DJIM #10, 2010

Nine weeks into 2010, we are pretty much at where we were at the beginning of the year.    This isn't negative, though.   Considering what this market had to endure in the past two months, we'd say this is about as impressive as it gets for being at this level at this time of the year.    The higher we go, the scarier the pullbacks to market participants, and stronger the ensuing rebound it follows.    No matter what skepticism shows in the market, and not matter what the catalysts that caused the market to slide recently, we always manage to come back during the past nine months, right?    Folks, this is simply a classic definition of a bull run and riskier assets are the way to go..     A bull run, as we know, may come in different shapes and lengths.    At this point, we are still treating this bull run as a long and grindy one that can potentially last years with lots of bumps and obstacles in the way.    This is the best kind of bull run a long trader can ask for.

On the heels of an excellent week of M&A/ buybacks, which grinded the market higher, we hit a trifecta of good news by Friday’s open…..“we patiently wait to see how the debt offering is received (demand) in Greece (and resolution) + if China puts in more curbs ahead or after their congress starts + NFP#.”   The Greek offering went great and has traded well after, the China Congress kicked off with a very assuring, calming opening statement and obviously, the NFP# was a ‘gapper’ kind of number in itself.   Probably, best of all,  the market didn’t rollover/ get a snow job intraday day and/or in the last 30 minutes as 3 positives catalysts were too much too handle for the shorts, who even got squeezed some more on a final kick leg higher late in the day.

Still,  broadly, we shouldn't cheer the fact it's a better than expected # because the Economy is still not in a strongest shape to create jobs.   Unemployment rate of 9.7% is still on the high side and it's going to take a long while before we even get to a steady positive trend as far as the job creation is concerned.    However, the message this Economy is sending to everyone is that things are improving and not worsening come Spring.    People will see the light at the end of the tunnel and this is the very optimistic reason why people are buying up this market slowly.     As things improve,  we'd have more and more companies benefiting from the improvement from our Economy and execute well to show higher profit.    This is basically the bottom line thesis of a bull market.

Last week, and for the first time in a long while, we had some momentum/ speculation in the micro/ mid cap land.   Notably, the speculative Chinese coal plays such as CNAM  PUDA and SCOK  were getting the sort of action we've been missing for a couple of years.   Is this a sign that perhaps the appetite for momentum micro- mid , small float caps is back?   We aren't exactly sure yet,  but it's definitely something to monitor.  Of course, care is needed if you feel you're out of shape to trade these highly volatile plays.    As long as market players believe that those plays exist and are willing to hunt them down and herd them,  DJIM won't be sitting on the sidelines either.    We were very active at trading CNAM, PUDA and alikes last couple of days and it's just a great feeling and change of pace from the bigger cap stocks.    We still like these plays and feel that they may have playing time left.    How high they can go is anyone's guess.  As long as they are in play,  that's all we care. 

As far as the rest of the market,  there's a good probability that we'll retest highs.    Financials, a missing part of the previous rally have been very strong lately.    The regional banks have been on fire lately and BKX  index toys with highs.   All of these, the financials coupled with the strong action from commodity and material sector, and as well as the technology group, are enough to drive this market substantially higher.    Having said that,  we still feel we have to wait for some better price to enter some of our widely traded plays.    Remember, it doesn't matter how optimistic things look, we are only at the very beginning of a long grindy bull market.   There's no need to push yourself into thinking that you are missing out on great plays and pile all in mindlessly.    At DJIM, we simply lock our favourite plays on our shadowlist radar and buy the dip opportunity when it comes to us.

Bottom line, spring is around the corner and the atmosphere in the market is more energetic than ever it seems even if volumes don't show it.   Trading opportunities are becoming more diverse and this is where we have to give our best effort to take the full advantage of it.