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Entries in FLS (2)


DJIM #5  2011

“… The question is will it be a standalone technical correction for the right reason (consolidation) or will it be accompanied by ‘ bad news’.   This will determine the scope of the correction….shallow or deep.   In other words, consolidation or correction?.  (Entering last week’s trading). 

Well,  less than a week later investors are asking this same question!.   DJIM’s view is this Friday’s sell off is very welcomed  by both sides ’expectation of a correction’, as discussed in the Journal trading lead into Friday’s trade.  SPX is now a grand total of 9 points higher in a strong earnings season.   That’s good for longer term view as there is room for those underinvested looking from the outside into this market for 2011.

As traders we’re all used to ‘sell on the news’ last few Q’s after INTC earnings.  This Q it took a little longer as in ‘peak’ earnings hitting Thurs night/Friday BMO and used Egypt’s misery to ‘excuse ‘ a sell off and rid of the market ‘froth’.  The market knows all it needs to know as the bulk of earnings were in on the important,  “BIG’ banks BIG industrials, BIG techs.   The end result has been a ‘strong EPS Q.   Investors/ managers know the trends, so it’s time to take the froth off.   That’s the broad market, it has nothing to do with ‘individual stocks we are looking for in the upcoming days/weeks to play, so trading life goes on.    Also, playing a part is what was touched on late last week after a good market day,  simply it is very much technical related… “All in, the RUT excelled, but this is only a dead cat bounce until it at least makes it back into the Sept – Jan TL closed at ‘R’).  The NAZ faces the same ‘R” in its chart and both are hovering around 20ma.“ .    Basically all the ingredients have been in the market for days.  Friday the ‘soup’ of all these prevailing issues just boiled over.   As SPX made fresh highs, the transports / RUT were not participating signalling divergences once again.     We’ve been talking discrepancies in the indicies consistently.  

In all, as alerted late Friday as a precursor to the weekend Journal, the supposed ‘panic’ was not in individual stocks and definitely not in the recent emphasis of stocks/ groups from the Shadowlist, but in the ES ETF scene.  Therefore, it’s not real panic as investors held long positions.   If we breakdown the lists…the momo clouds were all green on the day, the Ag’s and coals were also predominately green.    Anything down was more of an individual issue like AMZN related to earnings and not ‘Egypt’.    Of course,  if things escalate and investors get nervous in days to come, we will likely see this spread to single stocks.   Today, if you wanted to get out, you could have done it in one piece as most Shadowlist were hardly touched.  Of course, we don’t want tensions to heat up in the Middle East,  but if this is quickly resolved the market will unfortunately (yes, unfortunately) bounce (probably ES ETF mostly) and smart money will sell into the strength and into singles stocks.   This will show it wasn’t geopolitical tensions that caused the 2% sell off, but all the underlying issues that were already present.   Also, it will show the market made a short term top on 01/28.

  • Technical – as noted in last alert, SPX 1260 is a high possibility in days to come.  This would represent a ‘shallow’  correction and therefore ‘consolidation.’  If 1260’ish taken out, we’re looking at a long term trendline break from Sept break and the likelihood of December gains evaporation (deep correction).


  • Momentum/earnings/“winners of ‘10 –  The ‘cloud/data and momo earnings scene was immune to the Naz 70pt/ >2.5% sell of as the M&A activity(TMRK) trumped.  If this restless environment continues this may have only been a hiccup day as  shorts may look to take high beta down as (it’s the easiest.)
  • Commodities –  As noted above, the Ag’s ferts/coals also outperformed and a rescue of MEE by ANR(speculated for weeks) finally occurred this weekend and shouldn’t dampen the coal space heading into the trading week and more cyclones (AUS).   Of course, the notable trade off Egypt was a rush into Gold/Oil.  We’d stick to oily related ETF’s , if the situation escalates, but a few single stocks may work for other reasons as well.   CRR,  gained up to 4 points intraday, ( a earnings addition to trading list as it continues to make solid earnings in the O&G equipment sec.( previous day). FLS, an old DJIM play is one to look at from a chart perspective.
  • Q4 earnings updateWhat we want to look for early this week is if excellent reports get bought or if this trade dies short term?.   In other words protect yourself from gunning what look like good reports early and risk being a new holder at the days early highs off a report until we see the markets mood.  If earnings are no longer bought, it likely signal more downside in the broad markets.  This relates to ‘earnings sell on the news’ premise above and would indicte a shift from MICRO to MACRO  for the markets ahead.

..and up it melts

Seemingly after weeks of noting SPX 1307’ish as ‘R” resistance, the market opened firmly on M&A Monday (3 deals) and overshot to 1320 with an eye on 1333 (666X2).  Yep, that’s 2x from what we called the ‘Mark of the beast’ , March 10th,2009

”Usually,  we have a case of mouths calling the market bottoms, nobody is doing that now at this level and instead calls for 500-600 gravity pulls are all over the place.    We like this as well for a better chance to get a meaningful bounce from the 'Mark of the Beast' 666 level”.  

A devil of a rally proceeded at that time and after a few hiccups along the way, the market finds itself in a midst of a continuous gradual melt up 2 years later.   The headwinds  of economic data, corporate earnings, money flow away from emerging markets/ bonds, Easy Ben..(Today M&A) outweigh any single ‘day event tailwind  in the Bulls favour.   There is absolutely no reason for the shorts to step up and risk being thrown under the bus as per recent ‘Egypt’ situation again.  The same premise exists here as it has for months.  As long as this lack of tailwinds persists, any pullback will be shallow as dip buyers will come in.


  • Momentum/earnings/“winners of ‘10 –   Besides AAPL  making fresh highs, most winners/momo’s couldn’t be found in the top SP tech performers on the day as it’s pretty quiet following a nice week.  As said, CSCO earnings are ahead and are being waited in as are some notable ‘cloud, data center’ names for direction. *SOX was a notable underperformer, it’s been a leader, so it’s lack of participation in market making new highs is some crumbs for the Bears.
  • Commodities –  mostly mixed, DJIM oily/energy linked plays  FLS, CRR  are holding up well, (GTLS  got a pump Cramer job), LNN  part of our Ag’/fert rotation play since late Dec hit fresh highs while CLF (steel/coal) keeps hovering around new highs.
  • Consumer – Our retailer names  LULU, FOSL, RL  continue to trade well /inline with broader tape. SODA,  a Jan alert preceeding its big day from $33 made NCH >$44(new closing high) on addition to IBD 50.
  • Financials–  After flat lining all earnings season was today a wake up? $BKX.   Well, a history of headfakes is in it’s blood, so no telling from one dayIt is European bank reporting time, so they will likely feed of their reports.