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.

..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.

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?

..underlying stocks

Today might be looked on as a blown oppy’ for the broad market after it closed near the low’s on the heels of the risk trade put back on globally, following weekends go ahead to weaken the USD.  U.S market’s couldn’t carry what was put in other markets globally off the G20.   Add some M&A activity, decent eco’ data here and you see,  it just doesn’t really matter now to the broad market ahead of the early November catalysts.  So, instead,  let's decipher broad market from individual stocks.  The underlying stock tape is where there’s light and life.

As pointed out yesterday, the reactions of individual equities is something that can keep us traders busy while market stalls and today was a good follow through/ confirmation on this front.  This falls into DJIM’s trading methodology, instead of the ETF trade that has been ongoing.   First, we had commodity linked stocks here like eg. FCX/WLT  do the sector rotate game off the FX game.  Secondly, it was  pointed out that earnings are getting a good reaction and today SOHU  was a prime example…traded low $70’s premarket after EPS and made it up to $76’s intraday, exactly what was pointed out post FTNT/ RVBD, stocks still have leg room to move after gap ups.  BIDU/SOHU's  results are also helping the China stocks move, so we have more individual names moving within a group.

Also,  the Virts’clouds extended off the RVBD/FTNT  reports with CRM, FFIV SVVS RDWR  having good days with RDWR earnings helping/ and M&A noise coming back into the group as well.   Also, you`re seeing some individual names  go without catalysts like BID (alerted Sept 27) at $35 hit about $42, MA,   (alerted Sept 16, $210 hit $248 (both >20% since) made fresh highs and fresh names like MOTR  got a Cramer fix supposedly and ran another ~15% to $20.70H , KH  made an early intraday H/ NCH.  PCLN  running off and with good ole`TZOO  earnings.   Geez, even RIMM  made a new high since added back to list (Sept 21).   Simply, there is plenty to trade off the Shadowlist, while 'broad'  market still struggles with SPX ~1180’s. 

In the end, you can’t expect the market to do much as a whole before next weeks FOMC/Elections, so don’t worry about it.   Just fixate on individual stocks as this trade has come back for now.  Nothing broke out today like USD to new lows, Euro, Gold to new highs, so nothing has changed to give this broad market a shot in the arm. 

..." I'm out of the office..."

An incremental move over the 1246/1248 SPX zone, but, hardly a rejuvenated move as signs of fatigue still preside from last week.  

Nonetheless,  the December year end momentum continues on the back of preserving gains, no broad conviction, no buyers or sellers as “I’m out of the office…” auro-email replies gather steam across trading desks.   It didn’t look too good early as the day’s first attempt at zone failed with notable weakness in this year’s winners coming again…eg. BIDU PCLN,  it was good to see another zone afternoon attempt and many of the outperformers come nicely off the low’s.   Still, as discussed days ago,  money flow is going into laggards.    The best midday action >5% off our Shadowlist were from a couple of late season call-ups in TFM, QLIK,  recently it was HOLI/LIFE  that broke out nicely before profit takers came in quickly.  This exemplifies the type of tape we’re dealing with.  If you’re not “I’m out of the office ..” type, you are dealing with a market with no rhyme as on any given day a different stock will make a move. You might as well throw darts at the Shadowlist to try to stuff the stockings (account balances) some more.