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Entries in AIXG (4)


Job report, still relevant?

We know a title like the one above will raise some endless debate among the traders.   So, we are not going to defend or embrace the notion of it.   So what's the point of even raising this topic, you ask?   Here's the thing!   It seems over the course of last few days or even longer, there's this particular story developing that the health of this market, at least short term wise,  hinges on the quality of the job report tomorrow.    It's as if tomorrow's job report will provide a definitive catalyst for people to either go short big time or go long big time.    Well,  perhaps this is the way media has played it for a long time.    The truth is, to us, it's just another piece of Eco' data in a series of many many such Eco' data to come in this recovery theme rally. 

Maybe,  we get a really good report tomorrow, or maybe we get an okay one or in an unlikely scenario, we get a bad report.     In any case, any kind of report may cause a "sell on news" reaction as the market maybe looking ahead to earnings season instead.    Of course,  it may cause this market to breakout to the upside even further.    As far as the actual importance of this job report in the broad picture, we think people have put way too much emphasis on it because the potential reaction to this report.  It may simply be irrelevant when earnings hit soon.   In the grand scheme of things,  this is just another report people look at to confirm the validity of this economic recovery.  

Today's action, we got some decent pullbacks from many of our leading shadowisted plays, yet the all important SPX index managed to inch up a couple of points due to what now is BKX >10% on the week.     The sector that worried us the most during last month, financial sector, is the same sector that's getting strong underlying sentiment for this market.     Like we have said before, as Financials start to roll to the upside,  this market won't slow down.    While we give some momentum plays some room to consolidate, we have enough of positive from financial sector to keep the index high and afloat.   This is what exactly we want to see for a healthy bull run.    There's enough market rotation to provide different leadership to this market so the market does not feel tired.  This environment also provides technical trades.  This week CMP  moved for a 4 pts and MAN  3 pts from our breakout alerts.   If were getting fast points, we’re not shy about taking the points and finding something else for a fast trade before the report.   

As money moves, we’re looking for potential money flows sub-groups:

Trends were the same today as all week.  Tech weak and financial really broadening out and catching shorts and sidelined money by surprise.  One NASD sub-group feeling no effects of tech weakness is our DJIM LED trio of  VECO AIXG CREE.

The positive retail numbers provide collateral trades in groups such as Casino’s, Lodging/Hotel.  You don’t need to trade retail stocks to make the positive retail numbers work for you.  We’ve put HOT a previous DJIM winning stock on our trading.  Another idea is if financial strength continues to broaden we’ll look for laggers such as Asset managers (BLK BEN).

Tomorrow might be a busy day for many of us,  but we don't really think tomorrow's any more special than other days unless the number is a surprise worse than what is being whispered around the last few days.   If market is looking to sell on news`,  then it shouldn't be surprising to anyone and we'd add to our plays either today or next week as things settle down.   If the market enjoys the job report enough to give it a good chase higher,  then we'd definitely look for some beta plays on our list to get our money's worth. 


New SPX high

What a three day rest has done to this market, eh?   We focused last week on the possibility INTC earning may bring out the "sell on news" crowd and it played out.   Into Friday’s trade,  we noted the 3 day weekend may give this "market direction" and not INTC, JPM earnings .   The question into today’s trade 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.   It definitely helped today after we re-tested 1130 levels pre-market and in the longer term it should as well.

More importantly to DJIM today was the expectation…“The reactions to reports next week might be completely different than last weeks, ‘sell the ‘good news earning news’ reaction” and the political hype had little to do with the change today.   As said, less than 5% of SP had reported by last weeks close and doesn’t make an earning season.  Today investors came back more optimistic as market shrugged off   so-so call, liked an early cyclical PH  industrial upward guidance,  which gives a good read through to the recovery and sector,  EDU  quickly reversed some early selling and was one of the big winners on the day and AMC, we got a good reaction to CREE.  

Still,  a one day change doesn’t make an earnings season,  but it was good to see.  Given the reports from the likes of AA, INTC, or JPM and today PH, more should start to realize that the economic recovery pace will remain quite steady.    Maybe, we've been spoiled by last couple of quarters' surprise upside announcement by many companies.    Keep in mind though,  previously the estimate were much too low for most companies on average.      For this quarter,  we are assuming analysts' estimate are much more inline with what's happening out there and expectations are greater.    In other words,  if a company can shine through this quarter's report, it may just be a real star we are looking for in 2010.

Regardless how much upside churning we go through this year,  the trend will still be the same.   This is the most important aspect of our trading theme here.    It means that on down days and on pullbacks, we basically have to have strong faith and buy into it.    It's somewhat of an adjustment because this time around last year,  we were trained to stay away from any down day.    Any big down day from early last year would lead to further down days.    This is the reason we assume many people are still cautious about this market.

In AMC,  as noted CREE  came out with an excellent guidance print.   If the selloff in the stock Friday was the concern that their report won't be good, then we'd assume it can at least return to its previous high and perhaps beyond quite soon.  The collateral plays at DJIM, (AIXG, VECO ) should benefit, not just from report, but the fact they’ve gone down with the rest of the tech (SMH) weakness so far this year and we expect a rebound in the sectors.   IBM  came out with number/guidance that met the expectation, but didn‘t raise guidance enough to satisfy hopes.   In addition,  this is actually a reporting week of many financial companies including the likes of MS, BAC, WFC, GS,  but judging by JPM, C  it might be a non-event.   

Bottom line, as earning season gets busier, we have to keep our heads cool and pick the plays that stand out.   For now,  we simply have to lie back and wait for winners to come.

* Wednesday night, loads of very important China Eco data…


Earnings will matter...

Honestly,  it doesn't really matter what the negative headlines suggest,  profit taking is all we need to know.  Instead, media and analysts alike would love to pinpoint a couple of specific reasons for any day's decline.   Well, it's their job.  Today, rumor that China is tightening its lending is sending "shockwave;)" throughout the world before the release of all their Eco data tonight that is expected to show overheating of sorts.   Ummm,  unless we just heard it for the first time during last few months, we swear this is just recycled news.   Yes, they will withdraw excess liquidity, let’s get used to it. (headlines).   Also, there's always people who like to remind us that we've already had such a terrific run from last March and it's time for a meaningful pullback (again, eh).   Well,  we also like to remind people that this market has ran up so much since 1960s and it's time for a pullback now;).  The point is, you have to have a pretty good idea about this market in order to dissect what news is helpful and what news isn’t these days.

We have literally entered the second week of an earning season and we'd like to think corporate earnings should dominate the news media.   In our opinion, it should and it will!   No matter what causes any little pullback, or in some people's opinion, healthy consolidation, we have to focus on what's more important.   Do corporate earning suggest an Economic recovery?,  if so, at what pace are we recovering.  Here's the thing, we don't expect SPX to hit 1200 anytime soon and breaking over 1150-1160 would probably take some time without a “BIG’ catalyst.  In 2009,  we’d see SPX going 5-10% in either direction in a matter of weeks, sometimes days, but it’s just not likely going to happen in 2010. Why?  Things have stabilized and people will invest/trade in a much more rational way than past few years.  So, compared to last year,  this year will give us this "grind" feel.   This is just fine with us because it allows us to ultimately focus on our game, the earnings game!

CREE,  from last night, came out with an outstanding report/guidance as noted and was rewarded with some nice add on gains along with VECO,AIXG .  This morning, many financial institutions have come out with reports that have exceeded expectation and are probably the main reasons we had a little comeback in the afternoon.   In AMC today, names such as SBUX and STX, PLXS (add to list) all came out with quality reports, basically as many as 5-6 NASD/Tech (incl. FFIV  on our list) did as well.  So, trend is still pretty clear where this Economy is going.   As long as people's favourite companies come out with good earnings, you can assign a reasonable P/E behind them which in turn will give a strong support to the overall market.

Bottom line,  we may be in for some range trading (again, we bounced off ~1030 and closed on Nov trendline) until the assessment is clear that the market deserves a higher valuation.  Majority of the companies have yet to report and their earnings are an absolute key to the health of this market.  Forget about rate hikes or inflation because right now,  it's just the excuse bears use to get out of their position.



What worked... still works...

Is this the "everything is going fine" melt up we’re witnessing on the back of solid NFP# / global PMI‘s from last week and today‘s ISM non-manuf‘ & Pending home sales?   Is this the same stock market we've been playing day in and day out since early last year?   The more we ask ourselves, the more uncertain of an answer we'd come up with.    Cast aside any personal opinions and too much analyzing, this is what it is…the market is still very resilient,  investors are favouring risky assets, especially on any shallow pullbacks and that is all that matters.    We are at SPX 1187, up over 500 points from the low we hit early last year.    If memory serves correct, the pace of this bull market will slow down dramatically,  just like in the other bull markets of the past.    Of course, knowing that the pace will slow down and knowing when it will slow down are two different things.

Our speculation is that sometime during the coming earning season, the pace will slow down.  Possibly a May sizable correction coinciding with the “Sell and go away in May” almanac trading mentality returning as things have gotten back to normal.    Right now, market has risen to a point that a lot of positive things are expected for this quarter and beyond.    You can also say that some of the price movement from some of the plays on our list may reflect all of the potential good things in them.     Does this mean the end of the bull run is near?    Hardly!    First, we have merely gone from being really undervalued to somewhat fully valued.    This is also a big if because we can't generalize everything in this market as being fully valued.   Some companies, given the current environment and their prospect, may still be "cheap" if they can capture the growth opportunities.    Here's the thing, not all of the companies out there are in the same phase of this Economic recovery.   Some companies have indeed been recovering, like many commodity plays, from the slump in demand over the last couple of years.    Other companies, such as those in technology sector, are having the kind of growth they've never seen in their history.   In other words,  recovery or not, some companies are seeing their business at the best level despite the fact we are still sitting at a "cough" 9.7% unemployment rate.

Here's the thing though, it looks like we are playing both the recovery and growth theme at the same time.    In our opinion, it can probably only get better from here.    Today's action is simply broad based and led by familiar DJIM shadowlisted plays hitting new highs, outperformed with R2K the other major indicies.    The semi LED group ( RBCN CREE VECO AIXG ) being the strongest, as well as gaming stocks ( WYNN  LVS ) and our favorite X CLF WLT  commodity linked plays all taking on some nice gains throughout the day.    We are talking about mostly EPS winners that have made it to our list in the past,  econ. sensitive material stocks and as well as consumer discretionary gaming stocks going up all at once.    It truly is a bullish feeling out there.    

However, although we broke out of the recent high of SPX 1180 and closed at a new fresh rally high, the volume is somewhat disappointing, but the majority of world markets were still on holidays.    We can only conclude that many longs are just holding that much tighter to their holdings, in spite of recent gains.      Again, sometime this earning season, we may able to see if people are willing to lock in some profit before the lazy summer hits.

Bottom line, we definitely started the week with a bang.   The question is, can we keep this going...