Ahead of the open, (03-02)

Post Wednesday’s close, noted the very broad based rally that touched even the 'safety' sectors.  The consensus view into the overnight markets was for a follow through day based on the PMI's and Financial leadership (Wednesday) touched on here.  This stretched out to chartists due to RUT, SMH outperformance 2:1 vs. DJIA, SPX , to fresh high's and overall volume pick up indicating accumulation.  The runway was clear for an upwards move.  Yes, these indicators (above) are the usual suspects we’d usually like to see and/or usually see create a breakout (eventually to SPX 1350’s this time, if it occurs).  But, as pointed out since 1333 SPX was hit last Thursday morning and yesterday, the market is in a range tug of war and churning away.  (Do note 1333 trend-line has inched down to 1327’ish), so a take -off seemed imminent, but instead the market decided to take another pause.(ES volume was well below average).   Still, sometimes too much digestion /consolidation leads to fatigue setting in after an elongated range trade.  We could be coming up to that with Friday’s NFP# serving as a catalyst, although it’s not a critical number.  Also, despite evidence of fresh money coming into market yesterday at the beginning of the new month as discussed, it is not necessarily an indication this is the same money that will chase another potential leg up, but instead one that just wants be in the game and live with the little risk in the market.  This type of money also prefers to buy the dips to add.  Considering no market day has had more than a half percent SP downside since December, it’s been a pretty safe environment in 2011, so why not be invested is what that money was likely thinking.  Also, as discussed in early January, it’s best to be invested or miss any good day now as most of market day gains are from morning ‘gap ups’ with little action afterwards like yesterday showed again.   Although, belief is we will break out eventually, it would be healthy if it was later after a correction and not just a shallow pullback (~1.5%) like we’ve seen to the 20ma/1300SPX. 

A few things have played out since 1333 was hit a week ago and the noted top chance:

• Jan24: “..pullbacks will be shallow and will be bought..” (we hit 1300/20MA),..Jan 26, “…SP 1315 close becomes support”..(mkt never closed 1-2pt lower…”closing at ~1315 level negating any real technical damage”..Jan31);. Into Jan 30, “pullback depends if 1306 is defended”..(it’s bounced a few times off this level this week).  These market actions just confirm the markets resilience and presence of dip buyers, also we’ve added 8-9 stocks off earnings to trade off during this range as was the idea until the broad market settles itself…”In this environment, it is probably best to lessen exposure if holding all month and concentrate on single stocks coming out with earnings going forward.”. Jan25.

So while the broad market deliberates, we comprise a list of stocks to trade based on individual earnings in the 1st Q .  We can trade the names now and with confidence further into the year and not worry if the broad market breaks out or not here.  Names accumulated this Q off earnings are mostly previous inclusions; (IACI AZPN  FTNT  LQDT  MKSI  FIRE PMTC  URI  LULU etc.),  while other names just confirmed they should remain on the list for yet another year, if this Q’s # is any indication, ie: (WYNN  LVS  PII  FFIV  FOSL  UA  CRM  VMI MA OTEX  DDD etc.).

As said recently, ‘all good’ seems to be priced in from recent eco’ data exuberance to what was a mediocre earnings season at best to a Eurozone coming out of the hospital.  Another way to look at it is it will be hard for economic data points to surprise  as the bar has been set high, earning trends are known from this Q and we’re a Q away from next and there is more chance of a surprise Eurozone bomb then more morphine to be given out. (We’ll cover the morphine angle with another round of LTRO end of February and ECB’s Super Mario conference next week at a later time).  

If evidence intraday of a 1330+ close post NFP#(150-160k private), we’d add some exposure into weekekend, (*upside surprise could be faded), otherwise keep the top idea in play by concentrating on single stocks coming out of earnings. 

• N, TRMB, SIMO, THO are some to watch early following earnings.  N,SIMO are familiar here, others like TRMB, THO are to spread a trading list into more cyclical plays this year.

Ahead of the open, (14-02)

Market simply reverted back to its 2012 ‘in the game’ ways.  If the investor doesn’t hold overnight, the investor misses on most of the day’s rally as it’s usually all in the morning gap.  If one doesn’t buy the shallow dips, one misses more opportunities to be ‘in the game’.  Although momentum always stalls after gaps, the market feels like SP 1370’s has a magnet attached to it pulling stocks back up from very shallow dips.

As the market retraced all it’s losses from Friday, you have ask what all the noise was about on Friday.  The austerity package passed this weekend as speculated.  All the Euro group wanted on Friday was for this occur to kick off negotiations.  All in, the noise will likely pick up with ‘negotiations’ as soon as Wednesday (finance ministers meet) and last till late (redemption date) March!.

As far as the underlying sectors, all the right groups led on the upside and single stock action from earnings related names this Q continues to be favorable with many new names hitting fresh highs. Names noted include:

...TDG, HAR, TRMB, THO… (IACI AZPN  FTNT FIRE  LQDT  MKSI  N PMTC  URI  LULU etc.),  while other names just confirmed they should remain on the list for yet another year, if this Q’s # is any indication, ie: (WYNN  LVS  PII  FFIV  FOSL  UA  CRM  MA DDD OTEX etc.)

Ahead of the open, (17-04)

A weird tape, yet support on the SP 1370 not broken yet.  A sideways session for the broader market at the end, but an underlying market consisting of growth and best performers succumbed to tandem profit taking.  Considering this is as bad as it got with Spanish yields widening over 6% is a relief of sorts.

The heavy hitters like AAPL, PCLN, MA, GOOG  the most visible casualties, but the underperformance in growth ‘retail’ stocks like FOSL, RL, PVH VFC , not living up to the overall retail sector performance following better than expected retail # was a head scratcher.  Still, despite better retail # in China last week and now here this sector can’t get going.

A lot is being made of AAPL’s slide threatening to take the market with it, but at this point with its action coinciding with other growth stocks is likely more of a rotation of sorts for the time being.  Not a safety relocation/ rotation into TSY or GOLD, but one where the cash is being spread out in equities.  Example, see the PC’s/Semi’s in the black today as ‘tech’ gets slammed.

The ‘weird’ action is likely not a very long term phenomenon.

Ahead of the open, (29-06)

Any doubt if the previous day’s morning rally was artificial was answered by the Dow ~170+, SP’s 18 handle drop at its trough.  Any question if it’s a fast traders market was answered by the Dow ~150/ SP+ 15 recovery surge in the last hours off a ‘cancelled Merkel conference’ headline leading to the possibility of a EU deal at hand.   The fact it’s a ‘renters’ ES/ETF market was also evident as single stocks hardly participated in the rally with most coming little off their lows with many ‘growth’ names still off 2-5%..KORS ,FFIV, VMW  just some names at the high end. (MA,  PCLN off 10pts and even AAPL -5pts).  Hardly what you’d call an inspiring tape for the longer than an hour or day.

 

 

...but wait...

  

A deal has really been struck tonight and the euphoria has pushed ES over 1340.  The question on many minds tomorrow will be how long before this shine wears off and we have another anti-climactic moment as we did following Spain’s bailout and Greece’s elections??. Those fading the upside tomorrow on that notion may be in for a surprise.  We discussed only needing a credible deal and at this juncture it seems to be, which should allow the market to end decent on the week, month and Q.   It will be interesting to see how long the short covering lasts and if 'longs' emerge afterwards.  '24-48hr renters' need to go, investors need to show signs of life.. In all, the fact we finally got a surprise out of a EU summit is a positive and it would be a disappointment (and surprise here) if market doesn't end the Q on a good note.

  

The immediate summit need of reducing Spain’s borrowing costs/ sov’ balance sheet woes due to banks debts was ratified with Germany caving in on bond buying.  Italy also gets a lighter set of conditions to reduce its borrowing costs.  Question here is ‘show me the money’ as there is over ~2 trillion of debt in Spain’s /Italy’s sheets and about a ~1/4 of that is in the ESM/EFSF funds.  Overall, this the big surprise with a gift for Ireland who take home a ‘surprise’ cake as well.  Breaking up the sov’/ bank link seems to be broken.  Also, a proposal of direct control covering all banks by a European ‘banking supervision system’ seems to be on track to recap the banks if need be. Still the details need to be seen and analyzed.  This is the first step to the ‘banking union’ expectation discussed here in the past leading up to the summit.

 

All in, a humbling 24hrs for Germany and a celebration for Italy and Spain.  Germany backed into a corner politically by Italy/Spain not signing off on the (small)120bln growth pact until borrowing costs issues addressed and for its football team on the pitch with Italy and Spain up for the Euro cup now this weekend.  As for the markets, it’s time to look at ahead to the ECB on July 5^th and earnings season around the corner.  Yep, that’s how the market works..on to the next!.  Expectation now will rise for ECB rate cuts and some LTRO as ECB should be pleased with the summit results to go ahead with easing measures.  Also, earnings expectations are depressed, thus any surprises (better than feared) and/or signs it’s not that bad should also be a market positive to go with possible ECB actions.