Shadowlist update

Shadowlist by sector money flow/ rotation to follow. (visit site). 

Last S/L (7 weeks ago):

...and the number is...????

Most of  DJIM discussion this week centred around home front/Economic data.  It‘s slowly making it‘s way back to the markets talking heads.   This is good because we are finally taking a break from Eurozone and switching some focus.   Well, we don't know how long this is going to last because once the NFP report comes out tomorrow, folks may just concentrate back onto the Euro worries now that the market has rallied from SPX1040 to 1105/200ma.   Many have not grasped that we've actually rallied since the 25th/1040.   Those in the rally play may want to sell over 1100,  but those sidelined may begin to feel some anxiety of this move going further.   Stay tuned...

However,  it's important to give some thoughts on the recent Econ. data.    People have been pointing out the fact that although the Economy is recovering, growth has slowed recently.   The fact China is down >20% is evidence of the ’growth’ investor has been slipping away this year.   Also, fear of Euro May problems derailing activity in US has been on the mind.  This weeks macro #`s show it hasn’t derailed things in May.   The eco` downshift may not be as great as feared due to Eurozone.  Unfortunately, a fresh twist in our waters now... the ramifications of the BP spill will begin to put June #'s into question sooner than later by the market.!    We feel all these fears are very natural because sooner or later this is what had to happen for the markets not get out of hand.    Basically we need to level off the growth curve for a bit before we can tick higher.    The biggest obstacle to the recovery remains the unemployment rate.   It seems no matter how many jobs we create, it just won't be enough to replace those millions of jobs that were lost during last couple of years.    It'll be a long way before the unemployment rate comes down to a reasonable level.    By then, the Economy will be at full steam and we bet many of the plays-sec`s we like will be trading at a much higher valuation.    This is always the case in an upward Economic cycle.

As far as market goes,  SPX stopped dead at 200 MA today.  Volume was relatively light and people are most likely waiting for the NFP report tomorrow to give them a reason to make their next move.  Today’s somewhat green to flat action gives the market some room to manoeuvre, if we broke out over 200ma today,  we’d probably have a better chance for a sell on the news(NFP#), no matter what the # would be.  As we all know,  selling on any NFP# is always a possibility and will be on this census skewed report as well.  Watch private sector jobs, whisper highs a tad over 200k.

Excluding the commodity linked stocks (Again, China housing clamp cooling property mkt big time), many plays behaved really well, especially in softie tech.  We had M&A activity (SNWL) once again in the group and DJIM listed softies, CRM VMW  and another VRSN  added hitting NCH`s. (will update Shadowlist this weekend).  Others like DGIT, DLB  also put in nice days.  

In all honesty, if we can close out the week in a relative quiet fashion, it'd be a nice confidence boost for the sidelined investors to slowly buy into the market again.    Right now, the most important issue for this market is to ease the volatility and stop the late day sell offs.   It stopped today and yesterday,  let this continue today and we`ll be happy heading into the weekend.

Shadowlist update

Shadowlist by sector money flow/ rotation to follow. (visit site).

...looking ahead

Following an eventful 4 days for the Bulls, today’s flat session is perfectly fine with us.   Actually, even better than fine if you consider the 200ma provided support.   Even though, we didn't see a lot of new buying/ conviction to push this market even higher (let’s be realistic short term..digestion needed),  it is almost as good because we saw ‘dip buyers’  come in.    An oppy’ to buy the market on dips has been methodology of longs for a long time to get into this market.  We just haven’t seen those explosive breakouts of years past, instead those wanting to be in the market..buy the dips.   This is what we will center around going forward and will use it ourselves to position into Q end.  

Speaking of Q end, entering the week, we discussed “…sidelined money should come in for June Q end”.  This Q provides more than one reason for this to occur.    First, look at where the SPX is today on June 16th…almost half way through the year…1115.!   Yes, that’s a hefty return of 0% on the widely followed benchmark for every manager with a book in 2010.   Secondly, consider this…Hedge funds – “Hedge funds hit in monstrous May….Global hedge funds in May suffered the heaviest losses for 18 months after some of biggest and most successful managers were wrong-footed by world markets”.      Simply,  if we’re these guys we’re in a mess after May and need to put up some numbers, not only for June to make-up losses and avoid consecutive months of underperformance, but they also have to put up Q numbers!.    To us at DJIM, this is almost a perfect storm for money flow to come in the next 2 weeks.    This is why we will be watching the dips carefully for oppy’ for accumulation.

As far a individual stocks, sectors, we are seeing many of our listed stocks hitting NCH’s the past few days…EDU AZO VCI SXCI RBCN  and these aren’t even offensive high beta stocks.   At this point,  we are concentrating on the tech’s and have many from our lists of techs/and earnings related that on any given day can pop..from VMW  to NFLX AKAM, NTAP (SNDK added)  etc.   Many like DLB VRSN  are also setting up near highs.    Hopefully in the days heading into Q end, the number of sectors in play extends to beat up commodity linked stocks and more high beta names/sec‘s.   Until this is evident, we’ll concentrate on Nazzy/ tech linked stocks.

Nice last 30 min close..

We definitely had some help from strengthening Euro today, plus the market was able to shrug off  disappointing U.S. Econ. data to end the day slightly higher.    The fact that there was a successful closely followed bond offering by Spain and the subsequent move of Euro, really set the tone for this market.    Right now, anything that gives a positive indication that things aren't as bad as people feared in Euro land, people gives our market a shot of calmness.  Also, importantly the premise of buyers coming on dips was present again.

The so called disappointing Eco. data isn't a big issue to us.  Despite the recent mixed signals, (+ consumer confidence still showing resilency) trend still indicates expansion and recovery for the U.S. Economy.    In addition, we came off a very strong April where most of the Econ. reports we remember beat estimates and it's just difficult to repeat the process month after month.    Unless people are anticipating a 10% GDP growth and 5% employment by the end of year, it's just unrealistic to expect a huge increase in key Econ. data month after month.    So, let's just give this Economy some more time and see where it's going.     The earning season is soon upon us and we'd like to give the CEO/CFO's more credibility on their outlook as oppose to some of the raw Econ. data.    Can companies grow profit and revenue while unemployment rate stayed at a relatively high level?   Of course,  it can happen and this is the scenario we are actually banking on.    Of course, picking the right sector that are taking advantage of the recovery is the key to our trading strategy.

As far as plays go, technology plays are outperforming.  Again listed plays like VMW CRM NTAP  were inching to NCH's.   Also, CLH  off list as a play on the oil clean up hit a NCH.  Basically, we have a choice of either chasing/playing the strong techs that are at or near the recent high, or playing the beat up plays that are no where near high and have tons of resistance on the way up.    Well, it's pretty clear choice, isn't it?   Also, we feel commodity, material and industrial stocks are more sensitive to "disappointing" Econ. data as oppose to tech stocks.

Bottom line, market as a whole just wants to churn higher.    The only thing we aren't sure at this point is the pace of the churn.   In either case, we feel with the end of q coming up, some of the fund managers would love to have some of the high beta plays (the ones hitting new highs) in their portfolio.

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.

DJIM #34 2010

Heading into a traditionally quiet summer holiday trading week, most are citing the market should get some reprieve from the July carry unwind trade that late last week was on the verge of giving back all of August gains in equities.   Interestingly, these ‘trading ideas’ are contradictory to all those beliefs that the market is controlled by “machines” these days.   So, throw in some Blackberry type gadgets and this market doesn’t necessarily have to take a week off at the ‘beach’…anything can happen as this is not Q2, but Q3 where the macro environment has deteriorated quickly, especially since the ‘initial job claims’ warning here came to fruition in step with NY/Phil manu numbers.   The worst thing about unwinds is the speed they can occur in and HF’s have no mercy in liquidations, even in late month ends, late August past summers.    Last week could have been the start as high beta continue to be sold off more.   Best to stay ‘defensive’ until the USD finds some footing in hope no further strength occurs and takes equities down in lock step.    Also, stay disciplined and watch for and trade what you know.   Like Shadowlisted past earnings like CRM  on Friday, if given the chance for some trades.  It is so much easier to trade  history (as in its been on list for over a year), but keep them on a short string and take profits in this rocky environment.   This is the same story as with NFLX, VMW, FFIV  types for over a year now on our Shadowlist.   They have had the best numbers and they perform to those expectations in share price over and over again.   Unfortunately, the reporting season is over and we’ll have to really dig at the potential plays.    Maybe its secondary plays off M&A activity, like a little known FTNT  noted here, which was strong on Friday..or play GMCR  again as a play on souring coffee prices and SJM earnings…or a HANS, which will one day really breakout from these levels as it sits at 2009 and 2010 highs.   If it’s trading Red Bull, coffee related or some unknown stock like FTNT in this unpredictable market, that’s just fine until things clear.

As the market unwinds from the July end Q reports, attention turns even more to the July ‘macro’ numbers (around the globe more this week), plus the markets attention will be turning to Friday’s address by Bernanke in hope of getting some light shed on what the FED did and why and what the eco‘/ deflation picture is looking like!

Macro data driven!

If August’s market downfall was a macro driven event, today’s powerful action to the upside emphasises September will be no different in dependence on data.   Fortunately,  the relentless negative data gave way to improved data led by China PMI, US ISM  and consumer spending  the last few days.  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'

Coming into the trading day,  we discussed the previous days action in commodity linked hinting at better data...leaks or not.   China PMI continued the market’s late push from Tuesday right into much talked about here SPX-1065 (resistance last week) and with the US ISM on deck, (not only beating consensus, but better than July’s), the market had the ammunition to bust through resistance easily.    In discussing the market’s vulnerability at SPX 1040, we said if poor data came out at that specific level (wrong time) the market would likely be breaking down to this years lows no matter how many times it was support.   The opposite occurred today as we got excellent U.S data  right at resistance instead of bad data at support!.   Almost perfectly timed.    Still, as good as the data was,  it’s clearly a TSY  watch to the market direction.  Today was almost no different than Friday’s $TNX  up 5% day, but recall how fast this reversed this week.   Simply, this is the guide once again to where equities are headed in the short term.

Discussing the broad market and stocks/sectors is irrelevant as anything works on a broad based rally. Of course,  the commodity linked stocks from yesterday CLF,WLT  etc. led off the data,  everything else just follows the tape in sync with those most beat up in August (financials, tech) getting bid up on covering the most.  Also, high beta comes back as stocks here like NFLX, CRM  make NCH’s, even last M&A spec stocks here FTNT, NZ  made NCH”S.

What is relevant is noting the flat tape after 10am till close has many doubting this market move.  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'.  

..NFP /TSY on watch

If today’s follow through action seemed quiet and slow,  just look at a chart and the last 2 day sticks of 40SPX to understand the kick ass move.  The only thing quiet and slow is the slow and quiet burn of the Bear’s shorts as the market comes to 1091-1108 “R”.    We are handily in Bull’s court above 1065 for a 2nd day and above DJIM benchmark 20ma.    If NFP spoils the party look for dip buyers to come in at some stage (1075-1079) as Bull’s have the agenda above 1065 due to a sentiment shift.   Only a number in the vicinity of 100k private may be looked on as a pleasant surprise because it would come on the heels of a 90pt move since Tuesday’ FOMC minutes.   Let’s be a little realistic as much as it hurts in a rally mode.   Still, once again 10yr TSY was the precursor to today’s move and it remains the necessary tool to watch.  The TSY is up against a key technical (TNX 26.50/TSY 2.65) as is the equity market.

Noted yesterday was ‘skeptic view’ off the previous day’s rally and flatline most of the day leading to ‘positive implications’ for more market upside.   This is just more prevalent after today’s add-on 10pt move.   If more upside comes shortly, performance chaser may have no choice but join the party.  If you entered the trading on the belief of more upside coming into the day because of the ‘skepticism‘ angle ,  DJIM stocks noted yesterday flirting or /at NCH’s had some excellent day trade oppy’s, if you don’t hold some of them already.   The LOW-HIGH spreads offered some nice points on the day for NZ (19.93- 21.20), FTNT  (20.75-21.93), CRM (115.63-119.60), NFLX  (132.61-138.58).  

Have a good and safe long weekend…