'Shadow' Outperformance
Wednesday, January 6, 2010 at 06:50AM Perhaps it's just a coincidence that market made the new high recently along with pretty much every single play on our DJIM Shadowlist. Or perhaps, we have seen this coming all along. ;) Yesterday, we discussed how the R2K outperformed SPX in December and notably in the ‘holiday seasonality’ trading. Today, this trend continued and even more as the shadowlist outperformed even the R2K. A list of top performers in a mixed index trade today is below. The big outperformers were the ‘Asian sensations’ (more below).
CAAS RINO >10% LVS NEP MGM TSTC in Alert section WYNN SEED CAGC CTRP POT >5%
JRCC MEE OVTI >4% ANR CMP MS VECO BAC >3% TMOS WLT JPM GMCR GS CLF >1%
China, Casino, Ferts, coal, Banks- brokers dominated in a mixed index's market.
With regard to SPX making new cycle high today, it's easily understandable. Remember for a while, we've been saying that the missing ingredient for a major market rally is the financials /bank- brokers. Guess who’s back and what may be start of rotation in leadership which would mean the market can go higher in January. It was Dec 22nd, we highlighted in BOLD the below, we are seeing traces of this underway.
“…TSY 2-10 steepening curve hits all time high. Possible allocation shift into equity.
....More importantly, a very steep Treasury curve spelling eco' strength and possible favorable banks- brokers earnings
Financial sector as a whole has tagged on some nice gains this week already and is signalling rotation, allocation. It is definitely bringing underylying comfort to just about every other sectors. This is about as broad of a rally as you can get as techs (SMH) slows and Financials are able to pick up the slack. Any pullback to 20ma on XLF (last '09 day low) should be bought.
We can't really pinpoint a sector that's laggin the rally. For the longest time, this market has been consolidating between SPX 1090 and 1115. We think this week's breakout is the real deal. For those who have not taken advantage of the ‘seasonality‘ trade in December, may get another chance here. One reason is that we just broke out some heavy resistance after a long range bound trade with the Transports, SMH and than R2K making new highs, there’s bound to be some momentum money flow chasing and taking us higher.
Besides the 3 sectors we highlighted going into yesterdays trade (Casino’s, Ferts and Coals ) with the reasons for possible follow through, we had our Chinese names popping to new highs. Just as little as a week ago, some plays looked shaky and there some people may even thought about writing them off. We commented in the forum to a question as they fell off highs…Dec 22nd“best to let things settle, they will bounce and seasonality may allow it soon“. Did they ever bounce, today !!. Things have definitely changed in just oveer a week's time. The culprit was some macro news, but that’s every day. The move were too big for what comments came out of China. We think it was a report out from Goldman Sachs that said investors should be positioned for a rally in Asian plays into 1Q. This report is not picked up by Briefing (surprise!..they have their own interests at times and don’t report some crucial ‘Bloomberg terminal’ news.).
On Friday we have the important job report and we feel as long as the trend is in the right direction, it won't be as big of a deal. We would watch for any major pre-announcement from corporate America that can potentially impact the market sentiment. At the meantime, we'd use any technical dip opportunity to add back to the shares we like and ride this thing up.
Technically, 1137 is a top trendline ‘R’ from Oct/ November we need to close over probably more than once to think of higher highs. *In the back of our minds, is an early 2009 market top a few days after a ‘big’ 1st trading day in January. We had the big pop this year as well, thus, some hesitation till 1137 completely busted.