..Whatever

As we come to the end of a very successful September (6 tradings left) with many technical targets achieved and/or brushed with 1130, 1140, 1150 SPX + notable Macro data /FOMC out of the way, the market has only a few things to do!.  Most of it consists of taking a breather, rest period, back filling, consolidating, digestion, sideways action …..'Whatever', you want to call it,  it’s happening since SPX1049 as the market works off some of September’s ‘overbought’ gains (SP~8%, Nazzy ~11%, Dow ~7% and investor ‘bullish’ sentiment.  

Most of the workout today occurred in the techs (ADBE, PMCS-these warnings are nothing new, we’ve said to expect more in this group into EPS season) and Financials off >1%.    This reaction in tech is really not due to these warnings being a surprise, but the fact it’s the best % September group and these news bits become an ‘excuse’ to take profits.  Considering the big ‘overweight’ in these 2 sectors on the SP,  today’s broad market performance was not bad as selling pressure is seemingly contained.   

DJIM can hardly complain as Tuesday’s alerts to RIMM  in low 46’s, hit $49 today and NFLX  exploded ~10pts from alert..(” NFLX looks to copycat the movers from yesterday with NCH not far away.”)… Not bad to catch a few of the best movers since the market hasn’t done anything to the upside since.   RIMM should still be in play till next weeks developers conference (tablet intro?) and with AAPL at potential resistance levels, a pair trade may be conceived here.

Performance anxiety over these September numbers should be enough to keep this market steady as managers come to ‘window dressing’ time.   Still,  it’s not a bad idea to take off some exposure and be more selective as upside risk fades here late September with potential upside catalysts not on the agenda.  Post FOMC and today, commodity linked stocks little reaction to weaker USD was enough reason to reduce exposure (alert at 1040SPX/10am) as the usual trade had not began not materialize.  You could see the expectatation and spikes in WLT X CLF  charts at the open and the tops put in early and subsequent 3pt drops in X /WLT  by close.   If you're 0 for 3 leading off the day..1.tech, 2.financial, 3.commod's as today, there is no (DH)Designated Hitter to clean up.

DJIM #40 2010

Test 1-2-3 was the echo heard around the market last week as it toys below the cluster of “R”  in the 1150’s.   Hey, didn’t we just do the same routine for a week below SPX1130?.   So, what’s the difference this time around ?  Likely,  just fatigue for some sectors that outperformed with some rotation going on, last time it was more of the market just catching it’s breath.

In the middle of September, the same rhetoric you are hearing in blogland this weekend was present in respect to high beta momo names  (AAPL, PCLN NFLX BIDU  etc). …At that time, we noted.. ..“..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 dont think this is the case..".    So, it wasn't a top as the market went on to hit SPX 1157 with most associated names running to new highs as well.

Also at that time a lot of attention was on the sentiment readings being overly optimistic/bullish to which was noted….."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.    So,  this bearish scenario didnt play out either as these Sentiment gauges are the same today as 2 weeks ago and you don't here a whisper about it now.   As far as some trading education,  we can all use these 2 factors for reading the market in the future when up against negative...  'it's time for a reversal talk`... sentiment!.   What does it means to the market now?.    We are probably in a ‘fatigue’ state for the market with high beta leading the way after nearly kissing the Oct 07 trendline Thursday morning.     While the broad market has kept steady since with another try at 1150 on Friday, high beta names were diverging since SPX1157 to friday's close…(BIDU ~6% off highs,  AAPL ~3%, NFLX ~13%, PCLN ~7% ).    The `top sign` possibility noted on Thursday has hit these high beta stocks,  but its most likely nothing more than 'profit taking' after big gains in September with rotation into the underperforming September sector in financials as we head into earnings the past 2 days.   

September 7th/8th, we highlighted focus will turn away from the TSY and onto the Euro-USD.  "..Most recently, we’ve concentrated on the 10yr TSY/$TNX for market direction, now the focus turns to the Euro".   The short term major support was 1.268-1.27/ SPX was at 1105.   The ECB followed up with a buying program of peripheral’s debt the next day….“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…”  Soon the market was at 1130 levels / Euro over 1.30 and the FOMC ‘accommodation’ statement hit…“End result was the Euro exploding through resistance with USD under pressure”.  US Macro data this week should re-inforce a weaker USD/ higher Euro ahead.

The point of some back filling history of September here is that despite the precious metals taking off,  the concern here has been that many commodity linked stocks/ groups were not participating in this ramp off the Euro and decline of USD.    But, late last week, we had some developments that it’s probably time to become ‘bullish' and shortly look to get long some commodity-linked stocks.   A dip on a bouncing USD would be the ideal.     We had the solars getting attention as part of the energy trade,  Crude  getting above the recent range and finally CLF and a few others in this group showing life Friday, despite the energy trade working.     The strength in China PMI  confirmed the HSBC PMI and the underlying stocks may finally get on the weak USD bandwagon as expectation of any meaningful USD rebound diminish with QE2 on it’s way raising inflation expectations, thus demand for commods’.    As pointed out earlier this month the focus has turned to inflation data, once again the market shrugged off the data (September ISM), which saw a sharp decline in factory orders and overall was quite weak in all components and the market still hung in despite evidence off more slowing ahead. 

As pointed out the possible shift in sentiment due to Macro data would cause a sway from double dip speak as September rolled in....."If data continues to improve into weeks close (retail..NFP#)..watch out Bears!.   The flat tape today makes people skeptical of the move, this is besides the overall daily skepticism that the market can’t hold onto anything as profit takers appear.  These negative sentiments today may just have positive implications this time for the market and thus more upside from here.   Market needs a couple days above SPX1065 for this to be 'Bull's home-court advantage..".  The market will again look elsewhere in October for direction.   Keep in mind, the past 5 months have all been down ~5-8%, up  ~5-8+ % months.    Hopefully this back and forth streak ends, just as 'September' being a historically negative month did.

So, despite this ‘toppy’ feeling due to the runners of Q3 action late in the week,  the thought is we are entering a rotation more than anything while the runners will find footing on their own.  A rotation should provide enough stimuli for the market to break the Oct '07 trendline eventually.    As far as earnings season, the expectations have been lowered after all the pre-announcements in Tech, (which is probably priced in now), which may lead to some nice upside surprise plays.                              

DJIM #41 2010

Another week, another solid % gain tacked onto the SPX!. The QE train kept rolling with the last hurdle taken out Friday morning with the NFP# report.   If there was any teeter-totters in the FED or in the marketplace, this report surely solidified an unleashing of liquidity to come in their minds.   Add strong earnings from the first Dow component (AA) with the prospect of loose money and the SPX breached the July channel top.  
 

Last weekends Journal with market seemingly fatigued around ~1150,  we talked of rotation into financials (BKX +3% on week)  and commodities  away from tech  …"US Macro data this week should re-inforce a weaker USD/ higher Euro ahead....A rotation should provide enough stimuli for the market to break the Oct '07 trendline eventually....despite the precious metals taking off,  the concern here has been that many commodity linked stocks/ groups were not participating in this ramp off the Euro and decline of USD.    But, late last week, we had some developments that it`s probably time to become 'bullish' and shortly look to get long some commodity-linked stocks" 

Finally,  the widely followed DJIM base metals  got going outperforming the precious metal stocks ….WLT CLF FCX X  all up ~5% on the week.   On Friday,  Ag’ commdities  got into the picture ramping big after USDA reduced it’s supply estimates.  As noted a few months ago, the Ag trade/ picture will last a long time once in motion, therefore there would be a trade after the Russian fires.   Since those days the space has really done nothing,  even with POT offer on the table.    As far as linked plays,  Machinery stocks benefit ACGO CNH DE, but the fast trade will come to the fert' stocks (DJIM’s past included (CF MOS TNH IPI ).  The outperformance of base vs. precious is likely indicating some rotation as well.

Drag…

The tech rotation from last week continued and took on a new phase as this years momo-M&A tech alarmed of a blow off top.   The big caps are providing ‘safety’ now.  If there is overhang on the market, it is this right now as it‘s ‘spooked‘  quite a few.    The markets need to see this cloud picture clear up and earnings / M&A activity will decide this most likely.

It should start to get interesting as attention turns to earnings this week, partially away from the QE. At least for a week or two, we'll see if the Micro can be the driver to higher prices.

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?

just drifting ..

The writing was on the wall (last hour selling) from the onset of trading.

• Pretty broad strength globally, Shang +>3%, Europe >.7%, anything commodities/mining (no tax hike relief), nicely up and ES was ‘flat’  in the US premarket.  Despite, a 5 pt SPX midday gain the US lag was still in effect coming to 3pm.
• After the opening bell, a big laggard was easily visible in the leading group since early Sept .(SOX>30%)
• Momo/winners of 2010.  Last week noted single stock strength was disappearing in momo/growth names to the years laggards. This profit taking (not severe yet, but something we said to watch), continued today as seen in the NFLX, PCLN, CRM, Casino’s etc.  BBY earnings on deck in morning for tech group.
• Only a handful, incl DJIM’ commodity linked plays (CLF FCX ) up 3-4pts midday were outperforming on the  ‘hike relief’.  The single stocks action wasn’t widespread as you’d like to see considering the inflation trade coming back on and the weak USD.

In all…not putting much into the day just yet, as the ‘seasonal trade’ allows for moments of easy downside whenever buying dries up (lack of liquidity).   A little selling with no bids on the board allows for exaggerated  moves like today’s last hour.   Considering  there was no news and a technical “R” in the 1246/1247 , (a couple H&S are in this zone),  it’s more of a case of buyers losing their cars at the malls lots after some lunch hour shopping and not making it back to their desks or just a case of not even getting out of bed.