3 for 1 special

As a starter into our trading day, we pointed a worthy catalyst was not there to rocket the market Tuesday afternoon. This morning, a flat overnight/pre-market ES turned sharply down to SPX1348 after the open erasing not only the Tuesday afternoon surge, but all of Tuesdays gains(back to open prices) in less than 20minutes. ..”.. but we are close to levels SP ~1365 zone, where last profit taking began, so you figure some will want to exit here for many reasons if the ‘red flags’ are a concern.    By lunch hour, if you forgot how last week’s carnage felt and didn’t take notice of ‘red flags’, today was a cruel or is crude reminder as the commodity complex did a re-do with many underlying linked groups forced the broad market to hang on the 20AM benchmark thread.

Don’t look for a catalyst to today’s market activity, it was as simple as a resumption of the de-risking unwind raid from last week led by the US/Euro cross.  Three days of a feeble bounce literally wiped out in one with no trend change in sight.  If a silver (pun intended) lining exists, it’s that most equity sectors held up again excluding commodity linked ones.  Of course, this can change quite quickly with a technical break and/or ominous headline causing some panic selling to spread out.  So far 'panic' selling is not evident in the broader market.

A few pockets to trade on the upside are still available, our focus on retail this week was buoyed by M earning following FOSL and yesterday’s earnings linked addition here, ROVI, which traded $56’s premarket jumped another 5pts early morning for a trade.  

All in, cautiousness here from May 4 is continuing.

...at the mercy of the USD/EURO cross

What’s a little more China tightening prompting more unwind of the commodity/USD/Euro at this point?. Interestingly in 2010 we said these hikes will be front loaded in '11 and now we’ve had 5 so far by early May.  Look..RRR .25 hikes never mattered to the market last 4 times, but as the unwind trade takes precedent over everything else, the equity market reacts to downside and a ES low 1329 prints by breakfast time off the hike.  Silly…therefore, it’s not surprising the market was able to slip this under the rug and bounce nicely after a ECB hawkish comment around noon lifted the tape or should we say toyed with the cross. (Oh yeah, can you imagine a market with CSCO and GS bombing ~ 5% in one day in the past and market holding up like it did?.)   That’s market resiliency or just complacency with no fear of their action spreading to peer groups/stocks.   In all, we have to be aware of both possibilities as the market holds 20ma benchmark by the close once again.

Unfortunately, USD/Euro cross dictates market direction and that’s all that matters, "…Broad market eyes will likely be glued on the USD.  The market is likely to be back to the days where USD moves dictate the equity price action…May 2” . This reliance on currency probably means unless a big move in either direction occurs, the market will wait for FOMC minutes as speculated here post-Trichet bomb/CNBC report for direction or else the market will remain range bound.

All in, despite a ~20 handle intraday rebound, individual stocks were hardly down early and didn’t move much to upside comparatively as the trade was mostly ES/ETF driven.   It’s difficult to gauge anything meaningful from this type of action and the hope is for some USD weakness Friday to attempt some follow through for a repeat of last week's action.

DJIM #20 2011

A pretty ugly day on Friday considering some hope emerged from Thursday’s reversal.  Just like earlier in the week off a bounce to a previous selling zone ~1365, once again we said not to put much into Thursday’s action for a follow through unless the USD/EURO cross co-operated.  End result, an incremental close below our market health barometer the 20ma on a cluster of ‘S’/ supports. (Besides 20ma, March low-April up trend-line & Feb- April high TL).  If this cluster falls, it would not surprise if the market fills the late April gap as spillage from the recent erratic commodity/ currency trade may finally hit the broader equity market as a wider correction takes hold. 

Into the trading week, unless an ominous weekend/overnight headline hits the wires causing the above break, the market should continue the lateral back and forth movement until the potential catalyst (FOMC minutes Wednesday afternoon) in question here this month.

..spillage

At DJIM, we put quite a bit of emphasis on reading the intraday /end of day underlying tape via the Shadowlist components to gauge the broad market and if we need to trade the list itself.  Today, the final outcome of 46pt Nasdaq drop, ~10 handle SP downside day to a fresh May leg intraday low of 1327 is not surprising.   Chasing the rally and/or being faded in stocks was avoidable by just reading the Shadowlist tape during the morning 100pt Dow/~14 SP /1 hr rally.  The signals were all there that something was amiss. 

Firstly, the RUT was lagging badly at the beginning of the rally,  secondly, our high beta list of AMZN, PCLN, NFLX etc. were not participating in the move, but instead were inching lower during the rally.  This lagging action despite favourable EURO strength for equities was a red flag as divergence from the risk on/off/currency trade was clearly evident.  The equity trade that followed the currency action was simply failing!.   

By afternoon, the high beta trade had completely fallen apart with AMZN  NFLX off~10pts PCLN ~17pts, AAPL 7pts and smaller caps names like CRM, WYNN  etc. off ~5pts.  On a percentage loss side, many names small cap leaders ended up down 3-6% off.  The biggest victims were those who chased the Chinese internets in the morning as they were the only momo moving during rally.  By end of day, the SINA BIDU and IPO’s YOKU types all had ugly intraday reversals.   Why chase China internets when US internets are trading poorly is not understood here.  Many reasons were cited for internet consumer internet names fall today incl. potential  taxes, cloud security relating to AMZN,  but clearly this is just an excuse for a clear ass kicking profit taking to take down PE’s.   How long will it last? …likely not very long  unless a clear liquidation is unfolding by all those HF’s that were massacred in the recent commodity plight in order raise cash / redemptions ahead,  but that would be a repeat of just a few years back and we are hardly there.

Clearly, today was the spillage  we noted heading into the trading day for a wider correction taking place.. “….  If this cluster falls, it would not surprise if the market fills the late April gap as spillage from the recent erratic commodity/ currency trade may finally hit the broader equity market as a wider correction takes hold”.   The cluster of support was breached, but the late April gap in the (1315 is mid of  range of gap) is likely waiting on FOMC minutes or another catalyst.  This gap is looking more and more like the place to reverse. (~5% correction from 2011 highs). 

* (ES hit 1320 after HP’s news after hours, so that’s really just a few points from gap).  In all,  it’s all a ‘lateral trade’ now, so the market can easily bounce some ahead of FOMC minutes, especially if some value is seen in high beta’s after today’s beating.  Even better would be a negative overnight headline to push ES into the gap.

All in, the selling is still not panicked and there are enough defensive groups in the market holding and defending against bigger downside.   

Update on Tuesday, May 17, 2011 at 10:33AM by Demi/ YourPersonalTrader

RLD , RealD Inc.  ~$33, a good stock that will get attention for 3D summer movie hoopla to add to list. 

Update on Tuesday, May 17, 2011 at 11:17AM by Demi/ YourPersonalTrader

ES hits into gap 1318, SPX next...stocks hanging in well today since open and for bounce oppy'.

Update on Tuesday, May 17, 2011 at 02:31PM by Demi/ YourPersonalTrader

All 3 decent upticks today prompt selling. Mostly ES/ETF driven trade as single stocks are not being stepped into, gap could be re-visited by FOMC minutes.

Show and tell day from FOMC..

A little ahead of schedule and without overnight negative newsflow, but instead with more dismal US eco’ data premarket, the market was able to set foot into the late April gap for some bounce oppy’ of ~10 SP handles. Some value was found in internets, including China’s after prior day’s 3% sector beating and banks/brokers… “…, so the market can easily bounce some ahead of FOMC minutes, especially if some value is seen in high beta’s after today’s beating.  Even better would be a negative overnight headline to push ES into the gap”.

A few cross currents to add in a bounce as there was no real conviction as in chasing single stocks, but, interestingly banks/brokers outperformed with many names in top SP gainers for the day after already seeing some short covering/ buy dipping on Monday.

Importantly, technical (gap) held at close, plus, market closed above 50ma.

A few questions arise.  Will the banks/brokers be a driver in continuing the bounce?.  Simply, is the action for real or is it the same song and dance we’ve seen over and over with any talk of rotation fizzling out within hours?.  Combine the above chance and the possibility the FOMC (if more hawkish vs. statement) is priced in after hitting the gap and broader conviction may show up. CNBC report: http://bit.ly/k40lLR

Considering the FOMC minutes are not getting much scrutiny so far this week, you just don’t know if the market is prepared for any surprise hawkish noise tomorrow and/or we’ve priced it in by recent declines. 

The way to gauge how market will act post FOMC April minutes will be by watching the Euro/US currency ticks, which should get quite volatile immediately after.  Hawkish bias would be if timing 'signals' of exit strategy were noted.

Shadowlist addition: RLD  today, see day's follow-up/comments

..new catalyst time

As speculated heading into week,..”…it would not surprise if the market fills the late April gap as spillage from the recent erratic commodity/ currency trade may finally hit the broader equity market….”....and alert later at ES 1318 Tuesday morning for a bounce oppy’ has produced a ~22 SP handle reversal so far..“… the late April gap in the (1315 is mid of range of gap) ….This gap is looking more and more like the place to reverse. (~5% correction from 2011 highs). “  Post Monday trade, at SP1329.

Allowing the market to hit the gap (1313-1319) basically priced in worst case scenario in FOMC minute speculation (recall SP was 1360-1370 at when the story surfaced).  Once the market saw no ‘timing’ on exits this afternoon,  it was business as usual….”Hawkish bias would be if timing 'signals' of exit strategy were noted” (yesterday),   Besides a few gyrations in the USD/EURO cross post release, the single best revelation was the Euro/USD actually remained steady.  Hopefully, today was another day this week that showed equity markets may not be at the mercy of the cross for every second of the day.

The quick reversal has put the market a few points from 20ma and the top of the May down trend-line (1345-1348), so you’d expect some ‘R’ here and therefore some consolidation before any chance to move higher. Broad market consolidation does not mean single stocks can’t outperform and one of today’s positives was the money flows into Shadowlist ~95% green/ small cap names.  Also, banks/brokers hung in digesting weeks gains is a positive.

IPO’s, (Glencore here in UK and Linkedin in US) on Wednesday should go off well and keep market pre-occupied with a positive bias.

Note, you can trade single stocks/ sectors going forward, but we are still below our health 20ma barometer, plus this May down TL is signalling more downside into June/ summer as of now, so don’t get carried away just yet.  Time for that will come after summer into year end, big time probably.

..what's not linked in

In the midst of all eyes on LNKD (IPO) hype off the open, the market received a reminder that, yes, eco’ data does matter in the way of a miserable Philly fed #.   Of course, as per usual market ways, it's release just happened to coincide with being ~1pt away from the 'R'/ May down trend-line, noted leading into the trading day.  Early follow through rally quickly was faded off the ‘R’ and rest of day was quite boring with volumes lagging daily averages.  Considering the market made attempts to get back to day's highs after poor data, you start to think the market is taking every negative eco’ number as ‘transitory’ and moving on.  This complacency will backfire if more negative numbers start coming in.

Trading intraday note to watch, post-Mondays trade, …”This lagging action despite favourable EURO strength for equities was a red flag as divergence from the risk on/off/currency trade was clearly evident.  The equity trade that followed the currency action was simply failing!.    Yesterday, post FOMC, we noted the steadiness of the cross showed markets may not be at the mercy of the cross.  Today’s, biggest noise apart of LNKD and much more important to traders is the fact this currency market dynamic with equities /crude/commodities following EURO rise failed again.  Simply, traders have some challenges now as trading equities on currency moves is not linked in this week.

DJIM #21 2011

A market dry of potential upside catalysts was easily stopped at the May down channel top ~1348 last week.  Unfortunately any chance of consolidating to try a move higher is negated by all the European peripheral countries and their issues that reared it’s head into Friday’s trading with more vengeance. ie. Spanish elections and hidden debt, Greece ..blah blah.  

The market simply has nothing post earnings to watch except the noise across the pond.  Of course, as Europe boils, it escalates the currency trade with the Euro getting hit as we saw on Friday after equity divergence finally showed up during the week.   Bulls/longs hands are tied and trying to defend the April gap is inevitable once again to begin the week of May 23rd.

Hope is a countertrend rally of the Eur/USD starts at ~1.39 where a base may exist coinciding with a test of the gap in equities to give recovery a chance.  All in, nothing positive to add to start the week.

footing zone..

A opening slide down into the now infamous April gap was all she wrote.  In all, that’s about it as the SPX stayed inside/range bound within the gap all day.  Yesterday’s hope coming into the trading day,….” is a countertrend rally of the Eur/USD starts at ~1.39 where a base may exist coinciding with a test of the gap in equities to give recovery a chance.” ..Well, both points were hit (~1.39euro & equity gap), so it's on the table. Due to basing, risk assets should bounce some after exhaustive selling last few days.

The big difference as far as Europe goes for the markets is the fact the bigger economies (Spain, Italy) are in the news, not the smaller peripherals we’re used to dealing with.  Market might be overacting as CDS spreads of those 2 countries are a ways off last year’s highs to signal any immediate crisis.  Due to this and the recent big sell off in Euro, some footing  might be found at these levels for most risk markets.

Yawner of a week

Going into Tuesday’s trade, we talked of ‘Footing Zone’  for SP/Currency and now 48 hrs the area has held as CDS(Italy, Spain) spreads have tightened in Europe being the only change.  Despite, the markets seemingly finding its technical footing here, it’s a disappointment the contagion fears that have abated the last couple of sessions haven’t pushed the market any higher.  The likely culprit overhang is the slower growth data that keeps rolling in, like today’s Durable Goods #.  The only risk asset beneficiary has been the commodities, but that is a function more of the previous exhaustive selling and a GS crude upgrade before Tuesday’s trade.  Aside, it’s a ES trade as last hour shenanigans demonstrated today with a lack of corporate news leaving individual stock action hard to find.

All in, it’s very quiet from both the Bull and Bear dugouts as far as any conviction goes and it looks like the SP is on to track for another losing week (#4) in May unless SP1331 ‘R” gets busted ahead of the long weekend.  As desks empty, don’t put much into any move unless a worthy catalyst hits the wires.  Market will likely wait for plethora of eco’ data next week before doing anything.

Update on Thursday, May 26, 2011 at 11:14AM by Demi/ YourPersonalTrader

EBS deal is much longer in duration than expected by street===$$$, Co' covered for years to come!