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

..Prove it

Following the early week slide, we noted…”Considering very good eco data is irrelevant as today showcased, anything more than a bounce into a probable good NFP# can’t be expected”.  Well, we might have to rethink the ‘irrelevant’ part following today’s ‘bounce’ right to this week’s highs,( if ) the whispers of 250k-300k jobs are hit or not!.  Will it bring conviction buying if hit or will we continue sideways trading going forward.  Guess we’ll see soon enough and so take it a step at a time.   Anyways as discussed yesterday again, a ‘bounce’ possibility existed thanks to the combination of a big sell off day w/ the chance crude would ease off following a big >2% day would generate optimism into the jobs #.  Truthfully, it might have generated a little too much optimism putting aside everything (crude >100, Libya, Saudi Arabia etc. ) for the day.

Shadowlist

• Q4 earnings update-  some of the best action was from this DJIM shadowlist sub group. TDSC >10%,OPNT >9%.  On the less volatile’safety’ side, SXCI, TBL  traded in NCH(new closing high) territory.
• Consumer- life coming back here today and maybe a good sign forward…WYNN (nch) and FOSL,UA,TBL 4-5% higher.
• Commodities –  many sources as per Briefingcom/CNBC all over ‘coal’ today. What took you so long?. CLF  tacked another ~4pts climbing back over $100. WLT,ANR  also put in ~4% days
• Momentum/earnings/“winners of ’10-   A few like RVBD  had decent gains, but overall still sloppy considering the huge rally as the NFLX,FFIV,CRM  hardly showed up.   Opticals were mixed, some like OPLK, FNSR, FN  performed ~4%.

No Fly Zone 1305-1330

Once again the market indicated it’s in a technical sideways trade as it bounced again off last week’s low’s and found itself in a ‘rally’ of sorts for the day.  A ‘rally’ of sorts because it’s still only a sideways trade until the cap is lifted off around SPX1330.  On a quiet eco data/ earnings week, the market has been focused on Saudi Arabia “Day of Rage”.  The thinking has been if nothing dramatic occurs the contagion will end in the region and the market will respond favourably.  As we get closer to the planned event, the market may have started the pre-run today.  Hopefully, this is the case and/or Shag hitting multi month highs and not BAC investor day that is being called the catalyst today.  Reason is simply the financial group can’t be counted on for more than a few days of leadership!

Shadowlist

• Financials-  We’ll see if buyers step up next few days because today was nothing more than initial short covering.
• Commodities-   Although all noise is around a higher crude, an important development for commodity linked stocks ahead could be the fact Shang is making the highs noted above. If higher crude stymies economic growth, why is the Shang doing what it is? Inflation topping out could be the reason.  -MCP ,  demonstrated strength before EPS tomorrow.
• Consumer-   Retailers act inline with tape. FOSL, UA  tinker with new highs.
• Momentum/ earnings/ winners of ’10-   Only incremental gains today (if any) from ’10 growth stocks (ie. FFIV ) and the mega cap names like AAPL. The momo groups of ’11 in space have exhausted themselves it seems, NVDA disappointed at analyst day and the Opticals  got another shock from FNSR  after CIEN, plummeting all the groups stocks, incl.  JDSU, who got the excitement started with their earnings in early February.  The standout was BSFT hitting $50+,  add here in December in mid $20’s ran another 20% post mornings 20% gain.  Simply the reaction in BSFT and FNSR  are extreme in both directions given the reports. 

DJIM #15 2011

Market waited nearly 5 full trading days before making a mild move in either direction.  As expected here, it was a week of no conviction from the longs and/or shorts with no catalytic eco/earnings on the schedule.

Halleluiah!!., earnings season is upon us as trading has resembled summer doldrums.  The game last week was simply in other large asset classes, USD hits 52 wk low, commods’- metals surged, TSY’s.    Although SPX was pretty flat for the week, we did see profit taking and/or some rotation from Industrials, Transports, HMO’s, all off  2-3% , as sentiment changed for the better in Financials, Retailers, Semi’s.  As cited, both sides are/were hesitant to get in front of earnings and so US market's drifted all week, while Europe and China with earnings coming later outperformed with 2% gains.  That sums up the uncertainties and question marks felt for US corporation’s reports.  It’s a mixed bag for expectations as we’ve had pre-announced blow ups in mid-small names, but none in big influential names.  Tech data points add to the confusion, it changes daily to know really what is going on out there.  The trading outcome in Opticals  covered here this week is a possible light at the end of the tunnel (baked in note) for tech in general as reports start coming in, good/or bad.   This is one Q, you don’t want to be in a tech linked stock heading into an EPS report after a few Q’s where it wasn’t all that dangerous to do so.  

All in, earnings need to come through on the upbeat side to keep the broad momentum going as the market sentiment is waning with tightening sounds picking up /crude price accelerating (can’t keep doing more $5 jumps a week) as it will certainly dampen consumer spending/ growth.   As said last week, investors need to see value in stocks to keep the trend in tact for Q2 or market risks a correction later this month, earnings are the big key to that!

Earnings this week.(click below on site)