..just a chop shop

If you watch the underlying tape (Shadowlist) today, you wonder what all the commotion/ excitement was about?.   This includes a precipitous fall to November lows after a ‘brief relief’  overnight (ES to 1193) from Irish bailout to the sharp bounce off ES 1172) to an almost par close.

The opening slide didn’t take individual equities down and the reversal continued this theme as it was purely a POMO driven’ ES reversal trade keeping the market stuffed in a technical range in what seems like a month long unwind of the >15% rally.   This is the same premise noted in last week’s holiday trade ,..” 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”.    At this point, you wonder if traders with any conviction for upside and/or downside to conclude 2010 will reappear from holidays.  Usually a nice reversal as today’s would almost guarantee some follow through to start the next trading day, but it’s not the case here as the reversal was purely a ‘futures’ pump.

The Irish bailout put up more questions regarding ‘crisis mechanisms’ in the future than resolve any imminent concerns.  Now, the ECB’s meeting (Thurs.) comes into ‘big’ focus (exit strategy speak).  Also, a few bond auctions with other kids on the block in Portugal/Spain will be watched closely.  Investor sentiment has not changed one bit and the only hope is eco’ figures this week turn some heads away from European perpherials and/or ECB provides some relief.

...data..data

The premise to start the week  ….”market’s ‘resiliency’ keeps on showing it’s hand as it hold ups on economic drivers withstanding depressing events”…” only hope is eco’ figures this week turn some heads away from European perpherials..”.    Slowly this is playing as the big media debate for the last 2 trading days has turned to‘Eco data vs. Contagion’  as the market bounces back to back after terrible openings.  The plan here is taking effect as focus is turning to eco data and away from European peripherals for the time being.   Today’s data points (Chi PMI, CConfidence) moved the market in the right direction and tomorrow should be no different with key data to hit (China PMI, US ISM).   The European peripheral situation will remain center stage, but if eco’ data continues to be strong (as expected), the headlines out of Europe will get muted somewhat.   A combination of European fears easing and v.good data, including euro figures and we may finally break out of this 30 point November range.   In reality, market needs to do it soon and gain some momentum as ‘important eco' data’ wind down after NFP on Friday into year end.

As far as the trading tape,  today was more of the same (see yesterday’s bolded comment).   As long as this trend keeps up, which we watch via Shadowlist, the market will hold up and you shouldn’t fall into ‘panicked’ selling because the market slides 160 and 110 points as has been the case last 2 days.   There was some negative noise (liquidation) about techs/momo/internets trading patterns (FFIV, CRM, PCLN, AMZN  types), but viewing it as a (month end/holiday end sell on news) phenomenon more than anything at this point as the selling wasn’t really aggressive.   Still, despite a negative day, we had some good individual stocks action off our list with APKT, KH, TFM  putting in NCH’s with >6% gains.

Trichet's tricks

The overwhelming theme underneath today’s impressive market recovery was not discussed in 99% of the market commentary you’d come across this week and thus was a ‘shock and awe’ to most.  What we’re talking is the lead you had at DJIM…. “Now, the ECB’s meeting (Thurs.) comes into ‘big’ focus (exit strategy speak)….. only hope is eco’ figures this week turn some heads away from European perpherials and/or ECB provides some relief.”.

So, besides more v.good “economic data drivers” in China PMI, US ADP/ISM, GS raising GDP#’s, Germany retail, the market got some’ relief’ from the ECB in the way of ‘hints for surprises’ for Thursday morning on ‘exit strategy’ to contain the contagion.  Simply, the market mover was ECB’s “Trichet’s trick” hinting that the ECB’s bond purchase program could see significant expansion and warned markets not to underestimate Europe’s determination to resolve the eurozone crisis!.  Basically, ECB won’t be aggressive with policy exit strategy given the growing debt stress, but let’s just hope the market is not over the top (exaggerating) in thinking there will be something radical in Trichet’s one hour pre market massaging of the stressful markets and thus end up being disappointed.  If it’s only a soothing massage/delay of exit and not a specific policy change (big bond purchase) that may occur.  Simply, fingers crossed ECB live up to expectaions now.

In all, an impressive broad market move above the late November range.  Yesterday’s note on breaking 30 point late November range came sooner than thought, but we’ll definitely take the effort and hope the market builds momentum now as important eco’ data winds down.   As far as Shadowlist, it was quite funny seeing yesterday’s noted NCH’s APKT, KH, TFM on top again with gains of another >7% intraday.

..some deja vu

Trichet’s tricks consisted a comforting/ soothing massage, delay of liquidity/exit strategy and no radical ‘nuke’ as expected here.   Luckily, the market really did not believe their potential luck (a massive bond purchase) and proceeded to go on their merry way to more upside.  Included was an excellent >2X oversubscribed Spanish offering/ ECB buying and all peripheral CDS tightened.  Add, an ‘economic driver’ in pending  US home sales, which has been the laggard in improving data and SPX is now up >2.5% on the week.  Oh yeah, lost in all the events are slight China monetary policy changes for the better.

What was interesting about today was the ‘tape’, which included the momo/best of year stocks cooling off/very tepid action and lower tier stocks/groups broadly play catch up seemingly.  This is something we haven’t seen all year and maybe not since March '09 as economic sensitive recovery stocks/groups (a lot of crap too) led the climb.   We said weeks ago to watch for a rotation from TSY’s to stocks and with the yield hitting 3% today, we were hearing this premise from the media and importantly, saw this in the tape (Shadowlist).  On most days we’d be disappointed or questioning a market move to the upside if the AAPL PCLN NFLX FFIV’s  types were not participating (even best of commodity linked stocks lagged a nice $CRX gain/and cyclical techs outperformed), but with the ‘overwhelming’ turn this week on economic outlook, it is probably ‘growth’  stocks taking a backseat as they may seem ‘expensive’ compared to the all the other stuff out there.   If there is ‘performance anxiety’ out there into year end, managers may feel there is more upside to the cyclical laggards.  Still, you figure they would like to show ‘big winners’ on their books EOY, but they will need some money to rotate into cyclicals, so the action in momo’s should be watched, even though there should be enough ‘bond’ money for everybody.

In all, all eyes on the high expectations of NFP#.  If this figure does bomb, importantly, we still have Santa Ben  to possibly stuff some stockings on 60 minutes.  He didn’t do too bad in March 09, did he??

DJIM #48 2010

There’s no denying the jobs report was abysmal, but as alerted before the open, it may be a blessing for the market as Washington will be forced to act on Bush rates etc./ +weaker USD.  We also noted the Bernanke appearance which may offset a bomb of a report as upside risk would remain from what he could say over the weekend.  Late in Friday’s trade, some transcript was leaked and the market made a late move higher.  Importantly, one month data doesn’t make a trend and the disappointing NFP# was offset by many positive/ consistent shifts in economic data.   So, if even if you don’t believe in Santa Claus, there is the growth pickup building to believe in until a ‘trend' change is evident. 

Before the rally, noted a possible break to the upside possibility if European fears eased and if we got more eco’ drivers…”market needs to do it soon and gain some momentum as ‘important eco' data’ wind down after NFP on Friday into year end”.   Well, the market did it and it should be enough momentum as sentiment has definitely shifted last week, but the problem is a lack economic news ahead (upcoming week, we don’t have anything of substance until Thursday’s Initial Claims).  There will downside risk to this # following last weeks #(rose 26,000) and the sobering NFP for the Bears to jump on.   Also, this idleness in data leaves the market a little vulnerable to anything viewed as negative coming out of Europe/China this week.  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.

In all, newsflow will be light and trading pretty dull until a fresh catalyst emerges.  A good start on Monday would be some M&A of significance showing confidence among corporations into ’11.

..a little hungover

After a huge week, full of major events and ‘bullish’ market action, you can’t blame the marketplace for calling in sick today and extending the weekend.  Add, little newsflow over the weekend and today was ‘very slow’ on all accounts.  In all, today’s hangover is a good one as the tape had all signs you like to see.  Once again, dip buyers were present and shorts are reluctant to press in order to avoid upside risks.  There is no theme today in any sector/group as action was scattered, internets behave well, otherwise, most stocks/groups (solars eg.TSL/STP  last few days now) that had a slight gain were individually linked to either upgrades or news to perk them up a bit.

AMC, Washington gave the market what it expected with more stimuli on the way after an ‘agreement’.  Of course, it’s not final, but the deal is on the table.   Even though, it’s the broadly expected package, the market should be relieved somewhat, plus, it is larger than expected (payroll tax cuts).  Surprisingly the reaction is subdued after afterhours as the ES has hardly budged.  

In all,  it’s more good news for the economy and risk assets (weaker USD) going forward,  so it’s a surprise even a little bump AMC has not occurred.

so foul a day

Firstly, the initial subdued reaction (DC tax cuts) exploded into an exaggerated move in the early morning and extended into a gap open.   This was so uncalled for!.   All that could have been expected was a small bump immediately AMC on Monday, but instead this ‘foul’ of running the ES occurred.   What you saw was an immediate sell off/profit taking begin on single stocks at the open that gapped.  Clearly, this was an ES run!.  At about 10-11am,  only 1/10 of the Shadowlisted stocks were above open prices and the writing was on the afternoon wall.  The problem was conviction was not in buying stocks while the broad indicies held most of morning gap and even later in the day when the indicies made it back to near highs of day.  Individual stocks never came close to getting back to their indvidual highs in the afternoon.

What ensued late afternoon was a total mess as traders looked for reasons on the fast sell off.   You can cite about 5 reasons and none of them were really ‘catalytic’, but by this time everyone had noticed their single stocks had done nothing all day and/or succumbed to profit taking.  First ‘big’ excuse to hit was the ‘insider probe’ , which is hogwash in this view.  Market was also dealt a poor auction which made yields soar some more, 10yr over >3.10% became a headwind as some probably saw this a reason to think the equity out of treasuries trade had gone too far, a poor consumer credit #  and the tax package loomed to hit a wall of sorts in passing, plus cash coming out of other banks/SP for a C trade, China hike rumors (which were around since premarket).  These were the things to push the market off the cliff, but it wouldn’t have happened if we didn’t see the profit taking on single stocks instead of conviction come in early.  This was the writing on the wall and now the Bulls are faced with a small defeat it seems if they can't regroup on Wednesday.  One hope (watching for tomorrow) is what we’ve pointed out many times over the past year, if there are a bunch of small catalysts for a beating and not just ‘one’ real one, the market finds a way to reverse the selling.   Entering the week, noted the market was vulnearable to any negative noise on this quiet news week and that is occurring.  Now we have to wait and see where the ‘dip buying' line is.

..looks like they blew it again

Despite,  China moving up its CPI data upping the chance of a lending hike (*probably just to remove conflict with economic policy meeting Dec.10-12 and likely to be only another RRR hike),  the broad US market ‘interestingly’ held flat premarket and even opened higher before succumbing to a soaring USD/Bond yields.   Naturally, a profit taking group from yesterday(commodity linked groups/stocks,) continued to be hit off hike fears/USD, but another profit taking group from Tuesday, the Financials (notably GS/JPM/ BAC, regionals) were trading higher (positive tone helping from GS conference), plus cyclical tech was doing well again.   This is the ‘cyclical’ continuation  we noted last week to look for,   Maybe, a little support was also provided by the very successful China IPO’s (DANG YOKU ) noted in DJIM #48 to watch into the trading week.  In all, this lead to the important technical level around 1220 being hit and bringing on dip buyers.   Once again, the Bears/Shorts, just as they were gaining momentum backed away as the plethora of news bits from Tuesday afternoon proved to be just noise as discussed.

Everything is seemingly normal, only need to be careful with 'some' commodities in case of a further consolidation occuring.   One way to take part in the Financials is through the ETF’s (KBE commercial banks orRKH for regionals).  Money is finding places to go if one place becomes dysfunctional, which is a positive.

Initial Claims on deck (see DJIM #48 note on topic)

..inching up

Sandwiched between a negative DJIA/ positive Nazzy was a 4pt SPX gain and just like Tuesday, it was rebuffed at SPX 1235.   Buyers are just not stepping up with no fresh catalysts, while shorts don’t lay out exposure due to upside risk of being homeless at Christmas time.  Still, none of this would have been possible today unless the Initial claims came in as it did, relieving fears of a new trend starting after last week’s # and the brutal NFP#. 

Today, the market was exhibiting the same recent diverging traits with Financials (BKX >2%), while some materials/industrials related to commodities lag.  In all, commodity stocks acted a tad better overall, but still are held back on China speculations. 

A good sign in a flattish broad market is traders are finding stocks to cling on for the day.  IPO’s (DANG, YOKU ), Earnings (LULU ),  Individual positive news (ARB ) or a technical move such as in DJIM’s add-on, HOLI (nov 18 alert) finally breaking out after basing.

DJIM #49 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.