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!.

Conviction needed...

This market, the 'people' need conviction.   The sort of conviction that is needed is that things aren't going backwards in the U.S and thus the market (2.5% decline so far in 2010).   But rather, things are still progressing forward.   AAPL tablet will show wordly progress, how about you Obama on Wednesday night?  

The earning show has been quiet successful with many companies firing on all cylinders.  We can't recall when that many companies have beat the expectation and guided the following quarter higher.   This will be a very positive sign going forward.    Honestly, if it wasn't for the circus show from Washington, we feel this market would be right on pace for an economic recovery trade.  Concerns over the economic recovery sustainability due to China tightening starting are also playing a major role, this is probably way overblown in our view.  

Well, market is not getting any easier this week.    Despite a flurry of good earnings, especially from tech land,  the market today just can’t generate a firm rebound due to all the political noise.    Of course, we can always blame the financials for being the culprit that's dragging down the market.   However, we are wondering if people have become cautious in light of the recent events brushing off all possible bright spots on the horizon.  This market turbulence is going to give good entries on growth stocks.  Right now, these are biggest victims of selling pressure as they‘ve been the outperformers.   It may prove to be an effective strategy to trade some of these stocks into their earnings reports.

The trading the last couple of days may make you feel that the bounce may never become.  Every move starts with short covering,  if it’s to continue,  dip buyers and than conviction buyers come in and make the move successful.   Today, just like yesterday showed the latter does not exist now and longer term investors are using moves higher to take some profits back.   Simply, any upside is tempered at this stage as it loses steam.   Right now, as noted today 1105 is a level that needs to fall first.    Also technically, November supports around 1090 are seemingly support so far this week.   Note, there seems be a pretty big vacuum below if we breach SPX 1080 and we may not find any meaningful support until 1040 or even 1010.   So far, panic is not here, but it would probably rear it’s ugly head if this level is breached.   It's a definite possibility if more bad news hits the market.    However, if you have faith in the recovery of this Economy,  it’s hard to imagine we'd go lower than those level.  
 

Grind me higher...

Lately, it feels like this market is outperforming everyone.   Why do we say that?   It's those stocks that weigh so much on the index and have hardly done anything in the past are starting to slowly grinding higher, just as are lagging stocks in lagging sectors, you’d never look at it.   Nothing wrong with this catch up picture though!   We knew that eventually the optimism will spread from the high beta stocks to others.    It was just a matter of time and adds to the performance anxiety theme.  What's surprising though that it's happening around the middle of the month , a lot sooner than we expected for Q end window dressing.  

*On the hand today, high beta names from AMZN to GOOG to BIDU rested, some commodity linked stocks (steels/metals) had big reversals,  momo China stocks were hit all day (is policy tightening around the bend?), all this hints at resistance being hit today around 1165.

Well,  we still haven't got out of March yet and market is locking SPX 1200 in its sight and that may happen a lot sooner than everyone realizes.    Of course, any number on SPX is nothing but a number until people start to make a case out of it.    We know a lot of analysts have set SPX 1200 as a target for this year and we wonder what'd happen once we've reach it.    Trading in today's environment is a little bit tricky even though media has painted a very rosy picture of the market lately.

If we didn’t know any better, we could've just bought every stock out there and add more everyday.   The stocks that are hitting new 52 week high is simply unreal.    So, there's abundance of plays out there seemingly worthy to chase as there is not much resistance after 1165 and 1177.     Question here, shall we chase blindly now and hope for the market gets to 1200 soon or shall we wait for some better prices?    As it stands,  this super sized market is fat and could use a diet pill and that's what's keeping us from chasing it higher.    Lets just give it a couple more days as the odds of reaching 1200 any time soon is not very high, but realize it's being eyed now as a target.

Shadowlist update

Shadowlist by sector money flow/ rotation to follow. (visit site). 

Last S/L (7 weeks ago):

Expectation Game...

When a stock is expected to come out with good earnings, it better not disappoint.   Most earning seasons,  we have often seen that a stock trades up just prior to the earning announcement, but only to get a lousy reaction due to the "miss" of high expectation or what they call the "whisper #”.  For some stocks, such as GOOG, AAPL, AMZN.. they fall into the category of "need to beat the expectation" as they are the “Crème de la Crème’ of the stock market.

Maybe it has something to do with their fairly rich multiples and the fact these stocks always had wild moves post earnings in the past.    However, doesn't that game get a bit tiresome after these many years?   Come on, why can't people treat GOOG  just like any other tech stocks?.    Honestly, we don't really want to put much emphasis on GOOG's earning or reaction tonight because it can get into an endless debate.   Instead, we wanted to point out UPS, which guided much higher for the year as a barometer for health.   If anything, this gives us the impression that the increased business from UPS means Economic activity is more or less flourishing across the board.

Today's the second day market closed over SPX 1200,  little follow through, but same story in buying/ selling trends as on most days talked about here.  X  down >3% added more credence to what we’ve been alluding to regarding the commodity linked names & broad market.   

Since, many of our plays are getting close to the report time and according to our own trading rules, we'd let go most if not all of the position prior to the earning date.  This is hard to do in a recovery period as you’d expect most to do as well as previous Q, if not better.      When the play reports number/guidance that surpasses the most optimistic expectation, we can always get back in.  

So far we are only getting a small taste of what's to come for this earning period, but these are the best names reporting first and they ie.(INTC UPS JPM) set the stage or let’s call it a “high bar", so far to meet for names reporting later.   GOOG/ISRG  are proof tonight.   Already, we have broken through some major levels from this market.    We can't wait till next week as the bulk of EPS begins, even though we have some important names tomorrow for the broad market.

20MA recaptured

Despite Friday’s swoon below our critical 20ma ,  we managed to eek back over it twice on Monday and today as soon as a 3rd try ensued,  the market breezed through and staged an impressive reversal day closing 15pts above the 20ma.   This has been the ’Bulls’ benchmark here and it remains so!.  Looking at today’s action,  we think the April/June/ July trendline that held the Bulls at bay last week is much more vulnerable now and should be easier to crack.   So, what brought on today’s impressive comeback.  

• Despite all the critique about disappointing  'revenue'  lines in earnings,  you can only beat a horse so bad after a gap down.   A change that continued today was these gap down earnings beatings were getting ’bought’ up the last few days.   Examples were HAS and DAL.   Today, the same was happening early in IBM, GS  early and in a smaller name CRUS ,  which raised revenue guidance, but was knocked down to mid 15’s(->10%) before climbing to flat and than a 5% gain by close.   Simply, the market was overreaching the ‘revenue’ misses mostly and this proved to be buyers delight as they step up at these exaggerated gap downs.

• If you have your DJIM shadlowlist set up like shown here,  you could clearly something out of the ordinary early on.    The commodity linked stocks were outperforming the market in a big way. Question was why?.    As we all know if China goes, commods’ go.   Considering the Shang was up 2%, (2 days straight), you knew there must be China talk.    And, there was talk, talk of China ‘easing’ measures and also noise about better margins for the steel co’s in Q4 from China companies.    Most importantly, Shang is over 20ma and should be watched as we could be off the ‘bottom’ in commodity linked stocks.   We all know even when the overall market doesn’t give you gains, trading the commodity linked stocks is all we need if a trend is beginning.   It could be a little early, but the train may be leaving the station and buying the pullbacks gradually is probably the way we're going to go now.

• Lastly, we asked for earnings ‘ammunition’  yesterday and without going into detail, we definitely got some from AAPL  and VMW (nice chart set if trendline broken) to fight the Bears.

http://www.finviz.com/quote.ashx?t=vmw&ty=c&ta=1&p=d

..one summer later

..the range is breached...

Although, the market had hovered in the mid 1120’s SPX for most of last week, today’s impressive rally seemed to have caught many off guard.  Firstly, we had no gap, but an open at 1126, while the European markets were already rallying after putting the "same song and dance"  from last week behind them.  The 'no gap’ made the move impressive considering the market did ~20 SPX intraday points as DJIM’ ‘bullish’ stance amongst over confident, overbought ‘sentiment’ gauges heading into the week, plus a better to buy market call for a few weeks paid off.   The fact we sliced through not only 1130, but 1140 another resistance made it even more impressive as the ‘machines’ went off as the market looked ahead to the FOMC with a 'big breakout'  (The constructive action all week is lending to the thought we could have a big breakout if the man vs. machine theme is hit by a favourable catalyst... ).  There were no real ‘catalysts’ besides the FOMC anticipation talked about here spreading through the media outlets over the weekend and today.   Okay, let's believe IBM's 1.7bln tag for DJIM's NZ  play had a little to do it with it;)...Now, we just need to get some follow through this week and start grinding the Bears away into mid Oct earnings season.   

The crying on some Bear tilted blogs shows the surprise in their misery and the fact this was still a ES futures based rally not supported by MF’s / retail investors highlights this caught those sidelined off guard.   Individual equity moves were not in step for the most part, but still the high flyers of DJIM, we said were being “accumulated on slight dips for broader market highs to come” …like high flyers CRM, VMW, FFIV, PCLN, AAPL, BIDU  and others off Shadowlist eg. EDU, MICC, ROVI, JOYG, WYNN, APKT,CMI  were striking new highs today.  While PVH  and MA  have added 6 and 8 pts respectively since added to our list in the past week or so.

Considering the sizable move all in one swoop, the market will likely look to take some profits once the FOMC statement hits.  We would look at it as a buy the dip oppy coming.  If they (FED) don’t give a piece of QE2 or hint for it very soon, every firm from MS GS JPM should be shot because of their calls.   A follow through post -FOMC (if out as expected) would show those off guard are getting off the bench. 

DJIM #42 2010

A look at the majors weekly closes,  SPX +1%, Dow -.5%, NASDAQ +2.8%, the mixed results exemplifies the ‘funky’ market tape noted mid week continued on.  Money flow circulated from one leader group. There were as many as 3 ‘group’, 1 day moves this week that kept the market a float.

• 1-’Clouds-Virts’ on Tuesday-  5-7% gains in momo names like FFIV, VMW, CRM after alerted here for a possible catalyst this day. (VMW  EPS on Monday will be important for group, many names reporting later in week)

• 2- Transports./Industrials/ Base metals  rallied huge on Wednesday.   Money flow was discussed previous day and this was the outstanding group coming off CSX earnings, FCX, WLT rallied in the base sec’ …“…Monday, it was the casinos, today the clouds.   Tomorrow, who knows...Commodities?..Banks?..or some EPS stuff.”.   The commodity base material trade bullish call from 2 weeks ago is working, but with USD biggest day in weeks on Friday, this trade may rollover some in the next few days until this minor corrective USD/Euro phase ends.

• 3- Mega caps- it was noted  before Thursday trade…“.the answer is money is also flowing into the ‘safe havens mega caps  like MSFT, CSCO etc".  This premise was only solidified 48 hours later, post GOOG  earnings as it and AAPL AMZN  all ran large on Friday.   So, yes the broad market may have ‘blinkers’ on for GOOG as seen by a flat SPX on Friday, but the ‘groups’ associated  with the catalyst still get the liquidity/mo’ flow.   At least 50% of the small gains in SP this week can be attributed to 4-5 mega cap stocks.

In the middle of all this were some timely words on Fins’  as 2 days of intraday losses of 4-5% followed hitting the money center banks and JPM etc, that also helped the ’rotation’ picture as money flowed out of this group.     A wild underlying market week on the micro side and the macro side was just as wild.  

Since the FOMC minutes a shift to selling TSY’s is probably underway,  which would signal that QE2 is selling on the news.. (USD just doesn't go up any more right?)…The fact it did Friday after Ben's address and inflation data, this is probably the case, but still equities did not sell off on the higher USD.    This could be because rotation/liquidity into stocks from Treasuries is the natural course, even if it signals QE2 is selling on the news.   How’s that for confusing?.   It actually might not be as the market remains steady because individual groups get enough liquidity to sustain it.    Only thing to do is go with the ‘premise’ discussed into Wednesday…“As the last few days point out, it’s very possible to trade from a defensive posture (as in not being heavily exposed overnight mostly) to avoid any surprise sell off and to have money available to jump on new company specific earnings.   It also allows you to use that money to play groups moving on a particular day , if no earnings plays show up".   It may not be perfect the action for broad market follow through, but it gets you through day to day.  Like every other trade that gets crowded and fatigues, QE2 is also such a trade is something to keep in mind!.

So, just sticking to this trading methodology as it’s "sell the news"  in TSY, which interwines to QEII, but it’s "buy the news" in particular sectors/stocks off earnings.  How long can this daily rotation keep up until the 2 major groups (Fins’/Semi’s) struggle wear down the market?

..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??