nice kick off

Beating the "bull drum" since March… we don’t expect anything as dramatic as ‘09 (shockwaves of 08-09 are gone!) in both directions.   Still, we expect a continuation of the rally into ‘10 as we‘ve been drumming in December to stay long.   We are seemingly on positive footing which is advantageous to our ‘growth’ oriented stock/ sector picking as fiscal initiatives (unwinding of policy stimulus) globally will be baby steps.   So, overweight equities is the strategy,  we hope this becomes universal (retail investors) as returns on capital will be in the equity markets and fund flows will occur.  High beta, small-mid caps, high beta regions, cyclical. 

This was the theme in December, R2K went from 590 to a breakout to 640/>2% today on the R2K...Into Dec 3rd trade..."Even though the rally seems to keep losing momo’ in this range up to 1120 ,  we’re not listening!.  Yesterday, we said it will be a selective stock/ sub groups pickers market going into year end and we’ll stick to that!  R2K  big outperformance up >1% of the market maybe a clue of things to come". 

We left off before holidays with DJIM #51 and some selective names..."Only 2 ½ trading days ahead this week,  some window dressing Q end may begin with some recent beat up mega  stocks AAPL AMZN  getting a bid .  We think it’s a stock pickers market now and will be in 2010 as lower volatility and the search away from zero returns brings money into risk assets (equities).... Also trading some (GMCR OVTI ) off recent low possible turns)".   One glance at charts off these stocks for the R2K period above and you can easily see the great outperformance to the SPX while it flirted with a breakout, yet finished the year below 1120. 

Today, we had the only underperforming group in December of high betas taking center stage with the Casino's led by WYNN, LVS +10%.  We`ve discussed previously how fast these move due to squeezes and today was no exception after consolidating most of December.  An upgrade and good Macau December numbers attributed to the pop.

Coals,  WLT, ANR  another high beta group also participated due to China weather again as supplies are disrupted. 

Chems' Ferts,  back near top of trading list after bullish GS call.  More firms will likely follow.  POT, MOS, CMP

This the bullish road we’re taking in early '10, a swerve would only be from tightening too soon, an error of policy here or abroad will cause us to change our stance likely.   Heading into this earnings season, 3 strong Q’s have already been seen in the recovery and a 4th should be ahead.   But, before earnings kick off, we have Global PMI December readings to chew on and U.S unemployment # to signal more broad recovery strength.   Today's PMI globally/ ISM in US were solid, if not robust!.

inching higher...

The week’s grind continues to inch higher, even if today’s action is flat on paper end of day.  The action is right on and expected,  if we are in the midst of a rotation, a rotation which would signal a longer rally.

First, naturally the NASD, the big winner in Q4 tech is weak again today as some profits are locked up and put into financials.   Second, the ‘big caps’ banking- broker/ stocks just had 2 big days and need to consolidate/ rest.  (BKX >6% on week).   The regional banks took over today as interest is broadening out (positive).   Put these two factors together and the market doesn’t have the push today as these very important leader names take a breather!.   We're not moving forward with stocks such as GOOG AAPL AMZN GS JPM BAC C all better for sale today.   Even, a strong $CRX  >2% off more upgrades in coal, steels, more dovish FED minutes on the day couldn't push the market over 1137-1138 channel top noted in yesterdays Journal.    This is not a big "R"esitance,  it's just there at an interesting time before the NFP/ report and earnings season and is therefore acting as a wall this week.    The real "R" comes 1155-59 and that's where we're going if the S&P financials, eg.XLF, BKX, KBE, RKH  can breakout which should coincide with a break of SPX1137-1138 and some chasing may begin.    We noted a pullback in last journal would be a buy opp', still if we get a breakout from these financials ETF's it will be strong enough to chase.  Short interest is back to August levels in the group and a squeeze is a possibility. Either way,  exposure here is/ will be warranted.

Interesting bit out of today's trade were the initial negative reactions to earnings from MOS MON, but later both rallied as did the sector (NEU always in Ag  Chem group)   (CMP  almost eeked out a day high of $74 after yesterdays notes at $68-69).   Also, FDO  in consumer sector squeezed some 12% because numbers were not as feared and WOR up 20% on a decent Q beat.    This type of action may mean that once say eg. X  reports and even has a big beat and/or excellent guidance this may all be priced in by than.  This could be something to monitor in all sectors going forward, it may be a Q to get in early than after a report on a stock/ sector.

As far as our Casino, China plays..if the big boyz need a breather,  so do these high flying/ high beta smaller stocks.

Update on Thursday, January 7, 2010 at 12:48PM by Demi/ YourPersonalTrader

Theme same midday,

NASD weak (regular momo names leading down), Banks- Brokers..RKH  (regional), $BKX ETF's up >2% while it's hard to find a quality name stocks >2%, even >1%.  Basically an ETF financial trade market with single stocks not getting any conviction buying (yet).  Noted strength spreading to regionals in Journal.

List of individual regional stocks performance below(site)

DJIM #2 2010

A little baffled perusing trading blogs/ sites this weekend as to the sentiment of what a boring trading week this was,  especially the doldrums after the first 30min and before the last 30 minutes off NFP# .   This was the biggest ‘up’ week in about 2 months,  DOW up nearly 200 and the SPX closed twice over the upper trend line from Oct/Nov by Friday’s close represents a possible morning gap in our view and test of mid 1150's 'R' in the near future.   Each day was a new high on SPX, a ladder to a possible gap as well.    If this was boring??.   What was the last 2 months of a tight range bound trade to most complainers?  Oh,  forgot these must be the shorts or those still flatfooted sidelined longs!.  This ‘boring’ action is where DJIM calls to stay long in December exposed into early 2010 is paying big dividends.   On the topic of the SMH from open alert,  if Friday's short covering action has follow through as we think into INTC EPS,  we would than look for a pause in the market and some sort of backfilling late in the week.   This possible market direction twist is not a concern as it's EPS time,  new individual plays will be the concentration going foward.

On the topic of the ‘disappointing’ NFP#,  all we can say is the reaction was hardly disappointing and that is all that needs to be said on the matter.   It’s going to be a bumpy ride recovery and that’s the end of it and is not a new prognosis.   All this  really showed was the market continues to shrug of potential ‘ bad news flow’ we had plenty of it during the week (home sales pending, China rate stuff etc.) that just didn’t add up to a red week.  The market showed what we assumed be occurring an that is the market started to look ahead to 'earnings season'  and the NFP was just a formality.

The market is running on upgrades of individual stocks and sectors as firms look forward to this earnings season and beyond.  On Friday, the big beneficiaries were VECO (is a chip SMH play) and the steel sector X MT AKS  off tier 1 coverage.

An updated `shadow list`is on site (Journal page).  Every sector we`ve been concentrating on is moving along..eg China`s, Casinos, Coals, Steels, LED's  and the financial / banks brokers  rotation as evident in the 'green`on the list.

'Great escape???'

Today’s trade can only be filed under the “great escapes” category.   It wasn’t just a matter off digestion and tired buyers,  it was all the overnight-premarket headlines hurting every sector of leadership potential.  We'll leave the question marks up on Great Escapes(??) for now.

• Financials-  Washington sticking their paws on the banks once again, saying hey pals we want more!.

• Techs-  SOX <4% had a ‘SALE’  sticker on it all day.  A few earnings AMC may help tomorrow.

• China-  Newsflow of ’ broader’  policy tightening that threw off most of the stocks DJIM follows off their lofty levels.   If we like the 10% up days on these high beta stocks, we have to be accustomed to these prices going the other way from time to time.   The important factor here is not to get caught on what could be multi consecutive ‘RED’ days starting where all your recent gains will evaporate.   Only way you do this is take this high beta region for what it is and ‘trade it’ as we discussed in a forum post recently.   Also, you need to know/ realize the time of headlines,  if you wake up and see SHANG up about 2%,  it doesn`t mean China stocks will be green.  This policy tightening news hit AMC and you'll see this in the Asia markets overnight.

• Commodity linked stocks-  AA’s downbeat report pressured and China tightening monetary policy noise played a role here as well as demand would be hurt, most likely.

Simply, the ‘tiredness’  bolded in Journal after Monday’s action compounded into more profit taking due to headwinds.  As a trader,  you need to recognize the potential for more selling pressure from headwind newsflow upon an already ‘tired’ buyer market.  One + One = 2!.  This way you take profits early in the day before other traders catch on to the signals.    Activity still is void of short sellers as upside risk of ‘09 is on the mind,  the fact we held and bounced some suggests there is still an underlying bid on weakness,  thus this is just profit taking so far.

Until, the SALE signs are removed from the windows,  we'll continue to just window shop for "individual stock"  trades until this market becomes attractive once again to enter in size and more than just a few positions.

..tired signs again?

First post-INTC, judging by the ES tone tonight, the market looks at flawless execution (INTC) as a non-event or it’s just a lazy bum looking forward to the 3 day weekend.  It was pretty obvious by >2% pre earnings day INTC  move,  it would be impossible to move the behemoth following results,  no matter how flawless they might be.   We should just be happy it didn’t disappoint and not worry that the ES futures didn’t ramp up.   So far this is a repeat of LLTC  earning, a big player in space, suggesting many Semi’s, particularly INTC may peak shortly in their own metrics(gross margins) and therefore stock price.  It doesn’t mean Nasdaq and /or market has to stop grinding higher as there is always ‘rotation’ even amongst the technology groups..eg software/ hardware from Semi’s.

As far as market activity today,  the early week losses have been made up and the theme remains the same of buying on any weakness, still no conviction to chase the market too much higher.  Lately, any bad news has literally been shrugged off, either right away or if any selling ensues it is bought eventually.  We haven’t had back to back downside days since early December.   The market needs a ‘ BIG’ catalyst in the short term and we have no idea what this possibly could be on the positive side to go higher.  The odds are always better for a surprise ‘BIG’ negative, so we must simply ‘trade’ the upcoming individual earning surprises or sectors that get momentum.   Such, was the alert idea on Sept 8th to buy lodging/hotel stocks HOT/ MAR.   This was the standout group today as both have broken out in the past 2 days and now are up ~7% since.  The “Shadowlist” is not only comprised of stocks we trade, it is also comprised of stocks to see where the money flow/momo is day to day giving you daily options as to where to put our money in or take out.  

Next on deck, JPM ,  even though the market inched up to a new intraday high of 1150, it is still showing tiresome attributes tonight possibly and the JPM report is unlikely to be a ‘BIG’ catalyst to the upside.  The weekend may provide more than direction than INTC/JPM.

DJIM #3 2010

Last weeks Journal tone consisted of headlines such as…digestion=tired buyers, Great Escape?, tired signs again?….that’s about as negative a weekly tone as we’ve had since the rally started in March 2009.   Does it mean we pack up the bags of cash and sit on sidelines and/ or go short?   Well,  we recently had 2 closes over the Oct Nov trendline which pointed to a test of the SPX1155-1160, which equates to same levels of this rally to the one from 2002-07.  As long as we hold the December high levels,  something we pointed to on a couple of occasions last week (Tuesday/ Friday) and proceeded to hold , we’re not packing anything away as a test 1155-1160 would seem to be the natural course first.  

Last week, the market played out to what we scribed in many respects.  We talked of the 2010 theme of selling tech, buying financials not co-operating by Monday’s trading close,  the abundance of negative news flow from AA earnings/ China policy/ Washington fiddling in financials and LLTC earnings reaction the next day to an excellent report mid-week..“but it sold off on the news after a nice run into the report. (hopefully this not a sign of things to come)”…  Basically,  INTC was a sign of things to come as it followed with same earning reaction and we got …“the market needs to do some backfilling sometime this week”.   The question is are we done backfilling heading into another  week of ‘big’ name earnings with BAC, C, GOOG, IBM, GE on deck.??

Following JPM earnings it will be critical to watch BAC and C’s reactions as parts of JPM’s report do not bode well for the these stocks.   If they can shake off what will probably be negative reports in many fronts and still not lose much in share price and/or market shrugs it off,  it would signal the market will likely go higher this week.  

The reactions to reports next week might be completely different than last weeks, ‘sell the ‘good’ earning news’ reaction.   As a trader,  you have to think this and not be filled with the anxiety the market did it’s best to leave with you by Friday‘s close.  Less than 5% of SP reporting so far does not make a earning season!.    Also, we’re watching for the weakness in Semi’s to reverse,  it’s too early for them to peak right after INTC earnings considering how bad they’ve been so far in 2010 with rest of tech.

The trading methodology remains the same until this earnings season takes shape in one form or another.  So, we keep the below always in mind…

• …we must simply ‘trade’ the upcoming individual earning surprises or sectors that get momentum.

• …We watch the December highs as important 'S' upport ` around 1130.

• …."the theme remains the same of buying on any weakness, still no conviction to chase the market too much higher…"selling was just profit taking and not aggressive selling and/or not shorts pressing"  (this will likely change if 1130 levels go, which would mean an imminent quick drop)

Props to the President

Yep, congrats, Prez,  you and Washington did it again!.   We could make this such a Political Journal, but we try to keep this PG13 rated.   Just in the past week, we’ve been irritated…“..Washington sticking their paws on the banks once again, saying hey pals we want more!…“..The question … is 'BROWN really GREEN' for traders/ investors and give this market direction as Washington’s messing into the markets, notably into financials, get a wake up call".   Unfortunately,  Obama got on the wrong side of the bed and gave Wall Street a rude wake up call.   Actually, it was more of a crank call as the collateral damage filters beyond into Main street, a street that encompasses investors that were looking for more stability instead of uncertainty that this is bringing with it.   How many actually know what ‘prop’ trading is outside of the trading world or think it had anything to do with the crisis?..Let’s just stop here, before this does become a Poli’ Journal.

“..The market needs a ‘BIG’ catalyst in the short term and we have no idea what this possibly could be on the positive side to go higher.  The odds are always better for a surprise ‘BIG’ negative, so we must simply ‘trade’ the upcoming individual earning surprises or sectors that get momentum…”

Well.  Now that we got the ‘BIG” negative odds, what next?   It always seems the case that when the market is treading water at an important technical level something occurs to cause a breakdown…”(this will likely change if 1130 levels go, which would mean an imminent quick drop)”.  Once 1129-1130 was penetrated a domino trip to 1115 ensued.  The reason this support held and buy dippers came out at least 3 times before was it was never touched on news such as this, buy dippers don’t come in on such events.  We’ve covered many times before here at DJIM that things need to settle down and stabilize before aggressive buyers come back.  It will take longer this time around.  In years past,  we’ve highlighted that the big shots either in Washington or corporations wait for XMAS, New Years to pass before dropping bombs.  This year is no different we just experienced.

Unfortunately, even though 1115 is next support/ 50ma , it‘s the starting point for year.  Dip buyers that come in will not be able to push this back close to recent highs.  We now can only hope for a trip back to ~1130 before encountering  ‘happy’ shorts.   Today has given them hope and confidence to finally press’ on some positions,  something we haven’t had to deal with in a long time.   Also, instead of demand buyers showing up , many investors in the market will want to use any bounce to replenish profits lost this week.  The psyche has changed for both sides!.  

Until this news fades, we can only approach the market the same way as most recently into earnings.  Even though it is pretty much a "sell the ‘earning’ news” season,  it doesn’t really affect what we trade into earnings, but the broad market.   Surprises will continue to come from the smaller likes such as CREE & PLXS  yesterday in Journal that was able to gap and still rise ~3 pts.    The good news is not priced in what we follow.    These earning plays may only be only 1 day trades to begin with at this point, but when things stabilize in weeks to come they will be once again be worthy stocks when ‘earnings’ will matter,  just as jobs and everything else that is more important than today’s ill- timed announcement with no specifics (fact sheet) that not only caught Wall street, us, off guard, but,  other politicians and regulators around the world.   No co-ordination at all!.   A sneaky ‘Drive -by’ accompanied with language, “ If these folks want a fight, it's a fight I'm ready to have”,  best suited for the streets.

limbo..

Even though it looks like cooler heads will prevail and Bernanke will get confirmed, it couldn’t rally the market.  We were surprised some were calling this a rally, bounce during the day.  

All signs of hesitation and a market on pins and needles was evident today before a full schedule of events..FOMC, State of Union, busiest SP EPS week and the confirmation question.  We talked of a market that will see profit takers on market moves higher and today we got it twice.  One time after the bell and a premarket gap and than near the close,  sellers showed up again.   Also, the lack of dip buyers is still around as this was nothing more than a little short covering .   All this leads to a market that will have trouble going up until we get these above events over with, hopefully on 'positive' terms.  That’s difficult to believe for the market at this stage after last weeks thunder and so it stands in limbo.  Earnings, USD, Gold, Oil, Financials, China are providing no direction/ rotation into anything you can trade confidently on the long side.

..like a 'Matrix' bullet fight

Market nervously balanced just above SPX 1085 most the day waiting for the AIG hearing,  FOMC to give it a direction.  It didn’t help CDS spreads in the usual Euro spots were signalling trouble.   Add the fear of more bashing of the banks by the Obama in the evening and the market tested 1085, 3 times.  The last test came following the FOMC and at same time whispers were coming out that Obama will put down his Everlast gloves and not use the banks as a punching bag in his address.

Basically, something finally went right for investors and not just ‘ bull’ traders, but, investors everywhere.  Today was sort of like the Matrix movie as in the Bullet- dodging scene with investors on a wire (1080-1085), bending back avoiding an arsenal of fire power.  

Investors had to be cautious these last few days before committing any money back into the market. The overhang of headlines had to resolved and slowly this stated to occur by late afternoon.   This is why every uptick was nothing (no headlines were resolved), but a little short covering as we’ve talked about last few days.   The test of low 1080’s, a 3rd time was critical as volume increased, yes, volume increases always after a FOMC statement,  but there was shorts trying to press and crack this level and cause panic.   The market was vulnerable as it was on pin and needles, but it didn’t work.  The bulls got some momentum, short covering increased and now we have some ‘breathing room’  seemingly.   This looks like a pretty good reversal day holding key levels and considering Obama backed off tonight and made job creation and stimulating economy the agenda,  it’s more significant.    Still, we’d like to breach and close over 1105 before thinking all is closer to normalcy.  What we’d really like to see is the ‘China factor’  and it’s headlines begin to be shrugged off for a change.   This overhang remains, but as we said we think it’s overblown and will see this ease shortly as in a stop to trading negatively off new daily tightening headlines.

As we’ve discussed, besides the short covering as a start to any bounce, we have ‘profit takers’ as in those that will use any uptick to sell.  So, it’s important to understand we need to see volume..volume to signal fresh buyers and conviction for sustainability and a return to dealing with this market on a fundamental basis where eco’ data and earnings matter.

...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.