, you can decipher easily that investors were looking for value off the consecutive days of selling instead of buying with conviction growth stocks. Considering Friday is OPEX day and macro headlines seem to point to a positive market bias, the bounce may hold and/or continue. Otherwise, we’d say the market is prone to a red day off a tape like today's on any other day.  Hopefully, if today’s tape is seen as some stabilization (a first step), it will bring some confidence for investors to buy higher beta names.

Shadowlist

• Commodities-   The lead into coals past few days carried over as coals outperformed. (WLT ANR CLF  >4-5%).  Tonight good ole' Cramer jumps on the bandwagon.  It’s probably best to get off the solar trade as its shelf life is really uncertain off Japan.
• Momentum/ earnings/ winners of ’10-   As per the above…after noting the outperformance of names in this group during the sell off this week, it was disappointing the see almost all high beta lag the market.   The RUT simply was a rut along with tech.  Part of the lag was guidance (gov’t and defense spending) from SANM (EMS sector) which weighted on opticals and networking/equip communication stocks after killing all the EMS stocks.  This just adds to all the uncertainty related to Japan for Q’s ahead (supply chains etc.).  Next week we will finally see some bigger names reporting that will hopefully clarify the situation.

..still ignoring negative tilted newsflow

A seemingly directionless (sector wise), a lagging tech/naz trade still had the market surprisingly pushing to last week’s highs in the first hour.  The next few hours were going to rest on tech shoulders for the broad market as it was still .5% off its highs of last week.  You always want lagging indicies to confirm a further move by following. ( ie. follow SPX highs today).  As it played out with tech still the sidelines by midday, it was no surprise to find the tape wavering slowly throughout the day, closing at lows after being stopped at the top of noted cluster of “R”.

In all, no catalyst for morning move higher and no catalyst for late slippage. (a Roubini downside risk update hit wires might have been culprit). 

Shadowlist

• Momentum/ earnings/ winners of ’10-   Spotty mixed performance among networking/equip comm’/ momo’s, some networks linked names like APKT, (around down trendline March break) and ALU were outperforming peers by wide margin.
• Commodities – Once again coals here (WLT CLF)  did well, GS helped with an upgrade of WLT. Intraday, MCP , hit 2 month high, CRR a nch and now up ~25% since a DJIM earning addition in late Jan.  Late day broad market selling took most of the above down to trade more inline w/SP for the day, but overall these names still act well day after day.
• Consumer-  MAR’s #’s weighted on the leisure sector (a upcoming earnings question mark now ) and therefore, no follow through for casinos.  Retail was fine,  LULU  breaking out to a NCH by midday.

Ahead of the open, (01-12)

A global ‘warming’ emergency synchronization… rescue beginning in December 5, but only a piece of the puzzle as banking and sovereign debt crisis is interwoven.

Just as the Shanghai exchange suffered one of its biggest declines in 2011 overnight with PBOC officials still dampening hopes intraday of an imminent easing…Boom!...PBOC cuts reserve requirements after close by 50bp starting Dec.5 (cuts amount of cash banks must set aside to spur lending).

=Futures market reverse about 20 handles into 8am.

In Europe, a dud of an EFSF deal reached by finance ministers, speculation policymakers had made no progress on propping IMF funds with ECB not ready to do anything substantial…. BOOM!...A FED led blitz of Central Banks backed by US gov’t with a US-Funded Liquidity Bailout of worldwide dollar crunch!!. Yes, the same USD funding stresses noted here before the eventual 1275SP- to 1159SP rout just over week ago needed a quick Global bailout!. Simply, central banks rescued what EU officials couldn’t (liquidity shortage) in a bold move taking matters into their own hands.

= SPX rockets and recovers almost all the ground lost in November.

There was not going to be fade job of Monday’s rally as the market ‘squeezed’ higher off fresh cheap cash injections to come. Funny, how you can fix Germany’s 1yr debt going negative this morning (probably kicker for action), China’s horrible market day off renewed hard landing fears and a European ministers inabilities in just a few hours. Note, this intervention isn’t the holy grail guarantee, but it is a piece of the Eurozone puzzle.

Of course, what ails banks is now seemingly fixed for the moment as their lending to each other simply trickles down to economies, but it doesn’t put a blanket over the debt sovereign crisis. Expect more from ECB going forward to make this a true turning point for the crisis. ECB hard-line/standing pat seems to be getting it’s way and sooner than later they will be satisfied to step in. (more political reform etc.). Also, expect IMF co-ordinated program to get off the ground as well.

Unfounded rumors of a bank struggling to fund itself  this morning might have the ‘mishap’ talked about here last week for something to be done.  Still, it’s likely the German 1yr this morning is what spooked the CB’s to let loose their contingency co-ordination. This wasn’t made up overnight, it’s been in the works just in case.  In all, that should give confidence to investors co-ordination is always a possibility.

In all, add ADP# 200k ahead of NFP# Friday ( .. last week here...Employment whispers for Dec 2 starting to come in at 200k~.)..and equities just became sexy again. Last weekend did smell like a prelude to a rally, just as in October rally (noted early this week). Financials rallied ~6% , leading the tape (along with materials (high beta coals (CLF, WLT) steels led (X,NUE ), energy, and industrials). Bascially, you can trade commodity- linked stocks such as above that have been Shadowlisted in the past, as well as the high beta earnings plays related to China ..(ie.WYNN, LVS, CMI.) or just related sector ETF’s.

Although most of the day was over with at 8:40am, the fact SP added some 10+ handles in the last hour suggests some ‘ longs only stepped in’ after the early morning short covering. This suggests we may buy single stocks in anticipation of more upside into year – end. So, did we get our wish from financials to lead rally, just like in October?? They are down nearly 25-30% YTD and big rallies usually see worst sectors bought first.

You may not believe in CB’s actions, EFSF, China ‘s RRR, but this is a day where you can’t ignore the price action. Things are actually being done a step at a time, recall note here investors want action, not more speculation around upcoming (meeting, summits).