'Inside the 20'

The trend remains the same as ‘Inside the 20’ (SPX 1260 to 1280) gets churned and churned.  Today, it was clearly the (see yesterday’s Journal) potential Headwind vs. Tailwind battle playing itself out.   In all, the Shorts are unwilling to lay out more exposure near 1260 and ‘dip buyers’ take over.  Still, the ‘Red Zone’ is providing trading oppy’s within DJIM’ Shadowlist.

Shadowlist

• Momentum/earnings/“winners of ‘10 –   Some CES induced carryover as SOX leads again.  FFIV  last week noted as ‘setting up’ had a nice >4pts day to NCH territory.   Added EQIX  back to the trading Shadowlist and it proceeded to have a nice afternoon adding ~2pts to get up to 2 month highs. Some squeezing was felt here, let’s see what a potential breach of $86 brings.
• Commodities- LNN, an add following a gap down earnings report, covered it’s gap in a big way >6%/4pts.  This despite a GS downgrade of Ag’s (CF/ AGU) halting the groups recent run.
• Consumer-  Retail looked better.  Our list includes TIF, PVH, FOSL to trade if this has any follow through.
• Miscellaneous-  added an old favourite at DJIM, EBS  following upped guidance that shows co’ is anticipating a ‘big’ gov’t contract.

Waiting..

An important end-game in trading is not to overthink, contemplate every whipsaw intraday.  This is the ‘space’ we are in (SPX 1260-1280) and a 6bln ES trade that supposedly spooked the market quickly intraday is really just a boring market looking for an ‘excuse’ to sell…”As 1280 invokes ‘R’ for the past week, the market impulsively sells off here and will continue to find an excuse to take some profits”. DJIM#2.   Don’t look too far into reasons for a swing intraday such as today’s unless there is a worthy newsflow headline.   It is what it is….. as seen by the volume decrease from last week and that is a market awaiting earnings and/or a bad sovereign bond auctions coming up (shorts futile hope).    An illiquid market will exaggerate any move, so look at Shadowlist if individual stocks are moving with the SPY/ ES to gauge the significance.  Up or down.   Clearly, today single stocks did not follow the steep drop.   Add the ‘blizzard’ for Wednesday in NY + long weekend ahead and nothing will likely be decided till earnings get rolling post-holiday.

In all,  if some profit taking around 1280 is the game,  get cash ready to use for new earnings plays in the coming weeks instead.  This is also one way to avoid any correction, if one comes in 2H January.

Shadowlist

• Momentum/earnings/“winners of ‘10 –   No noteworthy flow, EQIX  added 2.5 intraday, but a squeeze never materialized.  Action was better on Monday.  Previous DJIM,  ININ  was the notable winner off an earnings guide, but this one has a history of gapping and not doing much for weeks after.
• Commodities-   A thin tape is when a WSJ journal story/ DB group upgrade creates exuberance.  Still, WLT  being DJIM’ fave coal for ages was the biggest beneficiary +6pts, so let it be.. USDA coming up for Ag’s space.
• Consumer-   Retail group still lagging as TIF’s  guide did nothing except get the stock faded off a good open, no follow through…yesterday..(Retail looked better. Our list includes TIF, PVH, FOSL to trade if this has any follow through). LULU  upped  guidance AMC and it will be interesting to see if it holds its gains tomorrow for the whole group.
• Miscellaneous-  a nice guide from a Med-tech HTWR, under consideration to add to list

Ahead of the open (15-12)

Heading into the trading following a ‘big’ market up Summit day, cited underneath Eurozone mess, the market was paying no attention to the unfavorable guidance coming out from ‘tech’ specifically, which relates to markets complacency towards the ‘real’ economy effect from Europe(growth). The profit warning list from this weekend has been topped up generously this week.

A few days of slow selling has turned into a market rout overall with the underlying tape seeing a liquidation crush in commodities, tech indicies filling November gaps and high beta-momo’ performing much worse than the closely followed major indicies (DJIA, SPX). 

Today’s down tape confirmed all warnings noted a couple of days ago…a break of 20ma (DJIM benchmark), a ‘death cross 20/50ma with the loudest market noise being the plunge in the Euro/ Gold markets last few days, which was foreshadowed by Monday’s note on Euro and Gold selling off simultaneously.  The selling in commodities (copper,crude) is simply growth concerns finally showing up. The selling in Gold, silver is realization no global QE is at hand. This is not the type of selling we are accustomed to.  It’s not from pure Eurozone fear/panic with large one day drops spaced out (sov’bond yields ok, ECB measure from Thurs a help as noted), but instead a sell off that is grinding away (intraday as well) at every risk class, a small piece at a time. Now, we’re even seeing our long time, growth high end retailers, which have preserved all year taking it on the chin in the last few trading days.(TIF, VFC, PVH,RL,LULU, UA), indicating growth prospects are in question and spreading. Seemingly, this is the perfect group to go short as it’s one the last shoes to drop, if the real economy is in deep trouble.

The downward pressure on EURO continuing (likely), makes the idea of an equity rally remote into year end

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Morning Update:

Global PMI’s better than feared. After yesterday’s haywire action in EURO, commods’, the PMI’s may settle the unwind trade down a bit (as in hours, not days). Waiting on S&P and what it does to France’s rating (2 notch cut would be worst outcome), others might be bought by market.