..out of sync

 Any other day/ week/year to date,  market gives the impression of resiliency, but with China down 4%, India down 7%,  inflation hedging commodities (precious metals, copper) beaten up in a global inflationary landscape, UK double dip possibility GDP out today, you really have to wonder if a US rotation to IBM,GE, WMT and away from smaller higher multiple stocks can carry the load for US markets to keep rolling higher?. 

As far as today’s late reversal, it is nothing more than short covering driven by ES into the State of the Union with little individual stock participation, but given the upbeat pump job by Obama, we may have some follow through with risk assets (commodity linked stocks, growth stocks) playing some catch up.  Still overall, the market and it’s indicies are not in sync suggesting any move would be short lived.

Shadowlist

• Momentum/earnings/“winners of ‘10 –   Selling continues (RVBD,CTXS etc.) post VMW earnings, but if there is a positive takeaway it was FFIV’s reversal from $102 -$107 in the green.  Still, considering 9 ema broken on most,  we’d wait only consider a dead cat bounce intraday trade until a definite shift occurs like last time (post EQIX sell off) that was produced as earnings started to come in better.  Earnings positive was an upbeat JNPR.
• Commodities – Again weak dollar doing little to offset China worries as the groups get pounded. Another dead cat bounce may be in order in this sector soon.  Those inconsistent Solars reversed hard in afternoon as a preview of Obama’s speech was released, simply  a sell on the news occurred after run up.  Steels (X)  is the likely short term trade possibility.
• Miscellaneous-  As some defensive posturing is going around, HTWR produced a nice reversal day off 9ema.

..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.

Ahead of the open, (22-12)

Leading into the trading week,

” Earnings come from the softies’, ORCL RHT, TIBX. After all the negative announcements from the ‘hard’ware types, software is usually the ‘safe’ haven in tech, so these companies will be closely watched for tech contagion. If (ADBE) is any indication from last week, this group will provide relief”. 

Coming off a 3% melt up with all focus on ECB’s LTRO, holiday cheer was dampened as noted heading into today’s trade.. ...”Unfortunately, this last positive (LTRO) is out of the way now and euphoria should subside….. A rare miss from ORCL will be defended, but will have an impact as some factors mentioned by management will definitely effect other co's”. RHT, reported after ADBE earlier in the week and didn’t meet expectations setting up the table.

Considering ORCL has been a can’t miss earnings stock for years and with money loaded into the software space for anyone wanting tech in their books (especially post all negative guidance in hardware types recently), a volume tick up slaughter ensued in the sector with many linked stocks down ~10% in the first couple of hours with many of our favorite names over the past year(s)included.  (CVLT N FTNT VMW QLIK TLEO FFIV CRM CTXS BSFT even IBM ). Investors caught on by the opening bell and headed for the exits realizing ORCL’s call “will definitely effect other co’s”. Despite NASD shaving off ~25 pts by close as selling subsided by noon, this caught many of guard and the bounce is likely more of a function of selling stopping and quick traders going in than longs only stepping up.  Doubtful these kind of market revelations last for only 3 hours. AH’s, TIBX report was somewhat a relief, but isn’t a Goliath market cap like ORCL to change view overnight. Worry dust needs to settle here.

In all, the broad market was lopsided. As speculated, the euphoria of LTRO died off despite coming in at higher end of whispers numbers, but the market didn’t sell off (positive) and closed above 20ma/50ma, even as Euro sov’ yields went up (see ‘watch’ note yesterday). The debates on the LTRO started premarket and will linger on.

 In this view, just add it to the Eurozone band aid alphabet for now, EFSF,ESM,SMP and go on.