....Street fight

Ironically....following yesterday‘s 100pt intraday drop, what was noted is going to become the overwhelming trading premise after all FX hell broke loose overnight…“The only thing to know today is the Euro had a temporary setback/ USD shaved off last weeks losses and equity market took a step back because of it.  In this opinion, the end result will be a weaker USD ahead of QE2..”..  

Yesterday’s “..Buyers should appear’  alert at ES 1130 turned into an army of FX warriors running the market  ~30 SPX, just from 8am!  Why after 8am?.. Why did the ES/ markets get off the blocks so late after global interventions blew overnight? .  There was confusion and dissemination of the consequences of these FX manoeuvres before POMO’s 5.2bln began washing through the risk markets.   What took over is the ‘wild imagination’ of the market that US QEII will follow suit and buy up ETF’s etc. like Japan.  All the ’surprise’ policy acts in Japan, Australia were done to ‘pump’ the USD, even Brazil/SK put in FX control, but this all backfired!.   It’s a ‘race to the bottom’ for currencies.   

It’s not DJIM’s gig to evaluate, dwell into the ramifications of a FX war as there is an abundance of outlets for this discussion.   What we need to figure out is how the individual stocks will perform tomorrow, the next day and the day after.  Unfortunately, this FX fighting is going to make trading absolutely dependent on USD.  Every up and down will be on the heels of the USD/EURO,  it’s really going to suck as the machines will be in complete sync to the dollar and ES/SPY will rule the day.   Volatility is likely to return in a big way with intraday swings..morning gaps the norm.   Every piece of macro data will be evaluated for QEII expectation.   Yes, we are at stage where we want (need) weak data or else market will likely take it on the chin.   Don't really want to be in front of a stronger consensus NFP# number, be careful as it closes in.  It possibly surpasses estimates by a wider margin than QEII's want.

As far as EPS, expectations are very high to the early Oct reports. (we'll see how this progresses). For now, if you hold into a report, you will likely get pummeled if it is not up too snuff, even if slightly off.   This is despite all the pre-announcements so far.

Cloud(y)

On the surface with SPX down ~1 pt, the broad market held up very well, hanging onto rally gains. It’s also pretty impressive considering the underlying story in which the momentum/ M&A tech trade underwent liquidation reminiscent of years past. 

First the boring stuff,  the rotation we touched on this weekend continued, BKX (financials)  is now the best group in October, commodities and linked stocks performed well against the USD backdrop (USD -Euro-QEII helped by weak ADP number).  Tech was again the exit point, but the big wigs AAPL,CSCO,ORCL etc played 'safe haven'.

In the previous Journal, we touched on 'not' holding into earning because if the report is not up to snuff, the stock will be pummelled.   Unfortunately,  little did we know the the collateral damage would hit the sector in question as it did today with the 'Cloud' and than anything closely related to a slight miss.  The culprits for getting the peer liquidation started, EQIX  (data center) and AU.London (software) only guided for a slight revenue cuts (2-3%), EQIX even raised EBITDA.   Competition-pricing, risks listed in all company disclosures were the overwhelming factors that shorts exercised in their favor.   The only ones to getaway today were NZ PAR ARST , which have been gobbled up.   Everything from application delivery ( FFIV RVBD ), virtualization (VMW RHT ),  software (CRM (uses cloud), CTXS ) , rumoured M&A targets ISLN RDWR CVLT FTNT TDC  all sustained big losses, some in the 10% range.   Selling pressure of this magnitude usually doesn't last 1 day,  so it will be interesting tomorrow if there is more fight in the shorts, who finally found something to press positions in.  The way shorts act in the broader market lately, they will give up fast once they feel the trade is not working any longer and will be squeezed.

To put this 'cloudy' day into perspective, ask one question.  Do shorts or the acquiring executives at IBM, HPQ DELL, CSCO know better???.   Easy answer, cloud is the only growth shift going on, besides anything smartphone related.  One good report, one acquisition and it will be sunny and not cloudy days in the forecast. 

...What's next?

If we were doing a simple daily recap as many trading wordsmith's do daily, we’d talk some jibberish about how indecisive, boring a (-0.16 to +0.16) day in the major indicies was.  But, at the DJIM, the Journals are a methodology behind a trade,  a set up/prep for the next trading day/ week etc..  What’s written here,  is what is on the brain to trade!.   DJIM is looking at the same things /ideas as what’s written about.   So, let’s see how yesterday’s Journal can be used into a trading day. 

• EURO

Unfortunately, we’ve (market) has become polluted with the USD/EURO  trade.  Yes, the same trade we said would be effect since early September and than when Euro was near crucial support at ~1.27. (1.40 premkt heights before unwinding some and diving ).   Now, the Euro probably has a Facebook page or even it’s own Twitter account, but it’s ‘boring stuff’  here as we called it yesterday discussing the USD EURO-ADP #.    As a blind mouse can see if (bad) ADP report helps USD, so a (good) Initial claims # hurts USD.   This is exactly when the happy Euro, USD reversed today and changed the whole make up of the day after the claims #.    Of course, commodities and its underlying stocks became expendable and sold off.    You can scalp this till you are in blue in the face now, if that’s your schtick!.    As far as tomorrow’s NFP#, the preceding  ISM’s employment components, ADP #’s,  Initial claims have really muddled the picture that it’s likely to end up a non-event and not hurt QEII’isms’.      Fear of an surprise upside # tomorrow has faded since we talked last about it a few days ago.   It’s when you don’t think you should worry about it,  it hits you in the face..eh?.   At this point the risk of getting a temporary technical recovery in the USD is great, so the believe that this is a win-win number and that a surprise upside is good news as well (economy) is not boding well here at an oversold USD.   

*On the FX wars topic, IMF meet up this weekend. Even though the chances are very remote of any agreement,  if anything does happen, we’ll likely wake up Monday to an unpleasant surprise.  

• Momo’ tech liquidation

The notable part from yesterday’s trade was the momo liquidation.   Of course, everyone was writing about it last night as a fill in for space,  but what was suggested here is there is a trade here to look for….  It was expressed in…..“Do shorts, who did press today,  or the acquiring executives at IBM, HPQ DELL, CSCO know better…. One good report, one acquisition and it will be sunny and not cloudy days in the forecast”.   The point is this where DJIM is looking for trades the next day to start.   It’s not a recap.  Well,  it didn’t look like the shorts had the guts to press further, a quick glance at the names given yesterday shows they found footing early and all finished well off their lows and many green.  Oh, look ADBE BMC acquisition rumors hit for good luck too!.  Oh yeah, IBM  hit a NCH dating back to B.C.

So, on a day flat, if you wanted to trade, you had commods’ to intraday trade with Euro swing or the beaten up momo’s,  if you saw support in the tape as shorts stopped to cover.

* Still note this liquidation is very possibly a hint of things to come in the broader market in the way of a short term correction.  Buyers are stepping up the last few days, but if we have a 'decent' size down day where they don't appear by close, don't expect them to come back until things really settle down.  This has been the make-up of the market as we've pointed out on many occasions this year.

Overall, a 'defensive' stance as the market 'stalls' out.  If you recall it was discussed a few weeks back (below 1130) that overbought/ optimistic readings can last longer and they have.  Unfortunately, the longer is becoming shorter and shorter now and so, we'd concentrate on new emerging EPS linked stocks going forward.

DJIM #41 2010

Another week, another solid % gain tacked onto the SPX!. The QE train kept rolling with the last hurdle taken out Friday morning with the NFP# report.   If there was any teeter-totters in the FED or in the marketplace, this report surely solidified an unleashing of liquidity to come in their minds.   Add strong earnings from the first Dow component (AA) with the prospect of loose money and the SPX breached the July channel top.  
 

Last weekends Journal with market seemingly fatigued around ~1150,  we talked of rotation into financials (BKX +3% on week)  and commodities  away from tech  …"US Macro data this week should re-inforce a weaker USD/ higher Euro ahead....A rotation should provide enough stimuli for the market to break the Oct '07 trendline eventually....despite the precious metals taking off,  the concern here has been that many commodity linked stocks/ groups were not participating in this ramp off the Euro and decline of USD.    But, late last week, we had some developments that it`s probably time to become 'bullish' and shortly look to get long some commodity-linked stocks" 

Finally,  the widely followed DJIM base metals  got going outperforming the precious metal stocks ….WLT CLF FCX X  all up ~5% on the week.   On Friday,  Ag’ commdities  got into the picture ramping big after USDA reduced it’s supply estimates.  As noted a few months ago, the Ag trade/ picture will last a long time once in motion, therefore there would be a trade after the Russian fires.   Since those days the space has really done nothing,  even with POT offer on the table.    As far as linked plays,  Machinery stocks benefit ACGO CNH DE, but the fast trade will come to the fert' stocks (DJIM’s past included (CF MOS TNH IPI ).  The outperformance of base vs. precious is likely indicating some rotation as well.

Drag…

The tech rotation from last week continued and took on a new phase as this years momo-M&A tech alarmed of a blow off top.   The big caps are providing ‘safety’ now.  If there is overhang on the market, it is this right now as it‘s ‘spooked‘  quite a few.    The markets need to see this cloud picture clear up and earnings / M&A activity will decide this most likely.

It should start to get interesting as attention turns to earnings this week, partially away from the QE. At least for a week or two, we'll see if the Micro can be the driver to higher prices.

On-site playpen

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*Bottom- left box, members may edit in "add symbols" of interest for others to see. (Use djinteractivemarkets@yahoo.com and djim2010 for sign in) or use freely.

Clouds still pinched..

VMWorld starting tomorrow 12-14th potential catalyst for space.

http://www.vmworld.com/community/conferences/europe2010/

Stocks >$10 linked to group below (site)

..waiting room

As the Euro deals with more exhaustion (-.4%), the FX sensitive market didn’t have one of it's usual rally tailwinds.    Add the anticipation for FOMC minutes at direction of Fed’s thinking on QE, earnings  INTC,LLTC tomorrow,  bond market closed and it’s no surprise the market parked it for the day.  At least there was some action in the DJIM composite, casinos (WYNN LVS ) in the consumer section and JKS (solars strong) putting in some very nice gains.   FX sensitive base materials were a little light after a big week, Ag’ machinery name  CNH +4% led the corn trade, ferts ok, CF >3%.  The “clouds”  again were a ‘drag’ on the market as they came on sale once again.  

Not much of a read on the market,  just have to wait on tomorrow’s events.  Otherwise, staying selective, somewhat defensive in prep/ available cash for new earnings as market is prone to selling if any diversion in QE expectations hits the wires.

*On site platform’-Bottom- left box, members may edit in "add symbols" of interest for others to see. (Use djinteractivemarkets @ yahoo.com and djim2010 for sign in) or use freely.

.."before long"

If the market needed reassurances of loose money and strong earnings to continue to chug along, it received it’s reinforcements today.   Okay, INTC/LLTC  (industrial tech end markets) wasn’t all that strong, but INTC's commentary was sanguine enough for Q4 with business improving the last 4 weeks. Add loose money relief  "before long”  in the FOMC minutes and the market should get to the next ladder step tomorrow (~1175'ish SPX).   

Despite all eyes on minutes/INTC, the interesting tape action occurred much earlier in the day.  A quick opening 10pt drop to 1155 (9ema) was swallowed up (as it should with no fundamental sell off catalysts).  Once again this showed the markets ‘resiliency’  and guess who led the upturn.  Well, yesterday in the afternoon,  we pointed out the cloud stocks  having a potential catalyst,  so the stocks list attached on site was being watched and it was the first thing to turn, leading the Nasdaq back off it’s morning fall and outperformance on the day.   Whatever the catalyst (it was afternoon in Europe, so some conference dissemination at bottom feeding time), the big momo names VMW CRM FFIV  bounced off lows and had 5-7 pts intraday reversals  each even before the late ‘minutes’ rally.    By this late rally time the ’clouds-virts’ had all the gains they can chew, besides the rally was nothing more than an ES/ETF driven move, so no top off gains in most equities.  This will be interesting to see tomorrow, if a bid comes into stocks and not just be a ES/ETF follow through move higher off the open.   All other groups were basically in line with the Euro/USD and/or the SPX tape all day.  Maybe of significance though is in the financials as GS  traded above 200ma with JPM  earnings on deck tomorrow.

As the last few days point out, it’s very possible to trade from a ‘defensive’ posture (as in not being heavily exposed ovrnight mostly) to avoid any surpise sell off and to have money available to jump on new company specific earnings.   It also allows you to use that money to play groups moving on a particular day, if no earnings plays show up.    At this juncture the DJIM Shadowlist has maybe 35-40 stocks in it broken down in groups, which make it easy to see where the money flow is going.  Monday, it was the casinos, today the clouds.   Tomorrow, who knows...Commodities?..Banks?..or some EPS stuff.

'funky' market tape

After Tuesday’s late move, we wanted to see if the individual equities would move today and not just the ES/ETF.    Again, shadowlist composite was pretty flat (excl. base metal commodity stocks) in the midst of the upside showing something amiss.   Looking at the broader tape, discoloration in the markets was seen as the the semi’s and banks were putrid coming off earnings (INTC-JPM) that supposedly were partly responsible for the market lift as far as media hype goes.   Unfortunately, post earnings of INTC LLTC JPM,  we really see no reason to chase these groups.   The semi’s are still in a correction phase and banks foreclosure/ liability issues are a paper weight on investors money.   Listen to CDS spreads widening on banks as a headwind.

How does a market hit fresh intraday highs without these 2 important factors playing a role?.  Well, it seems there is enough liquidity out there to put money into the transports (~3%) , material, commods’ to support the market.     Coming off CSX  earnings, minutes FX benefits that may push euro to 1.43  and all the flow was going in these groups, especially into the mega cap  names (HON UTX types).   So, how did the Nasdaq pull off gains w/o semi’s,  the answer is money is also flowing into the ‘safe haven’ mega caps  like MSFT, CSCO etc.   All in all, the tape is funky and maybe we should just be happy with fresh highs and not be dwelling at the underlying tape, but we’d be fooling ourselves if we had market ‘blinkers’ on to what might be ‘warnings‘.   Tomorrow will be crucial to see how the tape works…

..Ben time

Although, foreclosure/ liability noise has been around for many weeks with no ill effect on the Fins’, the first time we note the noise as a headwind the “putrid’ness”  hit’s the fan!.   The headwind  came as a dust storm into the Fins’, spiralling BAC, C, WFC, JPM  to 4-5% losses  intraday.   It hit the fan, but it didn’t hit the market as most would have expected.  We wanted to get more clarity on the tape today, we ended up with more uncertainty as the market took a heavy shot, but by close it shook off the beating with a flat close.   Partly was the fact 4-5% losses in fins’ bring out value seekers as this noise is still just noise at the end of the day, but most notably because Bernake’s address comes tomorrow.

Maybe this is just a sign of more‘resiliency’ with the market wearing QEII blinkers with everything else a second thought, including earnings such as GOOG’s AMC.   The fact QE is set, it really isn’t until the market hears the details, eg(full round or not, open ended etc.), so the market awaits with no conviction coming from Bulls’ and /or Bears to press in either direction.   You recall we emphasized the importance of going into Jackson’s Hole, which has turned out be the market turning point and Friday 8:30AM is Bernanke’s next where they‘ll most likely tip their hand.   So, get ready for a moving market catalyst….