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. 

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.

..another pack

It was a actually a good underlying tape to market naysayers as a few ‘defensive’ sectors led the market higher, but as far as DJIM’s underlying ‘Shadowlist’ tape, it was a second consecutive day of managers swallowing PA pills of mid/small caps as evident in the R2K's 2:1 outperformance of the major indicies. (*DJIM not liking SOX performance for a NAZ up >20pts intaday).  Yesterday’s winners rested and a fresh batch of DJIM plays took over. (see attachment on site). R2K is at 2007 levels. So all cool here today, but broad market is probably signalling a halt coming due to some internals today.

We entered the week in anticipation of …1) “…many are behind the ball on it (as in surprised).  This coming into a month end/Q end is where a PA pill (performance anxiety) will likely be swallowed by managers to play catch .. (many thought it was done with prior weeks gains because many times front running the final week occurs). 2) There’s a cluster of “R’ around 1313-1319, but once a close occurs over, the market will have higher sights in mind and it should happen this week. 3)  rally…”It could continue until Friday as investors/traders await all the data/QE2 for that day.”. 

Taking into account all 3 have taken place this week, today was another 11-12 SPX at day’s peak to March highs, so thoughts of continuation over new "R" into Friday morning is a little too much to imagine.  All in, the market has set itself up (disappointment?) Friday’s eco data, notably Global PMI’s and the effect all the Global macro issues (Libya-oil/ Japan) have had on the numbers.  The NFP# shouldn’t be as important, but if it surprises big to the upside it will likely be a negative for market as Fed comments have become more ‘ hawkish’, as some today.  Note, we are another “R” cluster to low 1330's-1335, still a break is clear sailing to years highs.