DJIM #45 2010

A non-event week consisting of digestion turned into a slew of events to pressure the market to the downside. Question is if it’s still digestion/consolidation?.   The answer will be if the benchmark (20MA) used here for the broader markets for the past few years holds after being tested.   

The uncertainty over CSCO’s guidance, a day late reverberated over the markets along with worries over peripheral (Ireland)/ a China hike following a hot inflation number/ recovering USD are all playing a role.  Preceding the Friday sell off,  we discussed the market looking at CSCO’s call with rose colored glasses, well, the blinkers attached also came off a day later with the Nazzy down 50pts at it’s low.  Also note, the Irish noise /China hike expectation was in the market a day earlier, but the market waited a day to blow off steam.   Simply, the market was “..blue in the face “ from consolidating with no tailwinds at all to support and fight.  It was just a matter of time before it couldn’t take no more and as alerted in the morning, if the Dow and/or AAPL couldn’t hold technically, the market would slide. 

None of the issues surrounding the market are ‘big’ enough on their own, but bunched together leave us in the same cautious stance from the last 2 days entering this trading week.  Still, above 20MA there is no reason to believe dip buying in individual equities will stop.  You can see this by the outperformance of individual equities from the Shawdowlist vs. broad market indicies.

The market will need some clarity before any upside possibility, it will be a busy week on all fronts from Europe to more U.S Oct end tech reports to the first Nov eco data points. 

Messy tape!

That was a messy tape and not just because of the selling the last 2 hours.  Even with the market at days highs, including the Nazzy up 10pts in which the underlying ‘messy’ was visable.   At that point the Nazzy was supported by everything non- tech and if you look further, you saw every momo play from our list and others lagging, if not just simply for sale. 

Clearly, the CSCO effect is catching on and the market is uneasy ahead of tech earnings later this week.  Worse is it may be spreading to non-related peers in tech/internet momo land as evident in the Shadowlist.   Here, we’re talking about the NFLX/GOOG/AMZN/PCLN/FFIV/VMW etc. types.   Some of this weakness was downgrade related,  some just little competition related issues, but all in all it doesn’t seem to bode well as none of these leaders could shake off these little nuisances.    A reader sent in this link in which one of the most respected tech analysts talks about the CSCO issues laid out here last week.  (notably ahead by 1 month).   This is the first time we’ve seen DJIM’s concerns echoed (listen to first part of clip).

 http://www.cnbc.com/id/15840232/?video=1645579587&play=1.   (Tuesday, FFIV has an analyst day, hopefully as far as it’s concerned it’s a CSCO specific issue and they are taking some business away).  If HF liquidation comes this year, it is clearly this segment that will be rinsed as this is the big winner area.   Away from these underlying concerns,  we lost another Shadow play in BUCY, but would have liked to see better reaction in the broader market to this M&A activity and others today.

The 20MA is very likely to be dented soon and DJIM we’ll get the wash we wanted post CSCO to a gap in the 1180-1188 level, which would make for a ~4% correction at 1180 from recent intraday highs.

..can take a little more

Hey,  Mr. Market, while you’re at it,  why don’t you just go a bit lower?.  In all honesty, that’s the attitude here after a quick spiral downward since saying last week….”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….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”.   The only thing that has changed within this timeframe,( besides Nasdaq down 100, SPX down ~41 at lows so far) is all those pieces that were initially ignored have ballooned to almost ‘panic’ levels as we even overshot the bottom of a gap range at 1180 envisioned post CSCO.  Oh yeah, Nazzy wouldn’t have 3/ 50 point intraday drops since CSCO, if this beating is purely Ireland/ China hike worries!.

Even though, being underinvested/ trading little at this point and liking the idea of the market going a bit lower, the 1180 overshoot to a late Oct SPX weekly low (1172) is likely a time to do some buying.   The underinvested Bulls who missed the last leg will probably look at this as a 3-4 day gift, very soon.  Despite an ugly broad market tape, the panic was not really seen in the majority of Shadowlisted plays.  Actually, the worry of yesterday of momo leaders setting up for possible liquidation was eased some, which is a silver lining possibly.   Still, we have a major hurdle ahead as tech names reports are still to come this week, but this trashing has taken a lot of the downside out already.   FFIV’s  analyst day had no CSCO smell to it as seen by their guidance reiteration.   You have to be selective in tech, but besides a NTAP (gov't exposure) within the Shadowlist there are seemingly few that may be haunted.

As pointed regularly, dip buying doesn’t come back immediately following a big down day, so if you made the right decision and sat out since CSCO post, DOW/AAPL downside to come alert,  there is no reason to be a hero just yet as there is a lot of broken supports, trendlines, rules(20Ma/SPX for longer term focus).   A little clarity on Ireland is all investors wish for to start with, hopefully tomorrow we’ll start to get some and we'll see some buying back.

Steady..

As speculated, buyers did not return the day after a big downside day.  To many this type of action is disappointing, but not here as it’s the expectation in the past year.   Also, we have to look at the underlying tape and see if there were any signs of stability appearing.  The little short covering in the morning was important due to the fact of where it was coming from (tech, momo’s, also yesterday’s silver lining) and within this group,  it was important to see CSCO in the green for most of the day after consecutive days of losses.   Ironically, our signal on NTAP yesterday reared it’s ugly head EOD and it seemed déjà vu’ once again as the stock got hammered 10%/halted and the shock waves hit the market.   The fact the market reversed back to the flatline is probably one more signal this recent “trashing has taken a lot of the downside out” and we can deal with the other market issues at hand.   We might be able to put this fear to the side until Q4 pre-announcements/ season starts in January. (away from NTAP, ARUN, which was a long standing DJIM in ’09 and SPRD  had nice EPS after hours).

Of course, one of the things at hand is the Irish turmoil and a little surprisingly is the fact ‘Cirque de Soleil” a.k.a (IMF,EU) was on it’s way to Dublin for a pub crawl didn’t get the market thinking something will be resolved shortly.  Still, this road trip is a positive and another non-tech underlying tape positive was the fact the pre QE2 trend was back (short USD/ TSY buying), which of course will help the commodity/China hike picture, if it lasts for more than just today.  It may carry over because the CPI number today suggests there will be no stopping Ben’s 600bln package and all can just shut up that want to stop it and allow the market one less worry that has appeared the past week or so.

One thing lost in the GM mayhem tomorrow to watch is the Phily Fed #, it would not be a surprise to see this number disappoint following the NY empire number (which suggested a significant drop in manufacturing activity to come) that was brushed underneath the rug last week.

..a little too happy

Market sometimes takes 24hrs to disseminate news it seems.   What was disappointing yesterday….” a little surprisingly is the fact ‘Cirque de Soleil” a.k.a (IMF,EU) was on it’s way to Dublin… didn’t get the market thinking something will be resolved shortly” is the bomb today as market thinks Ireland will be bailed out one way or another due to this road trip.  As far as China rate hikes, fear subsided because China said they will initiate inflation measures through something called ‘administrative controls’. What the hell is that?.   To the market this is less severe outcome, but the funny thing is, this hit the wires during Wednesday trade and market didn’t react.  Also, it does not necessarily remove the chance they will do hikes anyway in the near future.   It’s pretty naïve for the market to be betting for the best case scenarios on both issues by driving the market to about 1195 SPX by the first 30 minutes of trading as things can unravel quite quickly.  Even though, positives were outlined for the market in yesterday’s flat day (Irish trip, tech/momo’s performance, QE2 risk trade back on), the tapes exuberance sets up a possible pullback off resistance quite easily.

Luckily, we had something ‘real’ to keep the market true in the surprise upbeat Phily fed #! vs. NY Empire from previous/ Initial claims and NTAP refuted CSCO’s faulty trends in it’s CC to get all our Shadowlisted momentum/ storage/clouds/virts stocks rolling.  

Add CRM’s  strong earnings AMC and it looks like tech survived Oct end releases making CSCO look like a black sheep, at least until next Q4 report release time.

All in all, the gap fill in the 1180’s is a positive going into what is usually a positive biased Thanksgiving trading week.

DJIM #46 2010

Heading into a shortened trading week, the 3 main issues grounding the market seem to have dissolved to a point by recent actions.   Firstly, Ireland has been ‘forced' into a bailout, but details will take days, if not weeks to come out.  Secondly, China’s RRR hike on top of other inflation fighting techniques announced last week seems to show they will do anything but use monetary policy ‘hikes’.   Third, tech Oct end earnings have mostly refuted CSCO’s concerns ( till Q4 reports). (HPQ BRCD ahead). http://online.barrons.com/article/SB50001424052970204076004575616732157163518.html?mod=BOL_twm_col

In all, on top of last weeks positive Eco data (inc. retail reports), the market should be relieved some and enjoy what is usually a ‘positive’ trading bias in the holiday week.   Still, in no way is this the last you will hear of the consequences of these 3 issues, it’s likely just a temporary relief, at least for the holiday period. Eg. Irish bank haircuts as a bailout result…we may get more contagion issues show up (Portugal)…a bad tech guide ..more China curbs??

As far as how the week finished, the market pullback to the high 1180’s on Friday and the first sign of intraday dip buying coming back showed up.  This ‘shallow pullback’ is a better sign than what was primarily a short covering rally the day before as it shows buyers are willing to step back up.   A good 'traders' sign is individual equities/sectors(retail) are not so correlated to the broad market tape now. Eg. We saw 3 earnings noted here last week all trading higher as buyers pick up quality…CRM  being the highlight.  Simply, if you stay selective, the broad tape action should not matter.

..market padded down...use scanner!

As trading desks empty slowly into Thanksgiving,  the market is at the mercy of low volume volatility.  Today’s 20pts ES drop from overnight H and then a return ticket in the afternoon is probably indicative of what is at hand for the rest of the week.  Clearly, the issues of Ireland/ China/ CSCO consequences are not going away and more (FBI probes) is being thrown at the market.  *Even though, HPQ refuted CSCO’s claims, what is not being noted AMC is the how brutal BRCD’s  EPS guide (they have one the biggest gov’t/ federal  stakes).

Luckily…. yesterday it was noted ‘dip buyers” are back and today’s reversal exemplified this as does the easiness to change directions due to low volume.  If you watched the market get padded down by all the noise, a soothing aspect is to use the ‘Shadowlist Scanner’  to see if it was warranted.  Clearly, the only pressure on the % loser side was the Financials and if you flipped the list over, you’ d see all our momo/clouds in NFLX, FFIV, RVBD, CRM  etc making NCH’s.  Simply, what this points out is a lot of the tape is ES/ETF related, while individual equities outperform as noted yesterday regarding ‘correlations’ and broad market tape not mattering that much.   As long as this visibility remains in the underlying tape, Thanksgiving will come even with ‘war games’ now on the table to test the market.  

..holding on

If you don’t trade the overnight ES and/or got to your trading platform 30minutes late today, you pretty well missed the entire US equity reaction to the global liquidation of risk.  There was absolutely nothing going on after 10am as fear took a breather.  The fact there was no more weakness trumps the fact dip buyers didn’t appear.  The US market open/close should be no different  vs. all the other global markets off geopolitical tensions.  The absence of dip buyers is quite logical and thus not disappointing.   Also, despite a 1.4%SPX drop,  the underlying tape (Shadowlist) had about 40 equities between gains and losses less than <2% suggesting no aggressive selling and just a lack of buyers.  Considering the high beta nature of the list from momentum to commodity names,  it’s even more of an outperformance and evidence of longs holding and/or ‘stock picking’, despite all the market negative noise.

Liquidity will diminish more tomorrow making a snapback less likely, but the market will have eco data that could pressure the USD allowing for some upside, plus a historically positive biased day ahead.

Happy and safe holidays!

..stuffed in technicals

As noted in the beginning of the week, “…the market is at the mercy of low volume volatility”.  At least for one day (Wednesday) this played into the Bull hands as the market focused on…”market will have eco data that could pressure the USD allowing for some upside, plus a historically positive biased day ahead.”.  Add geopolitical tensions easing (Korean market recovered / European mtks up .8-1% by US premarket) and the table was already set for a bounce before the ‘good US eco data’.  Owing to the holiday spirit and overseas concerns, the market seemingly forgot there was a plethora of important data stuffed into one day.  The most important piece was the lowest Initial claims # since July 2008, the next was the “PCE”, which has to shut up all QE2 critics.

In all, nothing to get all excited about as the market remains bound to technical levels with upside curbed by 1200SPX and downside in 1180’s

Update on Friday, November 26, 2010 at 07:26AM by Demi/ YourPersonalTrader

Black Friday is a Red Friday as Portugal gets juiced

pic>>' Ronaldo'.. for non-football fans..

DJIM #47 2010

In the midst of all the global tension last week weighing on investors, the markets actually held up very well. The market’s ‘resiliency’  keeps on showing it’s hand as it hold ups on economic drivers withstanding depressing events.  The events should make investors pare down risk assets into year end, but it's just not occuring yet.

It’s doubtful this weekend’s Irish bailout will impress investors and be a green light for risk assets, still a ‘brief relief’ might be felt with focus turning to eco' data.   The key data comes in the form of China PMI/ US ISM hitting Wednesday’s trade and NFP# on Friday.

In all, market is underwhelming as it’s also technically handcuffed, but selective ‘stock picking’ is still prevailing.