Shadowlist update

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DJIM Shadowlist outperformance

Entering the trading day,  yesterdays ‘biggest takeaway’  reversed and allowed the market to have a decent day, although the highlight around here was the outperformance of DJIM’s closely followed stocks.   Our alert in the premarket noted the nice reversal of the FTSE with ECB stepping up the buying of their problem children debt (Portugal, Greece etc. )/ bond buying program.   Once this ‘comforting’  act was done,  you knew the Euro was not going to slide further today and the US markets would be able to stabilize as yesterday‘s missing buyers would appear.    Also, the Irish sobered up and compromised with a good/bad split of one their banks, which is better than a complete wind down.  It’s good to see action being taken on all these Euro fronts immediately, instead of allowing problems to drag and watch the markets get spooked.   

Speaking of problem children, we have one in the US markets that underperformed badly (Semi’s)  and will keep this ‘rest period’ below 1108 extended if such bad behaviour continues to be exhibited.  SLAB   is #2 warning now after INTC.  Considering how early this comes, you can expect more from this sector.

On the home front (DJIM’s), we had an array of stocks outperforming off the latest Shadowlist update this weekend…

NZ , up >14%, flying already, it got some rumor mill action (IBM).  Stock is now up a good 25% since alert buy.   Note,  ARST  rumors from last week were refuted today and so this one may be too in days ahead.    Still, NZ is an EPS stock foremost in DJIM books this Q.   GMCR , announced a raise in product pricing and exploded to an intraday new high above $40.     NFLX  mentioned here plenty of times just the past week or so, kept on ticking to an intraday high of nearly $148...PCLN  >5% off upgrade,  APKT , NTAP , LVS , HLF  were also outperforming the tape with NCH‘s intraday.   In the commodity section off DJIM’s shadowlist, machinery’s outperformed, BUCY/JOYG  >5% were the winners going into Obama’s afternoon promises.    This was a day you can just ignore the broad markets stocks and sectors up and downs and just trade away the DJIM composite.  

Note: add retail PVH  to Shadowlist in consumer sector.

..CSCO on deck

If you blinked, you missed it!.  That’s the 7% blink in of an eye in the SP over the first 7 trading in September that has left those on the sidelines scratching their heads and/or suffering from some performance anxiety.    What’s come to fruition is simple …Journal sept1st/AMC….“September will be no different in dependence on data…It only takes a few day’s of data to change the prevailing sentiment away from ‘double dip’ speak.  We still have what may be 'determinative' numbers this week to sway the conversation of 'double dip vs. soft patch'’ . .  Buffet said today, no double dip at all and slmost all his corporations are coming back!

Today was no different as our lead-off hitter for the week (China data) got things rolling with a single up the middle and Basel iii was well received for not being (oppressive)as expected here.  That’s 2 critical groups (materials/ financials to get any rally up and running with the euro .  Also, the missing link (semi’s) came from nowhere and continued their late push from Friday for the market to bust through the 200ma (1116 last week here for next step if 1108 was closed above).   So, we had all the necessary Bull leaders in tow today, including small cap space (R2K) as evident in DJIM’s composite stocks making NCH’s across the board…RVBD+8%, FFIV 5%, NTAP, GMCR, HLF, HMIN, JOYG, EXPD, CMI, SXCI, LVS, APKT , ROVI, NFLX with FTNT/NZ flirting with NCH’s off ARST /news.   That’s a high percentage of stocks breaking out/ flirting with breakout moves at NCH levels, if you consider some stocks are just for watching money flow/rotation as part of the trading day.

What now?.  Playing around ~1120+ is probably getting shorts all riled up, especially those (this includes Bulls), who may think the market is going to continue it’s range bound  trade(1040-1120/1130) to eternity!.  We’ve laid at the catalysts for the week, now with our lead-off hitters doing their job, it’s up to the meat of the order with CSCO’s analyst meet up today (8:30-9.45am) and BBY earnings to continue the move to August high/June highs/ semi's continuation or the shorts will have some juice.

DJIM #38 2010

Friday’s gap up possibility (ES was 1132 ) not surprisingly deteriorated as v.good earnings tech earnings are not a mover and shaker at this stage for the market.  ORCL/ RIMM earnings were not one of the moving pieces we included as a worthy bit for the week and it turned out that way.  Market’s inability to breach 1130SPX was not because of renewed sovereign issues as CDS ‘ widened to new heights in peripheral Euro countries (same song and dance), but, mostly because the Euro was already in it’s textbook descent off fresh highs overnight.   Overall, the problem was there were too many little things interwined (Euro, CPI, financial weakness) and notably a big thing ahead next week that postponed a stand off today at 1130 levels.   It was more like shooting blanks from both sides.    The market’s focus has turned strictly on the September FOMC meet up  as the week progressed and what the FED may partially do has intensified ( give a taste of QE2 ) and/or hints of it’s readiness to do such or much of it for later.  

So, there is no disappointment or signs of failure at 1130.  The market was able to consolidate above the Monday gap all week, which is bullish, even if the majority of high flyers off DJIM’s list are pausing.  They are more likely being accumulated on slight dips for broader market highs to come.  As discussed earlier in the week about high beta action and steels as a ‘toppy’ possibility sign is gaining noise as the week concluded.   We still don’t think this is the case as long as an ‘accident’ catalyst doesn’t hit.   Another mark getting lots of attention is meteoric rise is ‘sentiment’ gauges over the past few weeks.  A couple of these readings (AAII for optimism on markets) correlate to previous market peaks (Jan/Aug).  Just like overbought technical RSI readings can stay overbought for longer than expected without market cratering, these readings should prove to do the same now for the short term.  What’s not getting a lot of attention is a ‘huge’ reversal in equity ETF inflows from outlflows the past few weeks.


In this view, the April-Aug DT and DJIM’s 20ma ‘bullish’ benchmark was Bull captured.   Also, holding the 200ma for the week is significant.  The longer we stay above 200ma, the sooner it will finally curl up, which would be very bullish.  The constructive action all week is lending to the thought we could end up with a big breakout day still, if the man vs. machine theme is hit by a favourable catalyst sending the market into an Algo covering /buying fit.    Question is where and how much of it is set in the 1130’s -1140'ish or ES levels to run the market into mid-Octobers earning season.

..lots of moving parts ahead

Although, today’s quite big SPX sell off was similar to Thursday’s (no worthy fundamental news) , the odds are damn good, we’re not going to have the same ‘Friday’ gap/rally result.  Why?.  Firstly, it wasn’t technically driven and secondly, the timing of it into a busy events Q end week.   As noted heading into the week,  the expectation of a Monday buying spree by managers and/or more window dressing will probably not materialize this week.   Maybe, today’s sell off had something to do with it as expectations were not being fulfilled into the afternoon.   Even 'Zerohedge',  the National Enquirer of the marketplace had a bit on this …“In a surprising, and at the same time completely expected reversal, all those who thought that Monday's always close due to mutual fund inflows were stunned to see a red close“.   Part of this quote goes on to say it was because this was not a POMO day (fed buying day) and that Tuesday is and likely to be a green day.   Well, we don’t think this argument, even if probably a little sarcastic, will not necessarily hold as didn’t the usual Monday green day premise. 

As far as broad action, the commodity linked stocks of choice are doing absolutely nothing after the dovish  USD weakening FOMC statement, which is raising more concern day after day.  Add the underperforming Financials and we have little reason to chase on the upside with these 2 groups idling.  Excluding BIDU, ROVI ,  we did have other decent nch’s and/or multi month breakouts in the consumer group off our Shadowlist..LVS, GMCR, BID ,  the market isn’t going to get excited about what we like to trade.

A big week in IPO`s this week for the markets, most have priced well,  but even if they do really well once open to the public this might be offset by a busy Thursday-Friday in Europe with ECB-banks refinancing coming up along with detailed news ahead on Irish banks.   Some jittery moments possibly ahead late in the week, leaving the market direction-less into it.

..underlying stocks again

Oh, those shorts, who tried to press the issue of a Bull ‘blown oppy’  yesterday were rudely (once again) beaten by the ‘resiliency’ of this market as it bounced fast off the opening bell SPX 1178 touch(off ~20 points since Monday’s fresh high).  

They were broken by using the old adage of a stronger USD/weaker Euro = lower equity prices,  ignoring what was pointed out recently here that rotation from TSY’s was going to happen as QE2 expectations gets priced in.  (see DJIM #42...“..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…and market remains steady because individual groups get enough liquidity to sustain it. ).   This was overwhelming theme today as 10yr TSY’s made a big move crossing a trendline at 2.65% from April, while USD got a bid, but  the market ‘surprisingly’ to the Bears did not drop.   This is quite positive to hold up as we did.
  
As noted,  fixate on individual stocks and not the stalling market for oppy’s to trade.  So, while the SPX traded in a very narrow band after 10am, our DJIM listed stocks, including some bolded  yesterday added strong follow through.   Notably, RIMM  powered to a 10% intraday H, our little MOTR, motored another 15% before running out of the 9ema play, right back down the hill.   BID >3% and MCP  to a NCH.   BIDU, NFLX, post -EPS were making fresh NCH‘s.  The clouds-virts were strong with RVBD, FTNT extending post earnings gains as well.  The group was also helped by CML  retaining advisors for a possible sale (v.nice earnings AMC was a no brainer, if you announce such a deal possibly in the making hours before). AMC,   FFIV,EQIX  helped out the group some more.  The premise here that there is room to run after a gap off earnings was shown  again today in MIPS ( it’s another stock that has been mentioned in M&A discussions).   Also, note if the market gets into any defensive rotation soon LIFE, ILMN  are two strong earnings today to go to,  probably even right away tomorrow. 

Clearly, if you want to outperform now, it’s primarily selective earnings stocks we should be driving as broad market’s uncertainty is abound around next week’s catalysts .