Your Personal Trader - DJIM Journal 2H'-2010

A feature of DJIM weekend editions is to prepare for the trading week ahead. Notwithstanding any unpredictable ‘catalyst’, it gives you a few days notice before the market inevitably turns its focus to these potential market movers, such as recent importance of China PMI/US ISM/ECB(exit strategy speak), days before and the eventual game changers these events went on to be. Simply, it allows you to be positioned before the crowd reacts (buying or selling) to the potential catalyst.

Unfortunately, as we wind down the year we’re prone to lead with (last week)…”In all, newsflow will be light and trading pretty dull until a fresh catalyst emerges.”. The market put out a boring week as the DJIA was up about 20pts on the week heading into Friday’s trade. Still, we pointed out a few things to look at and they pretty well ended up taking up the majority of the week’s market noise… “Also, watch for more signs of the ‘cyclical’ and bond to equity trade discussed after Thursday’s trade in Journal to see if it’s continuing. Part of this group is the Financials and there is a conference this week where the market will be looking for updates into 2011 and their earnings. A few important China IPO’s are scheduled for early in the week.”

The bond noise was almost unbearable as the 10yr TSY yield spiked big time and money flow showed a huge ‘allocation’ move from bonds to equities (13 billion into equity funds). As far as the China IPO’s, DJIM has ignored them recently due to recent failures like MCOX/GAGA after a v.good first day, but we thought a few would be noteworthy and by midweek Pasani was on defibrillator after DANG/YOKU’s 2 day run!. The 2 are on the trading Shadowlist, but other than a speculative trade going forward, not sure how long they will survive on the list in 2011 at this point. BTW, there were a few other IPO’s that really stunk on the 1^st day, too.

Another bit going into the week was the GS conference and this played into the ‘market’ and the financial strength (banks >5% gain this week) as the commentary from co’s out of it was quiet cheery/optimistic going forward. (steepening curve helping as well).

Another point we touched on was the usual China/Euro watch and this picked up steam as whispers of a lending hike/moving up date of CPI release (due to whispers of >5% CPI), thus leading a commodity link lag. But as we pointed out at the high of the noise on the subject Wednesday morning in a pre-mkt alert, the market was interestingly behaving quite well considering. The lead into Thursday’s trade afterwards was.. (*probably just to remove conflict with economic policy meeting Dec.10-12 and likely to be only another RRR hike). So far so good as nothing has occurred this weekend and only a RRR hike was handed out Friday. Recall, China’s last lending cut was a “SURPRISE” in October and the market swan dived about 270 DOW/20 SPX pts, crude was off 4%, but 2 days later, all the losses were recouped. The next one should not be a ‘surprise, but the expectation soon and so market should behave better. Simply, if a hike comes in the last 2 weeks of ’10, we’d be surprised and would be buying any dip if it happens. China comes to DC this upcoming week for some eco talks and we doubt they will gift wrap a hike present to bring with them. As far as 2011, expect to live with ‘hikes’ as many more RRR and atleast 3 lending hikes depending on size will be part of the China ‘prudent’ approach. It will also be front loaded probably, so expect early ’11 noise. If a ‘seasonal ‘ move continues, 2011 we’ll probably see a start in ‘CASH’ in view of all the Bull hoopla generated this month, coinciding with a ripe time for a correction.

So….what do we look at this upcoming week…..

Firstly, we’ll deal with the consequences of the released hot Chi’CPI, which without a hike should lead to market relief and market moving forward. (Noted, commodities were looking better after Thursday’s trade and this continued through Friday’s trade. Coals were pretty strong in the afternoon). Once that is done with we will get back to seeing if the economic fundamentals continue to be going in the right direction as we get back to some data after a very quiet week.(Good trade data on Friday), included is the first December economy reads (Empire/Phily) and we’ll see if recent housing data can be repeated. The market will also get some earnings, FDX BBY RIMM.

Overall, the market keeps on giving and corporations are too with dividend increases all over the place supporting the ‘feel good’ into 2011. It seems Santa’s highway ~1260SPX has little traffic in it’s way, unless DC really screws up or we get an unexpected shock. Complacency is at a high among Bulls recently, just make sure you’re not one of those and deal with all I got for Xmas was a lousy sweater déjà vu’ moment.