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.

Oily patch

Once again buyers showed their new found disdain for stocks as the selling picked up in individual stocks.  Our Shadowlist has provided all the clues since intraday Monday to this continuing as it showed in an uptick in individual stock selling unlike the Egypt sell off which was purely ES driven.  Anything high beta (momo), anything with healthy earnings this Q is seeing money being pulled out slowly generating >5% daily losses across the board.

Yesterday, noted the sell off was only half of the 3% dip in January.  Well, today that was quickly matched as 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.

Shadowlist

• Commodities –  Since noise is around $100 crude, it is surprising plays around coal are not being used.   Look for trading opportunities here on the energy play as this quiet reaction should change. (CLF, WLT, ANR ).  After peeling back sharply since mid-Feb, Ag’s Ferts were the first to see a buy interest reversal.
• Momentum/earnings/“winners of ’10-   Last week…".While some momo’10 names notably lag today in a melting up market, (maybe something to monitor for broader mkt)".  This has turned to not only lagging, but selling in 2010 ‘winners’ this week and now this Q’s winners are hitching a ride.  Hope is PCLN  EPS reaction AMC generates some buy interest on this pullback.

Cluster held..

Following 3 premature and/or botched bounces this week, the market finally found the ingredients to make a bounce last.   Why?.  Firstly, no sideline money coming back (‘No Rush’), secondly no shorts in the market to create a short covering rally of substance for those 3 earlier attempts!.   The combustion needed simply was not there, folks. Let’s get to this afternoon,  it wasn’t crudes fall as reported to ignite the move as it was falling all day off overnight $104’s and the market had done nothing except sell off more.   It was smacking 1295 SPX more than anything that set this move off. (see yesterday’s cluster note).  Afterwards > 2pm, crude fell more and that’s what got some more conviction buying / covering going.   Look at the Shadowlist (site attached) snapshot taken around 1:30 just before the market fell hard to 1295.  What do you see?... No selling in individual stocks on the Shadowlist and thus a ES sell trade.  This was not a list indicative of a market falling through Dow 12000/SPX 1300.  As the market dropped to SPX1295, our stocks didn’t budge in a seemingly panicky moment at major support.  Selling had clearly stalled this morning off Saudi Arabia sentiment of this contagion not spreading.

Looking ahead, the market broad following this afternoon is an 'Oily hostage' to the price of crude as it will dictate the broad market/SPX moves.  Likely finish the week below 20MA, so hardly out of the woods, but indvidual stocks/ sectors should have better sentiment/oppy's to trade after this weeks woodshed moments.

Shadowlist

• Momentum/earnings/“winners of ’10-   yesterday..”Hope is PCLN  EPS reaction AMC generates some buy interest on this pullback”. Clearly, this helped abate the selling and generated a bid in ’10 winners names like FFIV APKT RVBD, all >4-6% and ‘11’s  standouts like JNPR.
• Q4 earnings update – Another positive for market was the ‘v.good EPS reactions’ continuing as we had 3 DJIM stcoks report well, GTLS +>13%,  PCLN >6% , SXCI  $44 to 49’s , >6%,  all excel and produce nice runs in a selling market.  This again proves the premise of trading EPS reports this season and ignoring the broader market.

below: Intraday Shadowlist components

leaders 'lead'

One again anything that can be construed as negative tilted news was brushed aside by US markets (globally it wasn’t).  We’ve discussed this since the middle of last week as market turns a blind eye, now it’s continuing the trend at window dress up time and ahead of earnings season.  This is same factor at work as when alerted at SPX1250 and said to watch for negative ‘nuke’ news not get sold off any longer, which would be a positive going forward.  Every bit of negative newsflow is seemingly ignored now as investors tolerance has been built up with Macro global issues.  It's perplexing to many.  It could continue until Friday as investors/traders await all the data/QE2 for that day.

The morning ramp can be attributed in part to nobody finding a catalyst overnight (see yesterday's closing note) to close market below the pivotal SPX 1314.  There was no positive catalyst out there this morning.   It was a matter of Performance Anxiety (PA) setting in as managers went after growth/ momentum names.  Remember, these names didn’t participate in the first leg off 1250SPX and really haven’t played a big part of the ‘missing link’ tech (mostly SOX) rush that ensued afterwards.   Momo-linked stocks like FFIV APKT AMZN SOHU and many more simply caught a bid.  As 2pm approached many probably thought the market may repeat Monday’ s late selling due to no positive newsflow, but ‘leaders’ were at work this time with PA being enough of a catalyst and so chance of sticking the SPX gains was a high possibility unlike Monday.  Technically, it was important to get back over SPX 1314 quickly and the icing is a close of 1319, which could be enough for more points as noted in weekend Journal.

Shadowlist

A stack of DJIM names +>3pts as growth/leaders lead the way today.

• Momentum/ earnings/ winners of ’10-    SOHU +7, PCLN +7, AMZN +5, FFIV +4, (NCH's- SFLY  OTEX)  APKT +3pts  broke trendline.  SOHU, unleashed a huge move, saw no news, only idea of why is…China Unicom's results point to a strong mobile internet ramp in 2011, as BIDU SINA  act well too.
• Commodities – WLT +4pts, MCP +4, CRR nch,
• Consumer-  noted Retail was fine yesterday despite leisure selling,  LULU nch , RL, UA all +3-4pts off recent DJIM PVH +5pt on earnings.

...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.

pile up..

Hey, what’s one more negative (SP downgrade) headline to toss into the market, adding to the pile we discussed in this weekend’s DJIM #16.(escalating weekend Euro debt situation already had ES down 10pts.)

As ‘panicky’ wire headlines hit at 9am and spread into the open thanks to S&P threat to downgrade US debt in the future, most probably couldn’t decipher what it means to TSY’s/Treasuries, USD and definitely the equity market as it fell fast and furiously.

Considering a threat is just an idle threat until exercised, we followed up quite confidently 15 minutes into the trading day that if SP~1295 hit, it would likely be a buy point for today after dissemination of the downgrade.  Of course many would not suggest buying a gap down and a falling knife, but all you had to do was look at the Shadowlist components and see individual stocks were not being sold off.   This glimpse as usual allows you to make a decision even if you don’t know the consequences yet of any seemingly negative newswire that may have hit.  Can’t say we’ve seen one (outlook downgrade) to the US before to know what it may bring upon equities, so today it was best to rely on good old Shadowlist for guidance.  Besides, didn’t we all downgrade US debt long ago!  This doesn’t mean you jump and buy stocks (some names below worked) as much as it means you don’t panic and sell.   Soon after follow-up, market fell another ~10pts to 1295, a re- test and later a decent push to 1307H in the afternoon.  What the early trade demonstrated was it’s an ES/ETF trade again with investors holding on to individual stocks while fast traders play.  

*Although an important week, the holiday-shortened trading week with desks emptying by the hour as we go forward , we can expect exaggerated moves in either direction that don’t mean much as positions in all asset classes get squared away before the holiday.

Shadowlist

■Commodities – Keep seeing excellent numbers in Ag-equipment stocks recently, LNN, VMI, (TITN  initiated today in follow-up section).  So far this month not much is loved as earnings get sold off in most cases good or bad(LNN VMI) in this space, but sooner than later money flow will go into what is showing growth for rest of ’11.

■Consumers- LVMH , luxury goods out of Europe gave an upbeat report after overseas market close helping retailers here, notably LULU, but overall outperformance seen in group.

■Momentum/ earnings/ winners of ’10 –  Very nice reversals in AAPL, PCLN, each 10pts and hopefully a leading good sign.  WYNN, IPGP  as well back to high levels, while  SINA  really popped. Also, like LVMH, Infineon a chip from Europe helped earnings sentiment as it pre-announced AMC in Europe.  Unfortunately, TXN did nothing AMC as most US corps’ so far this earnings season.