..U.S a little too respectful maybe?

Firstly, DJIM covered that earning worries were slowly being put to rest in Europe (>2% today) with solid & broad earnings over the last 2 days.  Unfortunately for many trading US markets this was put under the rug as all media reporting was on CDS spreads widening in Europe and poor reactions to US earnings that came in, good or bad.   What was supposed to be an important micro week turned to the Macro until earnings/outlooks from many market behemoth’s hit Tuesday night putting many worries (Japan impact/ death of the PC) to rest on this side of the pond.  Naturally, we’ll still see misses and not so rosy outlooks this Q, but it will be company specific issues. Not all management is created equal and this Japan tragedy definitely tested some CEO’s grit.   Besides, misses, bad outlooks occur every Q, not just after a crisis situation.

This (earnings) is one ‘what if’s’  we discussed in DJIM #16 as an Upside risk  and reason to rally.  Knowing the ‘Upside risks in the market plays into alerting SP1295 was likely a buy point while market digested SP downgrade Monday morning.  Considering, the market has melted up 30 SP handles and about 5 more post AAPL-EPS in 3 days since,  it has caught many on their heels.  The question is will they step forward and help push the market over SP1340 or will we continue to be range bound?

Well…not to spoil the exuberance, but we may see overnight ES highs be the highs tomorrow.  Recall, we noted we may have exaggerated moves in either direction this holiday-shortened week.  When a move is fast and furious as this one is with all focused on an overnight supposedly ‘healthy’ semi/tech, it is very easy to overlook a few things in the underlying market.  A few of these are negative, a very heavy bank index (multi month lows as loan growth is disappointing, Mortgage insure biz as well) and the Rails to a lesser degree. Add the fact not all think semi concerns are over with and once a lot of the short covering is done with, expect longs to take this gift rally profits instead of buyers to come in with conviction.  Also, those who have vacated their desks early this week will be in line.  Note, semi sec is still way off Feb Highs with many underwater waiting for a life boat. This rally might be it.

Of course, there is the endless supply of ‘Macro’ headwinds on the table, at least Micro won out for a day this earnings Q.

Shadowlist

■Momentum/ earnings/ winners of ’10 –  Semi’s up ~4.5% led the buying in broad market, DJIM’s '10 momo names were led by VMW  earnings supporting peer names here like  CRM  APKT  FFIV,  >7-9%.  JNPR  was one stock where a disappointing guide still found buyers (this was noted as something important to look for in Tuesday’s AMC reports), helping FNSR and peer optical plays.

■Consumers-   Our lux apparel FOSL UA  RL TIF  >2-4% had very nice morning with all hitting intraday fresh highs. WYNN  was the highlight off earnings.  Noted broad strength in an update would likely include Autos linked stocks, components up 4.5%, Auto 3%.  PII - Polaris Industries, Inc. earnings standout.

■Commodities –  Action could have better considering USD was getting whacked. Ag’s Ferts/Steels under the tape.  ALB -  Albemarle Corp. , old DJIM standout Earnings in materials.

..a few names to list into Q3..PII,SHS,PLCM

It seems market algos had a glitch today in making up for non-existent volume as DJIA,SPX,RUT finished in a dead heat (982 basis points higher). Regaining(barely)SPX 1280 is fine for the moment, but another possible 1-day wonder rally accomplished by buyers (who are shorts covering) is not a sign of ‘longs only’ coming out and participating in this politically charged market environment.  The current ‘Bull’ lineup has frustrated fans as it leaves runners in scoring position consitently, we’ve seen 2 rallies just last week and at least  4 1-day wonders evaporate completely in 24hrs in the month of June.  Maybe the market can bring out a pinch hitter on Tuesday and change this outcome, but in reality, any more upside will hardly be considered getting the Bull home from 2nd as it will negated by the fact it’s a holiday week in essence with desks seemingly emptying already today.  Simply, market has some hours to work with tomorrow ahead of Greece vote noise.  

All in, a decisive break somewhere over low 1300’s will only change the trend in many minds. As of now, longs have every excuse in the book to remain sidelined.

Some of the positives listed (ie. more Shanghai upside, bad US data ignored etc )into the trading day were cited for some of the surprise upside, but Q end / hedge tinkering vs. USD/TSY exposure/performance over the month was the predominant theme.

At this point heading into earnings season, a few earning linked stocks of interest last Q were not listed here due to market circumstances capping any possible demand post day of report. Weeks later you could see they didn’t move.  Coming into this season with the idea of this market correction eventually ending, we’d watch demand to have them on books going into their earning dates this Q, maybe even some this Q2 end.  Names include PII SHS PLCM.