Into the trading week, (Dec. 12- )

Investors seemingly always look to the weekend for catalysts and position so by Friday’s trading close, especially if there is a summit of major importance as was scheduled for Friday, Dec 9.  Well, not this time around as all news flowed prior to timetable catching more than a few investors off guard.  The European charade was basically concluded by the opening of US trading on Friday, Draghi’s ECB surprise comments on Thursday overshadowing what came to be expected...a ‘relief’ band aid summit agreement.  The markets hysteria on Thursday (big down) and Friday (big up) is just commonplace 2011 action. 

New debates will emerge; new and old speculation will come again.   As discussed, watch (still) the Eurozone bond markets to be the signal for equities.  While summit’s expectations came down during week and end result was underwhelming, Sov’ yields didn’t widen much as in previous underwhelming summit days.  A bazooka result to keep calmness in peripheral Euro bonds may not be needed with all that has been done recently. The ECB liquidity measures were overlooked last week, they will be a big help here.

Underneath the Eurozone mess was continued unfavorable guidance continuing in tech (majority). Noted, GLW, OVTI recently, there has also been HTC and last week TXN, ALTR, LSCC all dropped guidance. Example LSCC dropped to -14-17% from -4 to -9%. These were not expected cuts, these co’s updated just recently.  Maybe, it’s a good thing SP came out of last week up 1% as no one is really paying attention yet to what damage has already been done by Europe to the real economy.  FDX will be eyed on Thursday for all of the markets. Also company analyst days will be in focus ie GE’s this week for 2012 guidance. Global flash PMI’s are the first December economic activity barometers we’ll get mid -week.

Ahead of the open, (21-12)

So, was today’s market melt up of 35 SP handles because today’s news was ~2X better than yesterday’s 15 handle loss?. Hardly, today the market was a victim of no sellers vs. no buyers early on (opposite of what we've seen the last few trading days) and the speculation the market may reverse yesterday's losses came to fruition and more. If you add the illiquidity factor, you always have a chance for a seasonality melt up!. The gradual build up in ES pts. premarket (only 1205 at 7am) and open internals indicated the market would not be prone to day #4 of an early morning market sell- off. The rally was larger in points and very broad based with Financials, Tech (networking led with big gains as speculated in trade idea for morning, (NWX), APKT, JNPR >8% and more linked stocks to AT&T), Industrials, Materials, Energy all 2-3% higher early. Oil rose ~$3 early and Gold was up ~20, the risk- on commodity bounce suggested late last week took off.

As far as the news helping sentiment was hardly fresh news, unless majority of what is left of market players has been asleep at the wheel recently or not understanding ECB's LTRO announcement 2 weeks ago.(more below)

• Spain successful notes auction was cited, bond yields have been falling for days to 5% levels and it was the ‘second consecutive successful weekly’ auction. This shouldn’t be a surprise given last week’s and recent liquidity push. This directly relates to ECB’s 36mth LTRO program demand results on Wednesday, which is getting attention (finally) for being an unprecedented and generous liquidity move.QE, game changer like to some.  Yes, the same ECB liquidity push alluded to here at least 3 times (below) recently as something the market has been overlooking following Draghi’s ‘cold water’ pour recently. Two weeks late,r it's all the melt up rage and the boost to get over 50MA.

(In all, there is enough liquidity provided by ECB that should contain yields from re- widening to recent alarming levels for the last 3 weeks of ’11 trading”…” It’s not from pure Eurozone fear/panic ......(sov’bond yields ok, ECB measure from Thurs a help as noted). "...."A bazooka result to keep calmness in peripheral Euro bonds may not be needed with all that has been done recently. The ECB liquidity measures were overlooked last week, they will be a big help here.")

Once the results are in, watch sov’ yields to see if they keep going down to gauge LTRO’s success rate, not how high demand was (expectations grew today to ~500bln), which is buoying markets today. (Banks borrow from ECBfor up to 36mth at ~1% and buy sov’ bonds then pledge that paper to ECB (Arbtrade/carry trade for banks) is the program hope. The debate will be how much of the amount will be used to purchase sov' bonds/carry positions vs. banks use with funding problems.

Also in Europe, Germany’s IFO was acknowledged as an ingredient to the rally, but folks, Germany’s PMI came in 2pts higher last week to 51+ signalling this number today. As far as U.S, we’ve been getting solid data for weeks, is a solid housing start report all that surprising news?.  Also, it was bracketed here (another RRR coming) in response to China news yesterday, today this same angle was picked up as ‘easing’ positive for the markets.

In all, a perfect gift for longs to sell and/or to believe in Santa "ECB' Claus for a little longer....Unfortunately, this last positive (LTRO) is out of the way now and euphoria should subside. Focus will turn to (ie). SP AAA resolution will now come with more risk due to higher market prices.(1250 resistance). A rare miss from ORCL will be defended, but will have an impact as some factors mentioned by management will definitely effect other co'.

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.

AHEAD OF the open, (23-12)

Today’s action had all the earmarks of window dressing/ Santa mode on thin liquidity (lowest vol.in Dec.) into mth/year end and it wasn’t really surprising coming on the heels of yesterday’s positives..a)”…the euphoria of LTRO died off…but the market didn’t sell off…b) closed above 20ma/50ma, c)..even as Euro Sov’ yields went up”.

The logjam of resistance points is in the 1260-1267.

If the small caps/R2K outperformed today or outperform shortly, those levels should be revisited, if not broken to the upside from a symmetrical triangle pattern.  Judging by the financials here and overseas, ( LTRO sentiment was better than yesterday), the sector could provide an added spark and trigger a move higher. *S&P resolution seems to be holding off due to thin year end market liquidity.

Most notable news today was the Initial claims number continuing to improve for a second straight week. It’s a leading indicator, signalling economic improvement in December on top of what was already solid data in the previous month.

As far as tech action post ORCL disappointment, softies still showed signs of dusting themselves off(despite TIBX up 9%), but the early week networking trade off AT&T picked up again (ie. JNPR).

Merry Christmas to all!

Ahead of the open, (29-12)

A quiet overnight session, a steady premarket with ES up a few points and you’d think we’d be in for another treacherously boring, tight range trading day.  But, oh no, Santa seemed to have 'onlined' the Bears one more gift as the market tripped out of the gate and continued to roll to a 20 SP handle loss from (ES high to low).  Maybe, this Bear gift wasn’t from Santa, the melt down had no explanations as to whom/ what was responsible.  The only excuse to account for the downdraft was the EURO falling out of bed (~1%), but even Euro needs a ‘catalyst” firstly and there wasn’t one.  The Italian short term bill auction was a mild success with the anticipated longer term bonds sale on Thursday to gauge foreign buying, so this wasn’t the culprit.  Nobody at the end knows what caused the EURO plunge at the U.S market open, not even the plotters at Zerohedge, it seems.  One excuse, the stashed EURO's at ECB climbing to EU452 billion is really old news considering market already knew EU347 billion (new record) was parked post LTRO last Thursday night.

Preference here to trade –off is when you have a lot of excuses to account for a decent size downside day like recently, ... (A slew of wire bits were floating around trading desks explaining the weakness, but in this view, just excuses. Recall what has been said on these pages for a long time, if the market can’t pinpoint one real deserving catalyst on a downside day, more often than not, majority of the losses are reversed the next trading day. (MARKET RALLIES 3% day after),  not one where you can’t even generate 1 or 2 decent excuses.

All in, maybe it was just the thin liquidity at work where one oversized buy or sell can lead the exaggerated moves, especially true in FX markets leading to a domino effect in the equity markets.

Or maybe, it was the just the logjam of resistance points in the 1260’s and the faltering underlying currents catching up to the broad market covered here last few trading days.  R2K underperformed the SP once again this time by almost a full 100bp to the downside and the Euro’zone sensitive, Financials lagged with another 1.5%(BKX) drop.  The inability for the small caps to follow through on previous days slight breakout is a disappointment.