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.

..ticking higher

A game of..’You go first’….’No, you go first’, characterizes the market participants (longs and shorts).  A lack of conviction on either side,  although both have reasons to make a move.   A lack of urgency is prevailing, likely due to expectation of a correction.   A correction would give investors who believe more now in a global recovery a chance to enter and the shorts some confidence to try and press the downward shift.   Luckily, we are at the peak of earnings season and all we need to do is concentrate on individual plays and nothing more.  There’s plenty of fish to trade on a one by one basis, whilst ignoring the market gibberish on Dow 12000/SPX 1300.  Eco data- Initial claims couldn't get a move started, now GDP on deck.

Shadowlist

• Momentum/earnings/“winners of ‘10 –  The Q4 earnings reactions are definitely getting better as speculated here recently as seen by NFLX  partying like it’s 2010 all over again.  Also, RVBD  basically in-line call/guide was well received and should begin to take the sting out of the space post FFIV.  (See EQIX note this week).  Importantly,TMRK ,  M&A activity is a boost for the data center related names like EQIX SVVS  etc and just the whole ‘cloud’ area.
• Commodities –  Despite a 5^thstraight down day for the USD, most spaces sold off, likely due to China New Years hikes possibility.  CRR,  a earnings addition to trading list as it continues to make solid earnings in the O&G equipment sec.
• Q4 earnings update – OPLK OPNT, mid –caps on watch for now as 4-5pt gaps are little too eager for this liking. SCSC , as well.

DJIM #11 2011

Due to the earthquake Friday, the markets were secondary and if not irrelevant.  As witnessed all weekend the implications and fallout will remain an unknown.  We started early last week talking of the volatility back in the market and it picked up steam in one of the worst days in the markets in months and lead to our early premise in late February of this playing out like out like November instead of another quick snapback… February 24th”..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.”.   Unforunately, the market got a few unexpected wildcards (optical earnings induced slide, china import/export, US trade #’s & Earthquake to lessen the positive developments out of Saudi Arabia (non-event) by Friday.).  Heading into the week a ‘bleak mood’ will likely persist, but the market did defend the SPX 1294 level discussed and the sideways trade may continue if it continues to hold.

Shadowlist

• Commodities-   The fallout from earthquake to start was the ‘rebuilding ’ trade in steel  related names.  Another will likely be solar  due to the nuke issue at hand. (Barron's was positive on our 2 names TSL,FSLR  based on valuation). As far as China trade #’s, it is likely an aberration due to seasonal factors as January was extremely strong and February very weak.  A very possible wash in the end, but market is not drawing this conclusion yet and will likely wait till March’s # come out.
• Consumer-  Retailers in list acted okay and are near highs late last week, RL, FOSL(IBD50 addition) TBL etc.  SODA continues to trade well.
• Momentum/ earnings/ winners of ’10-   some better signs last few days as high growth names bounce ie. NFLX, FFIV.
• Financials-  early in the week talk of rotation into financials was discounted here (needed more than BAC meeting) and this proved right as once again they faltered.

..maybe a start to a sentiment change..

As the market meandered in consolidation mode in the ‘red’ all morning (SPX -5pts at noon),the ‘missing link’ noted here was outperforming with JNPR  (networking) and FFIV  (best on SP 500 tech) were coming out of the doldrums and leading the way.  As the day progressed more and more past leaders joined and a broad market move higher ensued.  The hope is this the beginning of what has been discussed here this week in respect to Japan tech worries being overblown and close to being priced in.  JBL’s  report negated some of the fears for EMS, Comm.equip, optical stocks and late in the afternoon TXN’s CEO said the company would come close hitting street estimates despite Japan.  AMC, RHT and MU  put in strong reports to help the cause and an important day is ahead in earnings tomorrow with ORCL,BBY, RIMM.  Note today’s action took place amid a bunch of negative bits that the market shook off.

Shadowlist

• Momentum/ earnings/ winners of ’10-   JBL helped sentiment overall in this space.  FFIV, RVBD, APKT  all >3-4%. Opticals like OPLK  and notably IPGP , +10% and a NCH.  Also, momo names like BIDU, NFLX do well.
• Commodities-  The coal trade continues for a 6^th or 7^th consecutive day.  GTLS,  continues to be a stand out putting in another NCH along with CRR, another EPS winner here this past Q.

...holding up

Market reaction to what may be construed as negative tilted newsflow (crude price, a few Eco data points, lowering of GDP forecasts ) continues to be limited by long holders. One of the underlying reasons is a tick up in broad market M&A activity ranging from telcos to semi action last night.  Most other market times, a $6.5 bln deal in the Semiconductor space would propel the Nasdaq to hefty gains, but not this market today!. Unfortunately, we are in somewhat of a hold mode as Japan and some overall softness in consumer hardware space gets digested and investors wait on earnings to commence and/or pre-announcements  (a few more mid -caps today, but nobody large) to unfold.   As shorts watch the market edge higher for almost 3 weeks now, a fear of more upside has left them sidelined.

The only space shorts have tried to take advantage of is the Semi space and the TXN deal screwed them of their only home.  We would have seen market gains instead of another meandering day, if ‘conviction’ buyers entered the market. The initial ramp in Naz, semi’s was pure good old fashioned short covering as their semi home got raided.  Post-short covering, the conviction buyers simply stayed away despite all the upgrades in semi’s.  The market needs leadership and if a trough is around the corner for the semi’s, it might get some money off the bench and a follow through to chase higher beta growth would likely follow.

In all, the anticipation here heading into the week is unfolding as the market is seemingly on summers hours working off the rally in horizontal fashion before earnings.  As the R2K beats on higher, it welcomes a move higher from more of the market as digestion occurs near 1335PX.

Update on Wednesday, April 6, 2011 at 11:20AM by Demi/ YourPersonalTrader

Hard pullback to note from open-10am on momo', notably internet linked names with mkt green.  Some kind of profit taking or/and rotation?..Financials JPM bid, Semi's trough?....we'll see

SINA SOHU BIDU TZOO PCLN APKT NFLX AMZN OPEN LULU  all over~5-10pts down reversals.

Opticals trying that bottoming again from last week, outperforming

Smells like rotation..

Although, the market only made incremental gains to a close of SPX 1335 “R”, the importance of the day likely lies in DJIM’s morning market update…

“….Hard pullback to note from open-10am on momo', notably internet linked names with mkt green.  Some kind of profit taking or/and rotation?..Financials JPM bid, Semi's trough?....we'll see….SINA SOHU BIDU TZOO PCLN APKT NFLX AMZN OPEN LULU  all over~5-10pts down reversals”.  

Strong names of late like MCP PANL CTXS  joined the selling parade after hitting fresh highs off the open. The afternoon and close did nothing to alleviate pressure as most names finished near lows of days.  It would be a mistake to see only marginal losses from previous day's close and not see the losses made in first 30 minutes off highs..

As the day progressed, evidence of potential rotation was becoming more evident.  Money wasn’t only coming out of earnings/ momo’ names, but also out of energy and a few other recent leading sec’s.  More proof was the late push in XLF and JPM,GS closing near highs of day and SOX outperforming the comp/NDX, 5:1 .  Throw in some Dow 30 mega’s like  CSCO >5%, HPQ AXP JPM, MSFT outperformance and the day’s puzzle  starts to come together.

Only yesterday, we discussed…..”The market needs leadership and if a trough is around the corner for the semi’s, it might get some money off the bench and a follow through to chase higher beta growth would likely follow”.  Well, not only did leadership come from SOX , we also saw money come off the bench/ profit taking from momo’earning names into the Financials  (other big leadership group investors like to see).  Played out a little differently, but nonetheless we saw fresh buying, likey the bigger $$ flow we've noted as the lacking buy conviction.

All in, it almost seems too perfect if we get this rotation coinciding at these technical levels, so you have to be prepared for all trading possibilites..up or down.

Global Central banks in focus Thursday, notably ECB and what Trichet’s commentary will expose on pace of further hikes after iniital .25bps tomorrow.

Shadowlist

■Financials  - RKH, regional bank ETF usually works well if this to continue, better than trading XLF.  GS, JPM.

■Momentum/ earnings/ winners of ’10 – Last week cited Opticals/fibre had that bottoming feeling until EXFO earnings.  Now, OCLR report wasn’t any better, but analysts suggest growth will resume 2H.  FNSR  OPLK  JSDU >4%-9% in the first hour and held up to close.  The reaction was typical ‘baked in’ as the stocks followed a different road post SANM EXFO earnings.  As far as profit taking in momentum names…there is plenty of money to be taken from other sectors and so it may not last long in high beta momentum because earnings are around the corner.  Still, it’s best to be prudent if trying to find a bottom point as money comes out faster on the way down then up in this group.

■Consumer – retail numbers on deck Thursday morning. ANF and BBBY tonight provide a nice floor so far.  WYNN, LVS  should not fall into any further momo’ selling as the picture here has turned more fundamental since Macau report.