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.

..can’t teach an old “bull’ ..new tricks..eh!

Talk about the habits in yesterday’s Journal coming to fruition as the SP snapped back 15pts!. Not only did we take 20MA back, but closed above 1205, which is a signal the Bull will likely test Mondays’ highs. If we can close above here tomorrow, it will make this highly probable.

If Tuesday’s sell off seemed relentless to some and yesterday's action cautious,  today's action states the  plain and obvious (underlying ‘ bullish’ sentiment is still there).     With the kind of news flow and mood swing lately, this market is definitely worthy of making a soap opera out of it.   Where’s Greece or Portugal today?   Come on, those headlines from two days ago should have at least a couple of days of staying power, no?    Well, you tell that to those who are chasing the high beta BIDU AAPL as the broad market focus also came back into earnings power as we’ve been noting here as something that needs to come back to go higher.

Of course,  this market is not just about the high flying beta techs.   The way this market (SPX wise) carried itself in a 2.2% rebound,  the action had to be broad.    The strength from financials helped quite a bit as they are the most sensitive to soverign overhangs    The earning reports from various industries keeps suggesting the improvement in the Economy covers a wide spectrum of sectors.    Now, we don't need to point out a particular paper stock or a specialty chemical stock to make this argument because believe us,  the move today is pretty wide spread.    

The only weak spot(s) today seemed to come from some commodity area such as coal and steel, but we’ve been writing about the warning signs from X early in the month.  In fact, we view the weakness as opportunity soon to start in some positions in DJIM faves’ like CLF and WLT  X at much cheaper prices than we could have imagined a few weeks ago.   Maybe, even for a quick bounce trade for tommorow starting with CLF.   Still, it’s not a hurry because we are seeing commodities like copper, aluminum hovering at important technicals levels and have earning reports to trade instead.   Clearly, considering CLF had excellent earnings and sold off big (it follows in the footsteps of X’s excellent report), the problem is China curbs we noted recently that are reflecting upon the group and money is coming home ( this means into domestic stocks..paper, builders and the materials for them). 

The other spot was a weak LED group , despite a good tech print.  VECO  has been selling off since earnings and this strengthened with AIXG’s report that had something about not so strong of an order book.  Just like commods’, money is rotating out the best momentum stocks/ groups of late.  To be completely honest, we welcome our past year's best trades selling off as it had become hard to justify chasing on valuations recently.   This will only present an excellent oppy later to get back into the winner's on a cheaper share!.

Slowly but surely, we feel some of the companies are finally getting the kind of reward it deserves for delivering few awesome reports in a row.  Examples ..VCI, IRBT, HOT  and APKT, DLB (AMC) today in mid cap names.    Finally, after a long period of denial, we think the general public is accepting the fact that things can only get better from this point on.   The only thing that somewhat worries us is that bad news doesn’t come often these days.  That's because when a negative headline does come,  it blows up in a 1.5%-2% down day.    On the other hand it’s better to get these corrections over with quickly.   Still, overall for this market's sake,  we just hope the positive sentiment won't let stocks get ahead of themselves keeping in mind as we've said earlier in the month, if a correction comes it won't be like last Q right after INTC earnings, but instead a little later ...meaning May for this Q. 

Just the right kind of balance...

We have talked many times on this site about the potential Economic recovery that can last a long time.   It is the sort of recovery that can drive many people insane.    Why?   Most of us have never experienced an "agonizing" recovery like the one we are going through.    You can go as far back as the 30’s when the stock market actually mattered, and you won't find a similar example of an Economic cycle that we are going through now.    For most of us, we didn't begin to trade till the 90s, for some of us maybe the 80s or even the 70s.    Psychology in trading may still be the same, but the circumstance that dictates the psychology is way different.    We no longer can rely on one set of data to make a clear case of this market.   Due to the volatility of this market in recent months, you can say that this is both a bull and a bear market.    However, we have to look at things in a longer time frame to determine what will really come out of this.   Once again, we have to say that this is going to be a long and grinding bull market that will outlast even the most patient traders.  An example at the conclusion of this Journal shows how selective stock picks could have made you good money even in a long term investment portfolio throughout 2010’s turmoil

So, we got a taste of INTC  report last night that the Corporate America can make profit, and lots of it, without increasing their headcount.    What is that you ask?   That's called lean and mean efficiency!   Unemployment may be high, but it doesn't mean that every company out there needs to operate under a recession like scenario.    Of course, what INTC may be able to pull off does not mean others will do the same and most likely many others won't be able to.   What we do want to point out though is that given time and patience, many more companies and industries will be able to catch up to some degree.    It's just so hideous to write this market off and point its head into a double dip scenario.

JPM is also on deck to release its report tomorrow and we don't have to mention how important it is to the investment professional, especially since we are overbought short term and at important technical levels.   So far, it's a great start in earning season and lets hope things get even better from here.

As far as trade today, once again dip buyers prevailed and today it was twice, once at gap down open and after FOMC (see alert note) at 1088.  DJIM had numerous plays, mostly earnings/ tech related hit NCH's today.  They included APKT  (off ADTN eps/ ADCT M&A communication equipment stocks) , ROVI, VMW, FFIV.   Considering the market has gone nowhere in a wild up and down 2010, it’s pretty impressive these additions to our Shadowlist,  mostly 2 Q’s ago are still making new highs today.   We added freighter, EXPD  to shadow trading list today, CTV  yesterday.

SPX ~60 in 5

It’s been nearly two weeks since noted..”Earnings, if they keep at this pace 'will trump' any Eco data-FOMC statements..”..   

Immediately, following this statement we ran into a few days of roadblocks where earnings were missing the revenue top line and most proclaimed Macro victorious over Micro (corporate) as the SPX dropped to 1055.    Now 5 trading days later, yes only 5, the SP hovers near 1115, some 60 handles  higher on the heels of Micro winning out.    Of course, this stands till August …“….because eco`data will be sparse until August hits and we see how July was.  Starting next week, we will live by the guidance from the CEO/CFO`s."    In other words we have some time to climb higher if we get through a boatload of technical ‘R” numbers around today’s close, but once August hits it will be eyes on US eco data’ starting with ISM’s to verify what the corporations and global markets are saying. 

The good part is we have good things on the Bulls back coming into August data...Micro (earning) fundamentals,  Western Europe accelerating into 2H and China ‘bottoming’, plus FINREG/ Stress tests over with.   We didn’t have any of this when the market was toying with a potential summer under 1K SPX in June.

Today, market had FDX  add some validility to the global picture,  but we’ve had this already here at DJIM 2 weeks ago as part of an improving global snapshot.. “EXPD , bot some, 30% upside is a great pre-announcement, should help FDX -transports”.    

A few other earning highlights noted VMW , CRUS, also making NCH (New highs).  Past DJIM Q's/2010 plays, AZO, RBCN, OVTI, NTAP, ROVI, CRM  continue to grind away at new highs.   We also have APKT, DLB  on 5-6 trading day moves that we suggested as potential run ups into their earnings this Thursday flirting at NCH‘s..“Look at tech reporting soon on sell off..APKT DLB etc.on this 20 day hit. Apr 16.     Also AMC,  VECO  report shows DJIM LED stocks (CREE AIXG RBCN ) still have momentum in ‘10.

In conclusion, if the breadth of the market stays on par and/or performance chasers come, a try at the 50% retrace would be in the cards.  This is also where we have June peak to contend with.  Still, don’t think these levels should cloud our thinking with new earning plays emerging and getting some recent ones back on pullbacks remaining the premise.   Starting tomorrow, looking for a close over June high close of 1118 for ~1130 sooner than later,  otherwise a dip is probably in order.

..stalling too long

The expectation of a dip since early Tuesday morning is getting a bit tiresome due to the action today.  It’s getting a bit too long in the tooth and there is no solace in today’s mid-day rally or the fact the market managed to close above what should be a short term ‘floor’ at ~1098.   The ‘floor’ seems a little squeaky and you can start seeing downstairs (1080’s) through some cracks.    A close above today’s close is a necessity now for Friday (need to see some conviction dip buying show up), otherwise any disappointment over China’s weeeknd PMI’s and/or US ISM on Monday will cause a roll down the stairs to test the 1080's levels quickly.   Market's resiliency will probably be tested tomorrow, if buyer's don't show up before the macro data next week. 

Being underinvested after Tuesday’s 1118 alert avoids any real worrying of the above happening, yet trading goes on slowly and it includes being ‘selective’ in picking out some current earnings and sticking with them and/or buying them on dips.   These stocks have ‘underlying’ earnings that should avoid any ‘hits’ a high beta stock or sector such as commodities may experience in a further pullback.  

A couple more of these earnings in the last 24hrs, include DJIM stocks past and present. BMO, we had VCI, CLW.   AMC, we have DLB  with excellent #’s and ROVI  again not disappointing.   These companies keep producing Q after Q.    Tonight’s EPS#’s in high beta closely followed names like APKT, WYNN, CSTR, even FSLR  are very ‘noisy’ and hard to gauge immediately off the headline revenue and/or EPS beat.   The reactions are more of the profit taking unfolding we alluded to after VECO that is still presiding over the momentum ‘popular’ stocks.

..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. 

...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.