...retrace to?

It might look all hunky-dory with a recovery of about 35% of the SPX correction, but don’t say that to all the stocks,  particularly small caps, NDX -4.5% YTD,  commods/SP materials -5%YTD that everything is okay as they’ve hardly made up anything close to 35%!.  Damage was accomplished!.

End of last week,  we discussed the ‘reckless’ selling that was reminiscent of end of the month actions of hedgies we see a few times a year.   This is looking for and more like it as the market has bounced to the start a new month.   You can conclude this by asking one question, “where the sellers go?”.  If liquidation as witnessed all of a sudden ends,  it’s a clear sign of who was responsible.   Also, if every uptick was being sold as in profit takers last week, where’d they go?.  Well, they probably didn’t exist either, it was just the hedgie liquidation using the upticks to sell into some more.   Today, volume picked up over Monday, which is a good sign as some buy dipping was back helping out the short covering allowing stocks to move upwards.   Still,  we don’t think many are comfortable to add just yet and drive this higher as in chasing momentum. 

Also,  last week we said it may be a blessing to have the peak of earnings pass.  Today, all we heard was the ‘happy’ reactions to earnings from the Industrials/ capital goods stocks EMR CMI, DHI (builder).  But, as we’ve sayed before,  selling the news is primarily in the big name stocks,  it’s just so overplayed in the media that it seems all earning reports are treated the same way. They’re not, but as long as the media now says things are changing this week as earning releases we’re not selling off…we say good keep the hype up and maybe change the mood of the investor. We’ll see what CSCO does, but we’re not of the view selling the news won’t stop in the big names, it’s just that there are not many of them left to keep this theme rolling on.

So what now?. Just as we said last Monday in alerts and in the Journal that night…"Still, we’d like to breach and close over 1105 before thinking all is closer to normalcy”.   If this occurs with some authority the tone becomes more positive.   Still, with all the noise slowly abating since really mid- late last week, Greece, Obama, China (may get even better as New year week holiday Jan14th coming),  we should’ve breached this level already.   Instead,  the late January liquidation into November gap has made this a longer trip back.

What's in the future?

A month into the new year, with the big earnings peak behind us now, we are wondering what is going to happen to this market the next short while.    Although the longer term view is pretty much the same regardless what happened during the past few weeks,  most of us are wondering what plays/sectors will become attractive this Q.

It's almost inevitable that we'd get some retracement/ consolidation after the two strong trading days that started the week.  With no buyers or sellers around today, it would make sense all parties are waiting to see if a retracement gets some steam and holds near recent lows.   In any case,  we have to be prepared either for some more downside, some ranged trading or some upside.    Ummm, it sounds like we are "good" fortune tellers, right?   Kidding aside,  we are currently in a situation where only the market can give us a better clue where it will take us, short term wise.    In our view, we'd be glad to have some sideway action in order for our plays to establish stronger support.    A lot of the technical damage was done during the latest sell off,  so it's imperative for many plays to settle down and have some strong hands to get involved in the stock and push over 9ema.    At the same time, we have been particularly surprised by the strength of the corporate earnings front, especially from the technology sector.     Now, whether people do even pay attention to those earning reports or not is a different story, we are just here to point out the stuff that will matter sooner or later. 

But…More importantly now and we're 'bolding' this on site…

Unfortunately, now Bear momentum is gaining for this to become ‘Year of the PIIGS”  early on and it has nothing to do with Chinese zodiac.  Greece mess up is one thing,  but when you start to throw in Portugal, Spain as they are starting today..be careful!.   This didn’t just start in 2010, just as US crisis didn’t start in ‘08 with Lehman BSC, but in ‘07.…so if this is gaining steam we all better be careful till some clarity emerges.   The problem here is this isn’t in our time zone and you’ll have deal with uncertainty to wake with in regards to your stock book,  we had the US crisis before us on CNBC minute after minute making it easier to deal with. 

In after hour action, CSCO came out with a report/guidance that appear to be very strong as many of the other ‘big‘ names this Q.    Can it be enough to get the market over 1105?    Probably not as tech reports are not exciting to investors to move forward so far.  Also, we have NFP on Friday to test sentiment.    However, we do want to point out that those tech companies that have been recently cheered or is jeered by investors due to their strong earning  are still within the striking distance of recent high should be on trader's radar going forward.    

Also, MKSI, a small tech company, came out with report that beat the estimate by a big margin and raised their next quarter's estimate by quite a bit.    This is also the type of earning surprise we'd like to see and we’d put it on your trading list.

Bottom line, market may need few more days/ weeks to pick a direction but we have to prepare in advance. 

'Club Med'

Judging by the flatline SP futures overnight >1090, the last thing on anyone’s mind was the possibility of chaos that ensued immediately after the opening bell.    It’s almost inexplicable to understand that in a wired world where trading is literally 24hrs a day,  you’d have no insight from the futures as to what’s ahead for the day, especially signals to a 3% down day.   Today’s was one of those days as seemingly all were caught off guard as no downward gap was in play.   Instead a straight trajectory down of >30SPX points, ~3% losses all around.   You’d only have to tune in on CNBC from 9:30am to tonight to see the sweat as all talk was about the damage being done to all indexes, gold etc by the “PIIGS”

It was spooky in the markets, to us, the spookiness was to see our bolded warning come to fruition immediately and to hear comparisons of Lehman /BSC prevail all day long.   So, now in less than a few hours, we are knee deep in the PIIGS mud pit, everything changes as this story takes center stage with every trader/investor.   You know what? ..we’ll use “Club Med”  instead of PIIGS, being bacon loving Canadians, eh.

Considering so many were caught off guard and so many more coming home tonight to these headlines, we would have to expect more selling ahead as this story is not a bad eco’ report or a bad ‘big name’ earnings report, this is completely different to an investors sensitive psyche’.   Basically, its time to sit back and wait to see how this unwinds.   Unless, a magic wand is used,  we have no intentions to re-position long with all the technical damage done.   Even, if this is backstopped by EU in short time from becoming a long standing problem hitting all over the place, we still have to accept we are closer to a 10% correction than anything else.   In our view,  let’s get this over with (10% correction), capitulation occuring, pessimism hitting fresh highs and hope this problem is backstopped at around the same time.   This will present excellent opportunities, many better than March to October’ 09, especially if US earnings, recovery begin to matter.  

Without looking, we probably broke down back below from the trendline going back to highs of October 07 when we got odour of a crisis.  Coincidence or not?.   Anyway, until the tide cleans up the beach’s at “Club Med” ..Greece, Port’ Spain,  call this a short vacation time.

DJIM #6, 2010

Five weeks into 2010,  it really makes us check our calendar again to see if it's really 2010, as opposed to early 2009.    When the market sells off like it did during the last three weeks, it's rarely the fault of a single catalyst or a fundamental change.    Rather, it's the result of a perception change and the ensuing emotional execution that handed us one of the roughest stretches in a long time.   Yes, you have to go back to March of 2009 to witness the kind of volume we've just witnessed last Friday.    In fact, there were only TWO trading days in the entire year of 2009 that eclipsed the trading volume of last Friday, as far as SPY is concerned. 

Can this be the capitulation volume we wanted to see?  Perhaps!   Based on the price action and the way it ended the week, there's a pretty good chance that it was the case.   Well, at least it seems every Bull & Bear is calling it a key reversal day this weekend due to "technicals" .    We won't be able to confirm this for another few days.    From the January peak to the intraday low of 1044, the recent pullback represents a correction of  >9%.   This is quite substantial if the reason for this selloff is not fundamentally related.    The reason we are saying fundamental is because there really hasn't been any significant change in either the Econ. front or corporate earning reports that suggest our Economy is going backwards.    The concern that it may go backwards is what we call the perception change.    Ok, so we admit that some people may be disappointed with the pace of economic recovery and decide to sell their stakes to protect their profit.   This is fine with us.    What we don't fully understand lately is the number of folks jumping on the bandwagon that are bringing out the old doomsday scenario to exaggerate the recent sell off.     We hope the volume on Friday was the indication of capitulation and not just short covering due to expectation comments out of Europe would be calming over weekend.  If this was just that, a hard ETF short cover,  we won't have a Monday follow through.

Again, SPY may have pulled back close to 10%, many of our widely followed plays have pulled back more than 25%.   This to us,  is a heck of a correction already.   Time to start to build some positions?   We think it's time to at least look at some commodity related ETF and stocks.  Still despite the short covering late Friday,  we have to wonder if potential buyers will remain ’tentative’ until many issues show signs of being resolved.

..handcuffed..

Today was nothing, but a disappointment as the market finished at a new closing low for 2010.  Maybe some would like to think it was just a Super Bowl hangover as volume was tepid following a big volume day on Friday.  But, in reality it just proved Friday’s reversal was just noise over expectation of calming waters in the Mediterranean with one of the Club Meds…“if this was just a hard ETF short cover, we won’t have a Monday follow through”.   If you use the shadow list as a guide, you’ll see,  excluding some banks - brokers on Friday,  most stocks followed hardly moved showing a SPY and other ETF ‘s can’t be trusted no matter how giant the volume in them.  Money needs to go into stocks, not just ETF’s for capitulation. Also, pessimism may need to worsen for capitulation to occur.   Today, the only group to move Friday (Banks- brokers) had the biggest hangover on the market. 

We got no follow- through and a big negative was we couldn’t push over or close above 1071 curtailing odds we bottomed out at the 200EMA.  The fade job in the last hour was disappointing, shorts are getting more confident pressing new positions on any decent upticks and buyers will remain tentative to chase and give needed momentum.   Simply,  >1071 close is needed for a positive tone to possibly emerge.  Of course, tomorrow, we could get fresh Greece bailout rumors and market once again may rally.  Handcuffed market.

Saving Athens

What was once a mighty empire really needed help this time!    Okay, this isn't a joking matter, but it goes to show the relevancy of a single country's credit worthiness to the rest of the world.    In fairness,  Greece isn't a big country and it probably doesn't need a lot of money to bail her out.   However, given how the investors have played this particular issue recently, we are witnessing that billions of dollars of stock market value is at the mercy of Greece's problem.    Isn't it interesting how we are so connected these days?    Of course, the Greece issue isn't that simple because it merely shows the investor's fear when it comes to any sort of insolvency concern, whether it's from a bank or a country.

Today's rally is the result of speculation that a European consortium is in the process of putting a plan together to aid Greece.    Nothing is concrete at this point,  but it's largely expected that some bailout will come out of this and limit contagion.    Market closed at 1070.50, which is right at the resistance point we’ve talked about this week.   The USD dropped significantly/ Euro ticked up and all of the commodity related names moved higher as a result.    We have been playing some commodity names off our list today and we do feel there's a good probability that the momentum lasts a bit longer in this sector given the current relevance to a bailout.    As far as the overall market,  it's just a bit hard to imagine that market can start a meaningful leg up any time soon.    It's definitely somewhat healthy for this market to settle down its emotion and repair its recent technical damage.   Ideally, we need to test the recent bottom at some point to call 1044 a bottom. 

In addition, even though the earnings reports have slowed, some names are still showing this market good stuff and overall market is reacting better on an individual stock basis.    In AH tonight, we had DIS BIDU NTGR  report better than expected#'s that appear to be pleasing investors in AMC trading.   Also, VECO, HAR  had excellent reactions and many so-so reports still had upside.   This could be the blessing we noted of getting past the peak of earnings in January as sentiment is changing towards reports.  The oversold conditions of many reporting stocks producing so-so called reports now have basically priced in all the possible bad stuff.

Bottom line, it's only 2 trading days down and already it feels like a long week.   We'll definitely have more Greece related headlines coming our way during the next few days.  Hopefully,  it's positive to keep USD to the downside and give equities a fighting chance.  If this is the case, we do like a trade in the commods here as the short covering alone can give it some nice upside at this point.  *A possible new/ big saga is brewing in US/China relations and will likely takeover the headlines very soon.

Today was simply what Monday was supposed to be after market reversed on Friday.  Today’s news of a probable resolution was the expectation this weekend.   After Friday’s close of 1066, today was the follow -through you can say as we hit H1079 with individual stocks getting better action than on late Friday’s ETF surge.   It is not overstating that now when the Greece bailout is finalized, we may get a sell on the news reaction.   The action from 1044 to 1079 may have priced in the majority of a resolution.   This does not mean commods can’t continue as the probable currency affect of a bailout should help commodity linked stocks.

'Whiteout' day...

Market is seemingly ahead of the calendar and the upcoming 3 day holiday!. Today had all the characteristics of a holiday session, a complete “Whiteout” just like the NE.  There is no color from this action,  just a technical trade in effect with 1071 being a roadblock.   As we said in last Journal, the Greece angle is looking more and more to be priced into the market after today.   Most likely, we’re stuck in a narrow range 1055-1071 until some data on the eco’ or corporate front to get a read on direction and which, if any, sectors are tradeable.  

We’d watch earnings plays now, if dealing with the fluctuations of the USD/ EURO and the commodity linked stocks gives you whiplash.  As we pointed out reactions are better to earnings, especially to those stocks that were oversold in the recent mess.  Off our list, EQIX  is one tonight that may reverse its recent trend off its inline numbers, even if it sold off more AMC.  MICC , we’ve added today as a earning play to our list,  HAR  noted on Tuesday had a nice follow up day.   Also, China related stocks might be turning in anticipation of next week being a holiday..blackout period for data.  

Optimism ahead of long weekend??

It’s been a question whether we see a meaningful close over 1070 or 1040.   Was today’s close it?.  Yes, it might change the tone a bit, but let’s see what tomorrow brings as some selling is a common trend ahead of a long weekend lately.   Let's see if we hold.   It seems whenever this market goes up, things are generally quiet and nobody even talks about it.    Whenever the market takes a pullback, it's always lots of noise out there forecasting even more gloomy days ahead.    The easiest way to deal with this in our opinion?   We try not to get caught up with our emotion in the latest frenzies.

Today's move didn‘t have 1 catalyst, just a bunch of small ones.  Remember, whenever this happens on the downside, we usually reverse.  Today action was kind of strange overall and Banks-brokers lagged badly.   Surprisingly,  the commodity group for once did not trade with the USD as the base material like Gold, Oil led and the underlying stocks joined in.   This is evidenced by some of our listed names such as WLT, FCX, CLF etc.    Some of the recent earning plays have caught on some of the buying as well.   Honestly at this point, we just want to end the week peacefully without any drama and watch some Winter Olympics, but China has their usual important eco' announcements eg. Yuan etc. on the eve of their New Year.

Technically, we have broken the resistance of 1070 and there's a good chance we can test 1090-95+  provided we don't get any major negative headlines.    However, we all have come to understanding that this market is anything but logical/rational.     Instead, we do have to prepare for any potential downfall as markets are still fragile.  Still, trying to think too many steps ahead and figure out all kinds of scenario may just end up driving us nuts.    In the meantime, we'll just take one day at a time and one headline at a time until the market moves on from the recent uncertainties.

DJIM #7 2010

A whipsaw week finshed as it opened.  The market continued it’s up and down routine right to the end as China ‘RRR’ so-called surprise headline hit Friday premarket sending the SPX to low 1060’s once again.   As pointed out premarket, we didn’t see it as a surprise feeling any negative reaction would be exaggerated.  The fear mongers were out early, but rationality set in as the day progressed and CNBC began to have guests on that believed the same thing we did and the market started to rally back on the heels of tech.    We’ve been saying we need a meaningful close above 1071 and now we have back to back ones that should change the tone to a more technial positive one for the short term.   Also, finally, we had some dip buying come back to the market.  Some buying was probably generated by better than expected eco’ data (Jobless claims, Retail).  Last week was pretty quiet on US eco’ data,  despite the shortened week ahead, it will be busier and important as we get fresh looks at February data.

All eyes were on commodity linked stocks last week,  but tech ($SOX) quietly came in the back door and duplicated it’s Thursday move on Friday as some money started to rotate into them from commods’.   As pointed out,  we think this is anticipation of some earnings reports in the upcoming week from some big names.   Market might be anticipating more estimate revisions because of the reports coming up, giving potential for a bounce in the sector.

On the topic of earnings and tech many names from February released reports (mostly January Q end) are trading well.  Names this Q include, VECO  NETL DLB  and cheaper names like SFLY APKT MKSI  and stocks in other groups like HAR CMI EMS  have also had good reactions.  

M&A activity in Ag’ space this weekend may provide a bid to these linked stocks.

Market is still on a fog on as it tries to look at something it can’t see clearly..Greece, China.  These are market stresses, but, if the market concentrates some more on what’s happening here, hopefully with the help of some eco‘ data this week,  it has a chance to stay away from recent lows.   Importantly,  there are some open spots in the fog to trade day to day, eg. commodity linked stocks or possibly some more tech ahead.   Either way, recent earning plays are providing a pretty good place to trade.

A happy 'close'..

This is pretty much how we described the end result for this trading action today as the tape strengthened into the close.   A combination of Eco. Data/ M &A/ earnings, Europe didn’t have a Greece drag this day,  pumping the Euro and shaping this market to give it one of the strongest days in weeks.   Of course, there's a lack of volume compared to most recent activity!!!    You have to excuse us for the sarcasm/ exclamation marks, we can't help but join the ranks to pinpoint a potential shortfall of an otherwise strong day heard all through 2009.

What's more important in this 20 pt SPX run is the broad (strong breadth ) participation of stocks, including the financials.    Oh yes, our beloved financial sector  got a lift today partly due to the Barclay's earnings and BAC reported "significant gains" in the number of modified mortgages it handles through a gov’t program.    Many of the financial stocks on our watchlist have been basing during the last couple of weeks and today's really the only day where they enjoyed some nice gains.     However, we aren't holding our breath though for a multi week rally, but a few more days are likely in the financials.   As it stands,  having the financials to hold the recent low would be a nice thing to see.    Today's strong action is once again from the sectors which we've talked since the rebound began.  The inverse USD trade came back with vengeance as speculation started that China might 'to allow' the yuan to rise.  A higher Yuan = lower USD = Commodity stocks moving higher.   In spite of the strong gains,  it‘s probably wise to lighten on some of the sub-groups.    Technology stocks (SOX >2% again ), however, are the ones that still beckon us to add to the strength heading into this earnings week (NTAP HPQ NVDA AMAT/ AMC Wednesday).   We did add some positions selectively and hope the recent strong showing in earning reports from some of the plays on our list can generate some more enthusiasm.     To us, it's about time that people recognize the excellent execution of some of the tech companies on our list.

Right now at 1094. it's hard to believe that it literally took just one day of trading to get to this point, but that’s exactly what occurred after saying a meaningful close over 1071 will bring out a more positive tone.   This means shorts cover and are reluctant to press, sellers back off and buyers become less tentative to add positions.   Like the previous attempt, there's going to be resistance from these levels to 1105, but as long as we hold this 1st day over 20 day avg. since correction began, we‘re in a good spot to at least try , especially if USD weakens.  Recall, 20 day was the key level in 2009 rally.   Still, nobody is asking this market to break out and challenge old high, but we‘d gladly be here than where we were 6-7 trading days ago.    All DJIM is wishing for at this point, is for this market to stay within a tight range and digest the recent gain.