DJIM #43 2010

After +/-5-8% monthly moves in the previous 5 months, October looked like a walk in the park for the market, especially since mid-month, stalling out as the broad market was taken hostage by QE2-elections.   Well, the release of hostages is set for next week and seemingly the consensus has been it will end in a “sell on the news”, even 'bloodbath' scenario to some because of the substantial Sept to Oct market run putting the market back to it’s 5-8% monthly swings.    Of course,  the ‘fatigued’ 2 week stall state is just asking for (trouble) anything less than expected to spiral the market downwards,  but if we get status-quo expectation revelations, this may likely turn out to be a non-event (yet choppy) and therefore, not necessarily sell the news event(s).

Despite, the broad market tied being tied down mid month, the coinciding earning season has provided plenty of oppy's to trade the reports.    Heading into the mid month earnings, speculated here ..“..selling TSY’s is probably underway`…rotation/liquidity into stocks from Treasuries is the natural course….It actually might not be as the market remains steady because individual groups get enough liquidity to sustain it...".   As you can see by the charts this occurred and coincided perfectly with individual earning stories -linked groups getting the money flow.  The overall better than expected earnings that haven't moved the broad market higher, may just be a pause until QE2/elections are out of the way, at which may point the market will begin to look towards 1H/2011 with a rosy outlook off these earnings and stabilizing eco' data that we've seen most recently.   The market is also going to get the first important October end Q reports from CSCO in 10 days that may coincide with recent eco’ data to paint a better overall picture going forward.   Before, we get China PMI out by Monday morning, NFP print comes end of this week.

So far this 'strong' earnings season,  highlighted the fact ‘headline beat earnings’  were getting very favourable post reactions and this streak continued as stocks gapped, but still had room to roam with CML, FFIV  as prime small cap examples this week.  Unfortunately, this streak ended with FSLR`s report/call and caught all solars and one of the best Q beats /best accelerating guidance calls this Q in PWER  with it.   This was probably 1/100 odds type of reactions,  especially after a stock already trades higher AMC and BMO the next day.    Group reaction is similar to the EQIX  small rev' miss and subsequent sell off on all Clouds-Virts that turned out to a hiccup.  Double top probably played some role as well and-or it's just a dirty AMEX -like stock.   One thing to remember is,  if you don't know a stock/ what group it belongs to and/or never traded it before,  it is best to begin with a `starter` position if chasing a headline number.   On the other hand, if you always trade on your heels and don't go big into huge beats,  you miss excellent oppy`s in the CML  types, who's reaction is usually what you get 99 out of the other 100 times and/or one like FTNT  recently that had huge upside numbers like PWER and you miss not only the earnings buy in,  maybe even M&A possibility…AMC, reported FTNT was in advance talks with IBM. ..“..FTNT an add here at $18 before it was discovered as a play in the space anywhere, showed something many can't and that is accelerated growth.  It's potential takeout price just zoomed to over $30 on this report“.

Market that cried wolf?

Post-Thursday…“Today, marked the 3rd day this week where the market shoots up at open, but lack of courage (conviction) weighs on any further upside. On the flip side, following the shallow intraday dips the Bears/shorts don’t have the guts to press positions due upside risk fears from next week. The tension leaves the market at par for the week..SPX1180’s “.

A little excitement to some today, but if you’re following along here you aren’t getting caught up in a futile chase on stocks in the morning and you’re not selling off what you’re comfortable holding in the afternoon.  Today, all day, was simply an ES/ETF trade, stocks stayed at par throughout all the intraday commotion.

As we inch closer to the 2 pivotel ‘supposed’  day of reckoning market movers, days like today make it seem more viable that we won’t get the ‘sell on the news’ many are expecting, at least not the voracious one if the events come in as expected.   Reason being things may not change as shorts still won’t have the ammunition to press and longs won’t have the conviction all of a sudden to buy the market higher, instead waiting on more shallow pullbacks to buy.    Yes, we may get a short pullback of sorts for digestion purposes of this Sept-October rally for a few days,  but it may just be an ES/ETF driven move and any stocks getting caught up in the downdraft will be plucked up on dip buying.    Simply, have the Shadowlist components broken down in sectors we use and you’ll be able to tell quite easily if individual equities = the market drop, to judge it's severity. 

It may all just be a case of the market that cried wolf.  Today’s global eco data./PMI’s add to this believe that market has reason to start looking favourably to 1h/2011, even the last 2 holiday filled months in 2010, putting this week’s and past months mania events behind us.

..Are we there, yet?

Either a big fat brick wall or today’s technicals point to higher days very soon.   The macro trade was put back on today ahead of QE2,  Euro breaking out of a month long triangle, USD signalling another leg down as per projections, if QE2 comes out 'consensus'.     In equities, a fresh buy signal is inches away as the market re-tests 200 week MA (need to close week >200ma)/ Oct highs with the vital areas (Transports/Nazzy ) flirting with 1 yr highs simultaneously.    As the usual case in the marketplace, whenever there is a critical technical juncture…a market moving event takes center stage.    Is this QE2 going to be it or will we be talking about the NFP# in 24 hours as the next direction ‘event’.  The Donkeys and Elephants exited the building quietly overnight, implications of the in-line results will take some time.

As noted this week,  there is no problem with a sell on consensus news as it would be a welcomed ‘digestion’ process for the market to eventually near SPX 1250 by year end as the underinvested (as in % returns in 2010) backseat the ‘seasonality’ trade.

Ad infinitum

Just imagine staying short/ Bear for the last 4-6 weeks counting off the days to the “day of reckoning“, while the market mercilessly inched it’s way up day after day, only to get a "sell on the news”  in Treasury’s, not equities today!.   Okay, maybe one equity (POTASH;)

As opined all week with reasons why ,  if the QE2 ‘consensus’ is correct, the market has reasons not to sell off as consensus thinks and we‘d see higher days soon instead…”if we get status-quo expectation revelations, this may likely turn out to be a non-event (yet choppy) and therefore, not necessarily sell the news event(s).”…The choppy came as well and we tested the previous days gap bottom SPX 1184, but all you had to do was watch the TSY ($TNX-10yr and 30yr sell off ‘ hard’ to know this market was going to hold. (SPX ~14pts move post gap fill).  *Recall, the premise here in October regarding the TSY into equities allocation shift,  if this wasn’t the harbinger for it at work today, it will be a big surprise!!

Probably some confusion initially as they released a NY Fed supplement, the pace (75bln/8mths) seemed a little light, but add the MBS and they will buy 110bln/monthy anyway.   This gap will be the ‘support’ line to look for ‘dip buying’ going forward.   If a subsequent downdraft to those levels occurs, it will be the global gov’ts reaction to QE2 and/or the eco’ data going forward (again more good data today).  So, let’s just move on to why we’re here and that is trading stocks (we’ve got DJIM’s eg. LVS, MOTR, JKS, MA  all reporting well and climbing since alerting most again in Oct.) and slap fines on ourselves if we ever note the ad nauseam “QE2”.    Eventually, ad infinitum (argument made repeatedly until nobody cares to discuss it any more) will win out and we can do it all over again with QE3 next year;)

Simply, Bears need a new ‘plan’ now…go to work, Cubs

'We are the world'..

To put, “We are the world” into context….please read the below, if you haven’t had the chance.

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html?hpid=topnews

It’s the only thing you need to takeaway into the weekend and beyond. 

Ben only wants higher stock prices is the jist of the Chairman’s musings as the US policy diverges from every Central Bank in the world. Obama threw in his 2 cents with a com’promise’ on taxes and we have possible tailwinds coming from D.C.

Okay, maybe only Ben’s singing this tune and it has nothing to do with Africa, but we’d better sing along into XMAS. If anyone smirked at this weeks SPX 1250 by year end call here in the midst of a market waiting to be sold off QE2,…..Surprise, we are at SPX1221 tonight with a possible bullish biased NFP# tomorrow.

Speaking of XMAS…all that could be added on top of this week’s Journals is get a shopping list together from the DJIM shadow list to go forward (a breakdown update in this weekend’s Journal). Considering, no sell equity sell off occurred, we add underlyings of a strong earnings season, favourable eco’ data and it‘s all pointing to a ‘risk asset’ tailwind into the New Year.

OMG, it’s a bird, it’s a plane…..no, it’s Super’Fins’!. If it’s not an imposter once again, the financials late action is going to move this market more than anything!. Some are pointing to the lagging ‘Clouds-Virts’ momo’space today as a bad indicator, but just like EQIX pre-announcement that caused havoc, DFT (data center) earnings backlash will probably go away sooner than later.

Let’s all do our part and help Ben reach his objective of higher stock prices!.

DJIM #44 2010

Let’s face it,  the market caught many off guard last week after getting passing marks on many crucial fronts. Unfortunately, for this upcoming week it doesn’t mean ‘dumb money’ is going to chase the market just yet. Instead, the expectation is for a ‘fat’ market to loosen it’s belt and go through some digestion and consolidation this week.  A lack of catalysts should allow the market to back fill some, any dips should be brief and looked upon as buying oppy’s.

Shadowlist below on site,

 

Subdued is just fine..

It’s going to take more than some short term USD momentum and European peripheries fragility back on the table to swing this market downwards.  It might’ve been good for ~5-6 SPX points to the downside early, but it was hardly selling pressure before the dip buying began.   Even with continued strength in USD, the commodity linked groups performed well.   Also, the Super-Fins’ discussed late last week as a possible catalyst for higher prices into year end did nothing to dispel this idea.

Market moving catalysts will continue to be sparse this week with US earnings wound down (but, European EPS starting, which may provide more strength for markets),  little eco data, so pullbacks should remain shallow with buyers showing up on the weakness.   

In this subdued trading environment, you’re going to see different groups leading for the day and on any given day different  names off Shadowlisted plays hitting new intraday highs..today eg. SOHU MOTR ILMN HLF WYNN SPRD.

..still digestion

Heading into the trading week in DJIM #45, noted a ‘short’ on expectation of back-filling, digestion and nothing more.   Now,  2 days trading days later and the first back to back down days in weeks are in the books with SPX at 1213.   Despite, the somewhat ugly afternoon, (some calling it a start of a correction), this should not be looked at as anything more than digestion for now as the best performers most recently ‘super-fins’ succumbed to profit taking and metals reversed sharply on new CME futures margin requirements.   As pointed out often here, you’ll see this was once again mostly an ES/ETF driven move as individual equities in our list and overall held up fine. 

Right now, the market with little catalytic events this week will use any ‘little’ negative(s) to feed on and try to sell off. It used a bunch today.  Nothing can compare to the 3 big events last week that just passed and so a bunch of little ones shouldn’t rattle the markets for too long or too much to the downside.

Underestimating CSCO's report

Almost a perfect consolidation day as the SPX continued the weeks pattern to SPX 1204 on ‘little’ or no news with no selling pressure (only ES/ETF), only to be met with dip buying and a reversal of ~15pts SPX.  This 3-4 day period, which in reality started last Friday, post NFP# was the perfect digestion, a market that at end of day had given up maybe 1% of the previous weeks 3.5% rally and /or 16% of the entire run.

Unfortunately, AMC,  CSCO  dropped a bombshell with it’s guidance.   We always point out that CSCO is the first major to report a Q that includes an extra month of business post the prevailing earnings season.   In this reports case, following a strong earnings season in tech, they give a look of what business was looking like in October going forward.   Every company that reported strong in tech, FFIV, BRCM etc was up to end of Sept Q.   Something in the economy deteriorated rapidly  in October and if it doesn’t spell trouble immediately for the market (ES not even at days bottom tonight), the ramifications of this will eventually hit as all related reports next earnings season will see this slowdown in their reports on the bottom line and they will miss or pre-announce the missed guidance.   CSCO said all co’s involved in space will feel it when questioned as to why no others have talked about this.  It’s all a question of being one month ahead and if you understand CSCO,  you know this can’t be a CSCO specific problem.   If CSCO says they gained market share in the majority of their largest businesses, up to 7 of them… well, you do the math of the consequences for others that deal with public state sectors/cable co’s .   Also, spending cutting extended into Euroland..globally.   You won’t hear too much about this v.small co tomorrow, but look at the shredding of revenue guidance at KLIC (semi) tonight..wow, almost half!

Any other Q this would be immediate trouble, but the market is so struck with QE2 and the first purchase ahead on Friday of 100bln+ that it's not responding as negatively as would be expected initially.   A good wash back to the gap pointed out as support recently 1184-1188 would be perfect here, but it doesn’t look like it will happen as the ES hangs in tonight.   Maybe the market things QE2 came in time to save things like this from occurring all over tech land and beyond.   Market is really missing the ball so far on this and/or has rose colored glasses on.   Staying clear of tech as the analysts pick through this in days to come and discover other victims.   As far as the broad market, let’s hope for rotation and allocation of equity money flow elsewhere for support to close off the year.

Consolidating till blue in the face?

Despite a little excitement (Nazzy falling 50pts off the bell) due to CSCO’s guide , the market exhibited the same trends that fall into the ‘ digestion’ premise heading into the week with any dip viewed as buying oppy’.  In yesterday’s CSCO discussion, it was noted the ES reaction seemed ‘muted’ considering the guidance debacle and this played out as the broad market clearly ignored and even Tech’ decided it was a company specific malfunction and not a macro one. 

Interestingly for a market that rests every Q on Chambers words on future macro direction,  it hastily threw out/ignored his sightlines for today.  Despite, today’s quite impressive early comeback, (biggest decliners EOD on our Shadowlist were only ~2% (AKAM/NTAP), we’d delay judgement on this debate till next week when some Nasdaq momo’ darlings and others report their Oct ends.   You see the underlying part of this rally has been the earnings story with higher 2011 EPS projections coming out of it.  If more like CSCO appear those numbers will not come to fruition by the time we get Q4 reports out in January.

All in all, these fresh CSCO related question marks add to the moving pieces (Euro sovereign debt, China hot inflation number today, streaky upside from USD) creeping up as daily selling excuses with no fresh tailwinds to fight.  Despite the positives of what appears as a week of consolidation as proposed to start the week, the market still faces a strong fib line dating back to Oct 07 at ~1229 that in essence seems further away (to re-test) with each rinse and repeat of the shallow pullbacks. It may be fun (rinse and repeat) for fast traders, but investors holding on for more upside to close off the year may eventually become tired of this routine, at which point we get some real selling pressure.  A not so nice close one of these days would likely be a sign of this ball starting to roll.