DJIM #6 2011

While the market was trying to decipher the puzzle known as the NFP# premarket, DJIM was scouring its notes for some sympathy optical plays following JDSU  stellar report.  It’s been awhile since we had some fiber in our trading diet, but were able to pull 2 (NPTN FN )  at the opening bell that were not getting sniffed out.  Importantly, they didn’t gap like the FNSR.   Although, we cover the SPX, our first concern is always stock picking based on earnings/ sector rotations in a good or bad broad market.  As far as the broad market ahead, it’s a light eco ’data week with CSCO reporting the first notable Jan Q end.

Shadowlist

Momentum/earnings/“winners of ‘10 –   As of Friday eager traders are already hallucinating the ‘Fiber’ trade will be the ‘Cloud’ trade of 2011!.   If a herd mentality comes, we’ll play along, but to make any longer term bets would be a little premature.  As far as “clouds’, this is a pretty big week in earnings for the space (EQIX,AKAM,RAX), so hopefully they don’t burst the better sentiment recently.

Consumer – Entering Friday’s trade…Was today a turning point? Don’t know for how long, but it was good to see LULU FOSL  etc. come back to life

DJIM #7 2011, Shadowlist update

The trading backdrop remains as we left it last week, except the markets will have a host of eco’ data to deal with this week, focus on ‘inflation’.  The week culminated in a big finish Friday with the ‘Opticals' stealing the show (JDSU, NPTN >12% , FN up ~8%),  a trade we were in front of all week in the Journals along with the ‘Retailers’, 8-12% on the week,(LULU, FOSL, RL).

An updated Shadowlist (below, visit site) is the only place we’ll need to look for the next ‘pocket(s)’ to trade away.  We’ve added many new plays (mostly earnings 10-15) to this year’s first list via mentions on Journal/Alert-comments since Jan 1, while removing winners from '10 eg. MOTR, ROVI in order to narrow the Composite to about 60 stocks to monitor the breath/rotation and individual stock picking. 

Bar high into eco'data..

Eco’ Data expectations were not met today, but they are a little to the moon right now on the heels of weeks of better than expected numbers.   In all, just a blip of a day and nothing more (hardly a broader change until (if) ~1312 busts.  FOMC minutes ahead tomorrow.   Again, ‘inflation’ clues will be the thing market will watch in minutes as it relates to raising interest in the future.

Shadowlist

• Momentum/earnings/“winners of ’10-   A couple of downgrades (JDSU) took down some other Optical names in sympathy. We already talked about a ‘breather’ here yesterday.  A visit to 9ema for re-entry is something to keep in mind for some names ahead. Still, JNPR, FN  trade well.  Software, QLIK  noted earlier this month, continues its turn today.  AMC- tech earnings/pre-announcements should negate weakness in SOX today.
• Commodities –  Slippage in Ferts (-4-7% one losses in POT,CF,LNN MOS) is welcomed off falling grain prices/foreign co’EPS #’s.   Some respite will provide a quick trade very soon.  Our steel-iron ore names hang in.
• Financials – Euro fin earnings are keeping the U.S linked stocks in the game.
• Consumer –  AMC-M&A (FDO) activity a boost to market morale and many sympathy trades should emerge. considering $$ stores aren't our trading cup of tea, a lateral trade may even be WFMI after some post EPS consolidation

thank..Jennifer Hudson's waistline..

..for WTW and/ or my recent TBL' (Earthkeepers) purchase to get through another winter!

Coming into the week we noted ‘inflation’ would be the key ‘word’ and it has proven to be as all the market noise is related it.  Everything else, including Iranian boats and some overnight ECB buying (fat finger?), the market is turning a blind eye to as we see by recent trading day's 'green' closes.  Note, if Journals do not contain mentions of eg. boats, Middle east tensions or whatever heading into a trading day as every other media outlet,  it’s because we’ve turned a blind eye to it and are trading away the Shadowlist components.

A simple question now is does the US /global have an inflation problem?.  Okay, if so, why are the emerging markets on fire this week (>3%)?.   Sure, they’ve have beaten up so far in ‘11, but you can beat them up more on inflation fears!.   Yesterday, FOMC related forecasts didn’t change (positive)   So, this is the noise, the fear mongering, but what do you do as a trader?.  Consider this…What if inflation points ease down the road, you’ll beat yourself for not using your cash this EPS season!. That's as simple as it gets.  What we’ve been saying this Q (if not years now) is trade the earnings stories/ rotations and ignore almost everything else.   

Shadowlist

• Q4 Earnings update-  Look at today’s ~40% pops, WTW TDSC TLB, (picked TBL to alert today, but you can add all 3 to Shadowlist for now).  These are almost historical earning reaction gaps and incredibly there is more follow through intraday (see IPGP  comments recently).

• Momentum/earnings/“winners of ’10-   While some momo’10 names notably lag today in a melting up market (maybe something to monitor for broader mkt),  this year’s inclusions  to DJIM consisting of opticals/ EPS’/ new potential momo’s carry on.  NPTN, FN  alerted here at ~ $14/ $25, respectively are near highs of $21/$32.   When you catch momo, you really catch it!.  Buyers who missed the ride earlier got on board of NVDA (up >10% from red lows), despite many bearish analyst comments.   AZPN  got a $22 price tgt.