2011 Market Insights

http://www.djimstocks.com/2011-market-calls/

Mid Dec. week, SP 1200-1220- following Draghi/ECB,.... ("A bazooka result to keep calmness in peripheral Euro bonds may not be needed with all that has been done recently. The ECB liquidity measures were overlooked last week, they will be a big help here.".)  This became known as LTRO as the market rallies into 2012

BMO/Nov.17th, SP at 1237.. noted USD funding stresses coming..."...Here, still looking at 1230 to 1220 as last support before drop below 1200...".    Market falls to SP1160 within days.

Nov 6th- SP at 1275/ Noted Yield going over 7% for Italian debt...."...A fresh and likely biggest wary to look at is Italian bonds/yields. ECB is intervening holding it below critical 6.5%, if it gets above it may trigger ..."  Nov. 6

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• Sept 21st-  SP at 1200, call for new low at 1090 for Q4(Oct- Dec) substantial run-up with trigger to be  'recap of Euro banks'. (click link above)

• July 28th-  SP exit at 1300+ (link above)  “. ….It’s probably best to take August off and get refreshed for what may turn out to be a very meaningful last Q run-up.”.

• March 16th- SP Bottom at 1250 (link above), Highs of SP1370 hit in May, 1250SP not seen again till summer.

Into the trading week, (Jan 3- )

There is no debate that 2011 wasn’t great for the equity investor.  Yet, the volatile environment where the SP travelled hundreds of points up and down intraday gave traders opportunities on a weekly, if not daily basis.  The crazy landscape even mocked the idea of ‘hedging’ as Hedge Funds underperformed greatly.  No doubt, the year was one of changes.  As governments fell one by one globally, we as traders had to change with the times as well.  The reason being stocks became highly correlated forcing us as to change tactics mid-year away from selective stock picking to a more ETF/sector/SP market direction calls.  Hopefully, upcoming earnings in January will allow reverting back to single stock trading as a US recovery takes shape with economic data continuing to come in solid.  This (eco’ data) is the outlier in what has been a very disruptive 2H’2011.  Last Journal of 2011, noted .. “The market will make a smooth transition into the first week of ’12 with a slew of events, notably global PMI’s..”.  Since eco’ data is the one bright spot, we put a lot of hope in it for 2012. It’s seemingly been years since we’ve seen a change in Jobs/housing #’s as recently.  NFP# on Friday is the other ‘big’ event in an important eco' data week.

The data out this morning has not disappointed. China, India’s and Europe’s PMI’s have come in ‘better than expected’, if not ‘strong’ gapping the market over 1260’s resistance.  China moved back over the 50 expansion threshold on the back of new orders/ output components (indicating very good industrial activity), India’s was even better at 54!. Germany/UK also beat expectations.  U.S expectations are for 53.2.  Commodity linked stocks will be the beneficiary.

Nice start to the year with a lot of sidelined money, new funds needing to get in the market early ’12. FOMC minutes later in the day, any talk of a QE3 push will be an early 2012 gift

Ahead of the open, (04-01)

As in recent years, Global markets flew out of the gate upon re-opening in the New Year.  In fact, U.S markets only followed what was a concerted effort by Global markets already underway for 1 or 2 session depending on the region.(Germany up 5% now, Brazil, India >3-4%.  Note, China overnight has started where it left off in ’11 as speculated rate cut didn’t happen.

On many days, market players evaluate newsflows and come up with excuses to understand a big move upwards or downwards.  This worldwide melt up has only one main catalyst and that is the better than expected PMI data as laid out here before open. Overall, the markets were impressed and also just happy that ‘Europe’ was quiet on the sovereign issues allowing it to break through the high SP1260’s cluster of resistance.  There is not much out of this region (like ‘weak’ peripheral countries auctions) this week allowing things to be quiet (unless S&P breaks silence) and attention swayed elsewhere.  This week will continue to be dominated by economic data and may bring late October highs ~1285 into play.

Although, US markets finished off highs, the gains were solid and nothing negative can be taken away. Even a positive FOMC minutes hinting at further actions (QE3), if a communications shift (transparency on interest rate policy)) was coming wasn’t enough for closing highs today, but that may change after further evaluation by the market in the upcoming days. Some of the reasons to like the tape action is the breath. The number of new highs was positive as was the bid for higher beta sectors (materials/commodities Oil/financials.

The largest trailers of ’11 (SP 500 stocks) were the ones getting the best bid.    The question is how much of this high beta action was fast traders vs. real longs stepping up to the plate? Sometimes buying the weakest trailers like March ’09 is a sign of a long bullish cycle, but it’s a different theme now into ’12. Simply, it may last a little longer, but eventually real longs only will have to come in and spread the wealth for this to be viable for an extended time.  Consumer discretionary/retail late weakness is a little ominous (maybe only due to hesitation before Thursday’ same store #’s’).  Anyways something you’d like to reverse in one of the strongest groups last year.

In all, quite a bullish day for the short term.

Ahead of the open, (05-01)

The Eurozone fear mongers were out in full force citing everything and anything to get the upper hand today.  To name a few of many Euro’ concerns: fear over Hungary (debt default?), Spain seeking IMF loans speculation, Greece warning of default if no deal in March, ECB overnight deposits to new highs.  As hard as they tried (to SP1267), it wasn’t enough to knock a market fueled by eco’ data for too long!  Market is about the QE (LTRO etc.) going on in Europe, not these daily ‘peripheral’ stories.  

We need to remain cognizant of the Eurozone headlines, but it shouldn’t be the deal breaker in making a trading decision, right now.

Right now, the market is forward looking/positively to NFP# on Friday as demonstrated by closing flat on the day. A ‘2’ handle (+200k)?. 

Financials & Materials/commodities held up well, adding to the positive bias- sentiment here.

Ahead of the open, (06-01)

As market participants slowly return, they are greeted by ‘rinse and repeat’ action.  Once again, morning losses to SP1266 off fresh Eurozone fears turned into new 2 day highs by mid –day(SP 1282).  As discussed yesterday, Eurozone negative headlines should not sway one’s U.S equity trading decisions at this juncture or that the previously risk- on indicator/Euro currency is sinking.  Also, premise here to start the week of an upward bias due to economic data since global PMI’s t continued with the usually unreliable ADP# that came in at 325K. Overstating the potential NFP#  by ADP or not, it’s in the consensus direction and consistent with recent U.S data, which is most important. If ADP# was say 100k, all the previous related employment data would be questioned today.

In all, the EU hangover into the New Year is not going away.  This week has been quiet on the EU front as speculated despite all the fear mongering, thus adding to the bullish sentiment.  Next week, things really pick up with leader summits, ECB meeting, possible S&P action and investors may position themselves late in the day (selling) for such, especially if the NFP gives the market another boost in the morning.

To be honest, the fact China (Shang) is suffering again despite PMI’s coming over the ‘50’ mark is a bigger concern than Europe. 

Today’s, sour Euro’ soup, primarily consisted of capital raising worries by Euro’ banks in this type of market place, not the actual countries they make their home in for a change.  This is not an indication of broad trouble coming. It is likely a fear stemming from Italy’s UniCredit’s stock issue deal (~40% discount) this week, a shareholder problem (market cap dilution) with individual banks is a way to sum it up.  While the EU Bank indexes sink across the pond this week, the US financials/banks lead the morning equity bounces.  It is the 3rd consecutive day of financials making the Daily Journal (some sort of record), which began as a note of buying in 2011 largest trailers ie. BAC, C.  Now, that this financial rally (best sector in ’12 so far, BKX up > 5%) is being picked up by the talking heads mid-day, it is probably time to sell soon.  As in past Q’s, this sector moves into earnings which could be happening again.  To avoid another head fake by this sector, sell initial rally and buy the dip is likely the best strategy here.

 “….Consumer discretionary/retail late weakness is a little ominous (maybe only due to hesitation before Thursday’ same store #’s’. Jan.3.   . Update: The numbers were very mixed, if not soft overall as some well- known, strong names pulled a shade of SHLD.  Only name reporting today falling under our Shadowlist coverage was ULTA, which was quite positive and moved nicely higher.

Into the trading week, (Jan.9- )

The somewhat (NFP#) muted market action on Friday was a result of expectations skewed to perfection. Whispers# had adjusted to mid 200k following recent related eco' data and ADP overstatement. Despite beating consensus and coming in at 200k, it was basically inline. Considering, 40k was seasonal (guys on bikes), market held it’s week’s positive vibe with a +1.6% SP gain.

As per Journal pages all week, upbeat U.S eco’ data on the housing/ job front and surprising Global PMI’s overshadowed a quiet week in Europe. Traders (mostly) putting money on economic/cyclical related sectors,(led by housing/financial) and away from a highly correlated market trade (which was the hope here coming into earnings).  Still, the question put forth early in the week is still not unanswered… “The question is how much of this high beta action was fast traders vs. real longs stepping up to the plate?”.  The  underweighted (positive) ‘longs’ are likely waiting to see if October highs break followed by low 1300’s before putting real money to work. As well, investors are monitoring if financials can hold up this time and not be susceptible to the usual profit taking as part of the usual ‘headfake’ routine. The early morning dips were bought this week indicating selling is not robust at all, either.

As far as Europe, it’s ways (euro slide, ECB=QE.) have been covered pretty well the past week.  Being on the continent right now, can tell you most of it was still on vacation last week, adding to the quietness and away from risk.  But, as noted into Friday’s trade, next week’s EU calendar is loaded. (add peripheral auctions to list of events noted to watch.). We’ll see if perceptions towards to sovereign fears continue to abate following ECB easing ways.

Earnings season is upon us soon after an incredibly busy and what turned into a highly negative pre-announcement (tech linked) season.  The beginning was caught here in December and it escalated into 2012.  The good thing is this all priced into the tech market, so no shock and awe this reporting season in tech.  If companies provide better guidance beyond March and for 2012 as a whole, they will be rewarded.

Ahead of the open, (10-01)

Steady the market goes flirting with a breakout of October highs is the best way to describe the slow and tight range trading action today. This is nice consolidation action since most of ’12 gains came on the first day of trading.  The same trends continue..” Traders (mostly) putting money on economic/cyclical related sectors”…The BKX (financials) tacked on more gains as it outperformed again (~+7% YTD).  A switch into higher beta sectors is still evident, today we saw it in tech as well with semi’s up ~2% vs.the safety of software linked stocks.  

The most important aspect today was China (Shang ‘index) getting on track off bank lending #’s  jumping 2.9%. Shanghai index was a wary noted yesterday. If this is the beginning of a reversal in the China market, it’s a very good sign for U.S markets to go higher as risky assets would rise out of better China sentiment.

In all, the positive momentum continues and can only get a boost from Asia. Europe looms in the closet, but remains quiet allowing traders to have an upward bias as well.

Ahead of the open, (11-01)

Despite Alcoa kicking off earnings season with its first loss in a few years, plus JNPR, TIF lowering guidance, a Global melt up of ~1-2% in most markets ensued with no clear catalyst/news to most in premarket.  In this view, our wary over China was lifted for the time being as its market put back to back gains equalling 5.6%.  As traders, we look ahead for potential catalysts; in this case it was concerns easing over China. A 2.8% Shang’ rally on Monday says that, but was ignored by the markets on Monday. If you were watching China and see a substantial rally, you don’t miss the gap up on day 2 of rally.  Today, China negative data brought back RRR  cut ‘easing’ speculation (again)+ no ‘hard landing’ speak fueled risk sentiment,  notably in commodities linked stocks overshadowing AA inline earnings. 

On the earnings front,

“…into a highly negative pre-announcement (tech linked) season.  The beginning was caught here in December and it escalated into 2012.  The good thing is this is all priced into the tech market, so no shock and awe this reporting season in tech.  If companies provide better guidance beyond March and for 2012 as a whole, they will be rewarded.” ..Into the trading, (Jan 9- )

JNPR, (not Shadowed here)  finally succumbed to a pre-announcement as tech peers, but AH’s losses turning into gains suggests ‘priced in’ as speculated. Unfortunately, there is no bright visibility (guidance), yet.

In all, expectations may be reduced on earnings broadly, not just tech. This is a positive as analyst earnings are seemingly greater than co’s cuts allowing for ‘beat’ surprises and better than feared earning results=  positive reactions on stock prices. Basically, ‘beats’ will be bought more than usual generating higher stock prices immediately following results and dips will be generally bought.

LULU, guided higher and spiked accordingly.

Ahead of the open,(12-01)

As one skims through a financial daily and sees another directionless trading day, one also sees a modest 2.7% SP gain YTD.  But, that’s hardly the story as the real strength continues to be in underlying (sector) market.  As covered here since the start of the year, the market internals began rolling and keep on doing so .."Some of the reasons to like the tape action is the breath. The number of new highs was positive as was the bid for higher beta sectors" ..Jan 4....."Traders (mostly) putting money on economic/cyclicals......and away from a highly correlated market trade ..." , led by financials, housing, materials etc. cyclical/beta sectors and out to single linked stocks.  There is no single robust catalyst for this year’s gains, just the solid and improving eco’ jobs/housing data while Europe sleeps giving U.S equities a chance.  As said late ’11 about ECB’s actions being ignored, they are no longer as it is seen being ‘accommodative policy’ now!.  This is why it feels like Europe is sleeping even though this is a busy calendar week, which so far has been a non-event(s). The Euro drops/ ECB balances hitting fresh records daily are now risk positive.  This is exactly what was a ‘ahead of the open’’ for days here, plus we’ve had China underperformance wary disappear for now.  So, while the broad market benchmark SP is up 2.7%, the BKX is up ~10% and subjects traded here JPM, GS are up $10% YTD (Either trade the BKX or GS/JPM has always been the way here), while housing/ materials/ industrials are up 6-10%..  The BKX related dips are incremental so far and are still being bought give this move a resilience ‘feel’. (dips were discussed last week).  If you take profits, you have to come back sooner than you thought as the sector keeps grinding higher day after day. Earning kicking off Friday for financials will test the rally.

Most are underweight equities as noted previously, catch up mentality may propel market to low 1300’1315 SP, but that may be all (at the May to July down trendline), as we had ‘junk’ going up big today with the higher beta trade expanding to a 'loser' trade.  Every time we’ve seen ‘junk’ move in years past, we were nearing a short term top. 

Today, the solar (TAN) frenzy >10% is a wary with cheap China’ related moves spreading out even further and speculative biotech’s in favor this week.  If you want to trade cheapies, go on twitter to try and make money on these types.  It’s never been a trading methodology here and today’s rally won’t change that because the China solar news catalyst may be seen in a different light as soon as tomorrow.   If you need to be day trading these make sure you have allotted daily time to flip.  

Although, we participated in the Solar ramp up a few years ago and initiated other groups very early like Shipping stocks (DRYS, TBSI) and ‘LED’ momo’s like CREE,VECO, we also never had these groups in the Shadowlist this past year while they fell steeply off a cliff and don’t think any loser group will be reinstated to Shadowlist in the near term.  As said early January, last year’s trailers were being picked up and now this has spread to the real losers of 2011 as seen today.

Ahead of the open, (13-01)

Another day where the market doesn’t want to stay in the red!  This despite a first in weeks, (‘worse than expected’ U.S  eco’ data), as dips continue to be bought up. Support is being found at last week’s highs/ breakout levels as shorts have nothing (catalysts) to press lower on. As noted to begin the week, ” The early morning dips were bought this week indicating selling is not robust at all, either.”.  This can be repeated for this week/ today.

A question entering the week,”… We’ll see if perceptions towards sovereign fears continue to abate following ECB easing ways.”.  Today, we had peripheral auctions go off without a hitch and ECB conference passed without a whimper, so you can definitely say the fears continued to abate as no bombs or even firecrackers went off in the Eurozone during a loaded calendar week.

“Market is about the QE (LTRO etc.) going on in Europe, not…” We need to remain cognizant of the Eurozone headlines, but it shouldn’t be the deal breaker in making a trading decision, right now’, Jan 5.  This belief (LTRO= QE = working) has been gaining real traction as the week progressed.

The same premises/ themes outlined this month remain intact heading into a long weekend.  A breather is probably good for some market sectors as well, but with earnings gearing up, we can turn attention to more single stocks without worrying if the market and some sectors feel extended.

Into the trading week, (Jan 17- )

Friday’s -6pt decline in the SP to 1289 was the biggest pullback since Dec.2011.  This pretty well sums up the resiliency of the market so far this year as another morning pullback gets bought.(at previous weeks breakout/close levels).  The inevitable and inline S&P downgrades/ paused Greek debt talks and muted market reaction since has just added to the idea entering last week’s trade of Sovereign fears abating.  

All in, with sov' fears abating, an easy ECB, China #'s/mkt reversing and the trade thesis remains the same with US eco’ growth  being a driving force in a cyclical economically sensitive trade, led by fin’s/housing.  The pullback in financials post JPM earnings doesn’t take this off the table. 

Importantly, earnings from tech/ financials will take over the headlines for the coming week.  Industrial earnings will test the recent US eco’ data.  The housing data will test the housing rally.

Nothing has changed to the upward bias, no reason to complicate things.

Ahead of the open, (18-1)

The positive sentiment from China’s >4% market surge, Europe’s up sessions since Monday carried the bullish tone into the first U.S market open of the week.  The circumstances were somewhat reminiscent of the Global melt up that US markets jumped on to start the year, maybe that’s why all disappointment with the market inability to break and hold SP 1300 resistance level today.  Just like upbeat Global PMIs’ to kick off the year, today’s eco data was upbeat from ‘better than expected’, China (PI, retail#’s) to a much better German ZEW confidence # to a solid U.S empire #.

The ones complaining on days like this, where the SP adds 45bps to 1294 are generally those who are still questioning the broad rally, not only January’s but the >20% run since October.  These traders/investors are the same ones who want a dip to buy and enter the market.  This relates directly to the Financial sector, which is down a second straight day signalling to many the rally has petered out.  How about just a breather?.  As said yesterday and now today, the pullback doesn’t take recent trade upward bias off the table.  In all, consider that despite consecutive down days in financials, the market is flirting with highs not seen for months.

Earnings- A possible weight is the start Q4EPS as 35% of SP 500 has reported negative surprises, but, so far it’s a small pot of only ~35 co’s.  

• CHKP  solid earnings are a positive to a peer covered here like FIRE FTNT.  Semi earnings are coming in and are overall upbeat (LLTC ASML) for the SOX .  LLTC, management said Dec bookings strengthened and its continuing into January.  Remember it’s what they say on the outlook this Q.

Ahead of the open, (19-01)

The best thing about today’s broad rally into late July’s high is it didn’t even involve a gap open, but a steady climb into the close from a flat open.   We’ve talked about being invested in this market overnight due to morning gaps taking away any chance of profiting in buying an opening bell.  Today was a plus as it provided a rare opportunity to simply add positions at the open and enjoy the ride.  Of course, you need a game plan and today’s 'Ahead of the open' provided a pretty good one.

Firstly, cited the upbeat reports, specifically LLTC  management call for the $SOX and its components. (XLNX repeated this AMC).   The SOXX surged over 5% on the day, a full 2pts from open to close, which is a 4% gain on the day from an open buy.   Note this 5% isn’t the beginning, noted earlier in the month…. “A switch into higher beta sectors is still evident, today we saw it in tech as well with semi’s up ~2% vs. the safety of software linked stocks”. 

Now, $SOX is the leading sector YTD with housing, financials in the cyclical tow.  A little extended at upcoming resistance, no?

 Secondly, all the disappointment in previous day’ action was for not as speculated here.  GS, ~+7%, JPM , ~5%, JPM closing .30 away from its price heading into earnings confirmed the premise of buying the dips in financials discussed all month and yesterday.….” These traders/investors are the same ones who want a dip to buy …How about just a breather?.... ”As said yesterday and now today, the pullback doesn’t take recent trade upward bias off the table.  In all, consider that despite consecutive down days in financials, the market is flirting with highs not seen for months.”.  

Question is how much/ how many are below the SP benchmark YTD?.  Today’s action into the afternoon and close smelled of performance catch up.  Closing over 1300 was a psychological barrier, not real resistance.  Keep in mind, we’ll be up over 5% YTD on the SP at the trendline noted next,

“Most are underweight equities as noted previously, catch up mentality may propel market to low 1300’1315 SP, but that may be all (at the May to July down trendline),”.   Jan 12

 Considering the outperformance of higher beta/more cyclical sectors so far, a possible strategy to put/keep money in the market, but away from the higher beta is to stick money in ‘large caps’ going forward.

Ahead of the open, (20-01)

Market ticked higher for a 3^rdconsecutive day taking SP (+25pts wk) prices right into our first target of SP1315. While most indicators relating to risk on flash the go ahead sign, investors just seem to become more leery of the rally as it grows.  And, it has been growing with the SOX (up 7% wk.) taking over leadership from financials/housing.

Back to the ~1315 “R”, as happens regularly at a crucial resistance or support level, news seems to miraculously jump out these levels to solve the issue.  It doesn’t necessarily have to happen this overnight, but it could happen next week around the FED meet up.(Jan 25).  Market players are likely turning focus into this date.  In the meantime, the market may meander, dip a little or overshoot the resistance some.(10-15 SP handles in either direction). In between this weekend and Fed is the China New Year. Speculation has been for another RRR cut, which again may not occur due to some other actions taken already this week.  A few weeks ago RRR speculation didn’t materialize and we had a drop. A buy the dip oppy’ would arise, if this occurs.

As far as earnings, even from tonight’s tech giants,(GOOG,IBM, INTC), not expecting any individual tech linked names to drive the market.  Equities like UNP  are a better gauge now (trans. / industrial) for the market. This is something noted to watch into the trading week as industrials will test the eco' data.

Into the trading week, (Jan 23- )

One thing that is becoming clear after another week of gains is the rally is spreading its wings. The fact other asset classes such as USD/bonds are reacting to the downside indicates more money is believing in this Global rally. Another feature of the rally is its shield, any negative newsflow is shot back indicating resiliency. There is no reason why this market can’t go higher this month, a pause at resistance or even better a shallow pullback is all that stands in its way.   A lot has been made of the Greek PSI swap last week and a ‘supposed’ Monday deadline, but it hasn’t even been a noted catalyst here as the premise is been to look through the Eurozone clouds or be left behind.  A disorderly default after all that’s been done with Greece is almost an implausible risk for Europe at this point. A deal in some form will eventually take place.  Also, the ECB LTRO is likely considered to be a partial ‘contagion’ firewall.

The focus here will be on earnings as there will be no shortage of supply(reports).  Since notable financials and techs have reported, a broad picture is already known to the market.  Now, it becomes a single stock issue in the sense reports should not have broader implications on the market.  Still, a large supply of Industrial reports this week, but as any recent test of the eco’ data, it should also confirm the big picture.