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”

DJIM #2 2011

As 1280 invokes ‘R’ for the past week, the market impulsively sells off here and will continue to find an excuse to take some profits.   On Friday, it was something completely immaterial in the ‘big picture’.(Mass. Foreclosure ruling).  Does any investor in Europe/ China give a damn and/or make an investing decision based on such with Sovereign debt/Inflation questions unresolved, respectively?  The answer is definite no-no, but in the US markets it’s reason enough to test 1260 support again!.    What was relevant and material was a weaker than hoped for NFP# , but a justifying Bernanke keeping QE2 ‘ alive and on track’  was much more important and offset the #.  If anything, the jobs number calls for QE3.  As far as the tape during the midday antics, it looked more ETF/ES driven as single stocks (exc. Financials/Banks), hardly twitched in either direction.  Indication is holders of stock are reluctant to sell as much as they are reluctant to buy more. 

Technical-  1256SPX 20ma (DJIM Benchmark for a few years now) is in focus and if broken will likely lead to a correction as shorts may finally lay out some exposure.  As per ‘RUT’ of a day'  post last week, the RUT has now lagged the SPX for consecutive weeks and could be foreshadowing ‘tiredness’ for the rest of the market.

Tailwinds – (potential) Q4 earnings should come in better than Q3.  Shorts are not laying out positions ahead of potential train/ minimizing downside for now.

Headwinds- wary- (potential) US markets oblivious to rising Contagion noise again.  A case of shrugging it off or complacency at work?.  Looks like complacency in this view.

Shadowlist

• Momentum/earnings/“winners of ‘10–   Entered the week looking for newsflow from CES Vegas and it definitely was the ‘Buzz’ of the week.(SOX >3%). Leading stocks CRM ARUN RVBD FFIV , >6-9% on week…”..Dec 30^th….” further gains likely into the front half of January with individual 'leading' equities catching up..” As far pre-announcements, no major names, but a slew of mid cap types warned.
• Commodities- USDA reports mid-week to possibly feed Ag space some more. 
• Consumer- WYNN >14%, LVS>8%  continued the weeks move off Friday’s Tier1 positive comments …Turning point was early in week...(Casino sub group had very good Macau numbers and WYNN finally got over 105).
• Financials - 2 day of selling, European unresolved peripheral stresses should continue to bring money flow here.  Foreclosure noise will persist.

..jinxed it

It didn’t take long for answers to the negative assertions presented in yesterday’s Journal, including somewhat rhetorical questions…”Stubborn/resilient or (dumb)? ..”How long can this (oblivious) last?....Are stronger (Ahead of) than expected earnings Q4 prints going to be enough to hold up the market?.

A fall of 20ES points from premarket, ~13 SPX /40 Naz day points and notably a ‘cloudy’ after hours session may finally awaken the shorts to participate in this market.   All in,  wish the DOW was off 300 points instead of 12 as it gives a false impression of the underlying tape.  Most of the profit taking now is earnings related, but the ‘wary’  stuff noted here, (policy tightening speculation globally) aspects of the market (inc. 2H January effect) are working themselves into the markets ‘psyche’.    Today was the first day in weeks we’ve seen profit taking pick up as investors have been willing to hold on, but days like today will wake up the complacent ones and may cause more selling down the road along with more confident ‘shorts’ coming back.  So, the strategy of hoarding cash for potential earnings plays remains to avoid any of this today and potentially more.  This also works because after today’s action in financials, tech, ’10 winners, ag’s, we’re left with little leadership to seek for a trade.  Allowing the overbought conditions to work themselves out will be in the best interest of all 2011 Bulls.  It’s been a good 6 weeks without coming close to the 20ma, the market can use a visit.   Recall a trading premise here, if intraday dip buyers do not appear as was the case today, they usually don’t come in the next day.

Technical- Support 1277' ish on a close basis, followed by 20ma pretty easily, if busted. 

Shadowlist

• Momentum/earnings/“winners of ‘10 –   discussion here of the overhang of Jobs outweighing AAPL’s excellent print played out as the stock rolled softly downwards all day from ~450’ish post earnings levels signified no follow through for itself and importantly for those hoping AAPL/IBM could pull the market higher and unfortunately answered ….”Are stronger (Ahead of) than expected earnings Q4 prints going to be enough to hold up the market?. “…But, this was hardly the reason for a 40pt fall, the real reason was..” the component stocks like CREE LLTC had disappointing inventory correction themes”. You can add WDC  to the ‘inventory’ trend (which hurts PC outlooks) and more reports tonight confirm this negative.  The ‘unfortunately’ lack of participation from the FFIV CRM RVBD types hovering at 9ema support yesterday had most breaking this support intraday only to avalanche big time post FFIV earnings AMC.   As we know from early October post EQIX preannouncement,  the whole family gets taken out to the woodshed and that’s definitely the case AMC w/ FFIV off ~30+, APKT off 7, RVBD ~6, EQIX ~5, CRM ~10 etc. 

Interestingly, go back to CSCO’s  report and see what we said may eventually show up and be a negative come January reports!

• Commodities-  the Ag’ play introduced here in December for early ’11 finally curtailed as investors used the Cargil ‘divest’ of MOS shares as an ‘excuse’ to take profits.  An’ excuse ‘ is what is, but that’s all a market needs to take profits and ask questions later.  Tightening spec. globally leaves little to trade now in commodity linked stocks.

• Financials-  ..”A ton of names to report on Wed. (inc GS WFC) to potentially (hope) negate C’s print.” . The ‘hope’  didn’t materialize one bit as GS  and many others in space disappointed with earnings and as in recent Q’s the sector runs into earnings and falters(selling) soon after.

..may start to see better EPS reactions

Once again a seemingly ‘oblivious’ US market in premarket/opening bell shrugging off a 3% decline in the Shang due to more tightening fears changed course quickly in just 2 hours.   As soon as 1277 fell, 20ma at 1271 was smacked on the head.  Yesterday.. “Technical- Support 1277 ish on a close basis, followed by 20ma pretty easily if busted”. Considering there was little premarket negativity/ no gap down indicating a shot at the 20ma this day,  the fact it happened brought in bargain hunters (see below on who moved) that would not have come otherwise.  Usually they wait for some stability following a day like Wednesday, but this time they couldn’t ignore an important ‘technical’ benchmark.  In all, it was good to see it recoup above 1277 on a closing basis, but hardly a game changer.  ..”It’s been a good 6 weeks without coming close to the 20ma, market can use a visit. ” . The fact 20ma was so easily accessible makes you think another visit is not far away.

Shadowlist

• Momentum/earnings/“winners of ‘10 –   Thanks to FFIV , many small caps took a licking and not just popular '10 momo names, but more mid cap winner stuff.  You could see this by the RUT underperformance( down 1%) to the SPX.  There was little bounce evidence and considering most have broken 9ema handily we'd only trade 'intraday'.  It’s probably better to wait for pre-earnings move on many individual names.   *Likely, FFIV has given this ‘blessing’ oppy for pre-runs and better earnings reaction as they’ve reset the bar low.
• Commodities -  All the policy/tightening, global hikes are taking it’s toll. Only coals really came off the lows, but that’s more due to fact they’ve been coming down for 5 days already.
• Financials -  After 2 days of selling, bargain hunters came in.  It’s not that MS report was great, it’s more of a function you weren’t as bad GS and C.  This is hopefully a change in earnings reaction going forward and is the same thing FFIV may have provided.  Simply, if you don’t suck as much as GS and/or FFIV, we won’t damage you too badly and if you produce, we'll thank you by buying up your stock.

..Cheap is in

Today, the market officially entered the Twilight zone as Dow smells 12K on the heels of IBM, GE, etc. stuff.  Oh boy, now valuation takes precedent over higher multiple/beta names!.  If this keeps up our 2011 Shadowlist will look a Value Mutual Fund, so basically the market better ‘correct’ at some point to make ‘growth’ stocks look like values again.

Shadowlist

• Momentum/earnings/“winners of ‘10–   VMW  earnings were top line strong, but a few negatives (on margins and some cautious remarks) is enough disappointment for 2010 winners to come up for sale, particulary the ‘clould’ space.   Even before the report the sector was flush with early selling in APKT RVBD CRM FFIV  in a rallying market as investors have given up seemingly since FFIV report and instead flock to lower valuation tech earnings.

Shadowlist addition:  A one time DJIM play returns off a record Q at~$20. (SILC)

• Commodities-  Weak dollar/China continue to make the space a mixed bag.  Solars  (shadows FSLR, TSL ),noted last week are still moving forward.   A conviction buylist reco’ boosts FSLR , but the group is mostly moving ahead and into the State of Union address (Tues.)and renewable energy speak.

..out of sync

 Any other day/ week/year to date,  market gives the impression of resiliency, but with China down 4%, India down 7%,  inflation hedging commodities (precious metals, copper) beaten up in a global inflationary landscape, UK double dip possibility GDP out today, you really have to wonder if a US rotation to IBM,GE, WMT and away from smaller higher multiple stocks can carry the load for US markets to keep rolling higher?. 

As far as today’s late reversal, it is nothing more than short covering driven by ES into the State of the Union with little individual stock participation, but given the upbeat pump job by Obama, we may have some follow through with risk assets (commodity linked stocks, growth stocks) playing some catch up.  Still overall, the market and it’s indicies are not in sync suggesting any move would be short lived.

Shadowlist

• Momentum/earnings/“winners of ‘10 –   Selling continues (RVBD,CTXS etc.) post VMW earnings, but if there is a positive takeaway it was FFIV’s reversal from $102 -$107 in the green.  Still, considering 9 ema broken on most,  we’d wait only consider a dead cat bounce intraday trade until a definite shift occurs like last time (post EQIX sell off) that was produced as earnings started to come in better.  Earnings positive was an upbeat JNPR.
• Commodities – Again weak dollar doing little to offset China worries as the groups get pounded. Another dead cat bounce may be in order in this sector soon.  Those inconsistent Solars reversed hard in afternoon as a preview of Obama’s speech was released, simply  a sell on the news occurred after run up.  Steels (X)  is the likely short term trade possibility.
• Miscellaneous-  As some defensive posturing is going around, HTWR produced a nice reversal day off 9ema.

..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.

DJIM #17 2011

Kept hearing late in the week,” what a rollercoaster of a week!”.  Well, we’re not sure what all the fuss is about as it’s been straight up ~40 SP handles/ >+3%  since 15 minutes into Mondays’ trading,.. “SPX , approx.~1295 off SP downgrade news likely a buy”.   Must be the dying words of all the naysayer social media guru carcasses seen sprawled out by Friday’s close!.  Of course, majority of the move wouldn’t have happened if it wasn’t for earnings and the reactions changing and coming in ‘solid’ after a disappointing week 1. A big part of trading is preparedness and coming into week we were citing one of the ‘what if’s’  to rally the market laying out the steps ie.....Solid broad Europe earnings, US market sell off reactions would change,etc. to get the rally.  You can’t have the poor reactions we saw early keep coming in, if you have something like 80% of the corporations reporting positively and/or surprising. The averages were unlikely to change as the market went forward, if 16 out of 20 surprise positively, we’ll probably see 80 out of a 100 accomplish this and so on and on it goes.   

Recall,  a big key to keep the upside going and going is for investors to continue and see ‘value’ in stocks as we’ve been saying all month…..”… investors need to see value in stocks to keep the trend in tact for Q2 or market risks a correction later this month, earnings are the big key to that!”.   Okay, so far so good, but the market did generate some fresh headwinds, eg renewed Sovereign debt tension, even Financial links falling off earnings is a fresh concern along with rails/transports lagging the tape. It’s no surprise most investors were caught snoozing on the rip higher with all the negativity around. 

Now the excuse for many will probably be 'technical’  as we close at a cluster of SPX “R” resistance. It’s an endless circle of pessimism regurgitating through the market the last few years.  It’s always something that supposedly keeps real buying on the sidelines before realization hits and PA (performance anxiety chase) ensues.

Into the trading week, earnings can keep the momentum going, but some caution will be ahead of Bernanke’s ‘big day’, which will likely lead the market to consolidate.  The ‘Super Bowl’ hype over his first post-FOMC press conference will likely turn into a non-event with Will and Kate’s wedding likely offering more exciting.

Shadowlist

Broad range of Shadowlist linked stocks performed relatively well intraday, despite market not passing overnight highs as speculated post-AAPL exuberance in AMC.  Names with >3% gains are tagged on site.

Ahead of the open, (22-12)

Leading into the trading week,

” Earnings come from the softies’, ORCL RHT, TIBX. After all the negative announcements from the ‘hard’ware types, software is usually the ‘safe’ haven in tech, so these companies will be closely watched for tech contagion. If (ADBE) is any indication from last week, this group will provide relief”. 

Coming off a 3% melt up with all focus on ECB’s LTRO, holiday cheer was dampened as noted heading into today’s trade.. ...”Unfortunately, this last positive (LTRO) is out of the way now and euphoria should subside….. A rare miss from ORCL will be defended, but will have an impact as some factors mentioned by management will definitely effect other co's”. RHT, reported after ADBE earlier in the week and didn’t meet expectations setting up the table.

Considering ORCL has been a can’t miss earnings stock for years and with money loaded into the software space for anyone wanting tech in their books (especially post all negative guidance in hardware types recently), a volume tick up slaughter ensued in the sector with many linked stocks down ~10% in the first couple of hours with many of our favorite names over the past year(s)included.  (CVLT N FTNT VMW QLIK TLEO FFIV CRM CTXS BSFT even IBM ). Investors caught on by the opening bell and headed for the exits realizing ORCL’s call “will definitely effect other co’s”. Despite NASD shaving off ~25 pts by close as selling subsided by noon, this caught many of guard and the bounce is likely more of a function of selling stopping and quick traders going in than longs only stepping up.  Doubtful these kind of market revelations last for only 3 hours. AH’s, TIBX report was somewhat a relief, but isn’t a Goliath market cap like ORCL to change view overnight. Worry dust needs to settle here.

In all, the broad market was lopsided. As speculated, the euphoria of LTRO died off despite coming in at higher end of whispers numbers, but the market didn’t sell off (positive) and closed above 20ma/50ma, even as Euro sov’ yields went up (see ‘watch’ note yesterday). The debates on the LTRO started premarket and will linger on.

 In this view, just add it to the Eurozone band aid alphabet for now, EFSF,ESM,SMP and go on.