Earnings will matter...

Honestly,  it doesn't really matter what the negative headlines suggest,  profit taking is all we need to know.  Instead, media and analysts alike would love to pinpoint a couple of specific reasons for any day's decline.   Well, it's their job.  Today, rumor that China is tightening its lending is sending "shockwave;)" throughout the world before the release of all their Eco data tonight that is expected to show overheating of sorts.   Ummm,  unless we just heard it for the first time during last few months, we swear this is just recycled news.   Yes, they will withdraw excess liquidity, let’s get used to it. (headlines).   Also, there's always people who like to remind us that we've already had such a terrific run from last March and it's time for a meaningful pullback (again, eh).   Well,  we also like to remind people that this market has ran up so much since 1960s and it's time for a pullback now;).  The point is, you have to have a pretty good idea about this market in order to dissect what news is helpful and what news isn’t these days.

We have literally entered the second week of an earning season and we'd like to think corporate earnings should dominate the news media.   In our opinion, it should and it will!   No matter what causes any little pullback, or in some people's opinion, healthy consolidation, we have to focus on what's more important.   Do corporate earning suggest an Economic recovery?,  if so, at what pace are we recovering.  Here's the thing, we don't expect SPX to hit 1200 anytime soon and breaking over 1150-1160 would probably take some time without a “BIG’ catalyst.  In 2009,  we’d see SPX going 5-10% in either direction in a matter of weeks, sometimes days, but it’s just not likely going to happen in 2010. Why?  Things have stabilized and people will invest/trade in a much more rational way than past few years.  So, compared to last year,  this year will give us this "grind" feel.   This is just fine with us because it allows us to ultimately focus on our game, the earnings game!

CREE,  from last night, came out with an outstanding report/guidance as noted and was rewarded with some nice add on gains along with VECO,AIXG .  This morning, many financial institutions have come out with reports that have exceeded expectation and are probably the main reasons we had a little comeback in the afternoon.   In AMC today, names such as SBUX and STX, PLXS (add to list) all came out with quality reports, basically as many as 5-6 NASD/Tech (incl. FFIV  on our list) did as well.  So, trend is still pretty clear where this Economy is going.   As long as people's favourite companies come out with good earnings, you can assign a reasonable P/E behind them which in turn will give a strong support to the overall market.

Bottom line,  we may be in for some range trading (again, we bounced off ~1030 and closed on Nov trendline) until the assessment is clear that the market deserves a higher valuation.  Majority of the companies have yet to report and their earnings are an absolute key to the health of this market.  Forget about rate hikes or inflation because right now,  it's just the excuse bears use to get out of their position.

DJIM #7 2010

A whipsaw week finshed as it opened.  The market continued it’s up and down routine right to the end as China ‘RRR’ so-called surprise headline hit Friday premarket sending the SPX to low 1060’s once again.   As pointed out premarket, we didn’t see it as a surprise feeling any negative reaction would be exaggerated.  The fear mongers were out early, but rationality set in as the day progressed and CNBC began to have guests on that believed the same thing we did and the market started to rally back on the heels of tech.    We’ve been saying we need a meaningful close above 1071 and now we have back to back ones that should change the tone to a more technial positive one for the short term.   Also, finally, we had some dip buying come back to the market.  Some buying was probably generated by better than expected eco’ data (Jobless claims, Retail).  Last week was pretty quiet on US eco’ data,  despite the shortened week ahead, it will be busier and important as we get fresh looks at February data.

All eyes were on commodity linked stocks last week,  but tech ($SOX) quietly came in the back door and duplicated it’s Thursday move on Friday as some money started to rotate into them from commods’.   As pointed out,  we think this is anticipation of some earnings reports in the upcoming week from some big names.   Market might be anticipating more estimate revisions because of the reports coming up, giving potential for a bounce in the sector.

On the topic of earnings and tech many names from February released reports (mostly January Q end) are trading well.  Names this Q include, VECO  NETL DLB  and cheaper names like SFLY APKT MKSI  and stocks in other groups like HAR CMI EMS  have also had good reactions.  

M&A activity in Ag’ space this weekend may provide a bid to these linked stocks.

Market is still on a fog on as it tries to look at something it can’t see clearly..Greece, China.  These are market stresses, but, if the market concentrates some more on what’s happening here, hopefully with the help of some eco‘ data this week,  it has a chance to stay away from recent lows.   Importantly,  there are some open spots in the fog to trade day to day, eg. commodity linked stocks or possibly some more tech ahead.   Either way, recent earning plays are providing a pretty good place to trade.

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.

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!

..one summer later

..the range is breached...

Although, the market had hovered in the mid 1120’s SPX for most of last week, today’s impressive rally seemed to have caught many off guard.  Firstly, we had no gap, but an open at 1126, while the European markets were already rallying after putting the "same song and dance"  from last week behind them.  The 'no gap’ made the move impressive considering the market did ~20 SPX intraday points as DJIM’ ‘bullish’ stance amongst over confident, overbought ‘sentiment’ gauges heading into the week, plus a better to buy market call for a few weeks paid off.   The fact we sliced through not only 1130, but 1140 another resistance made it even more impressive as the ‘machines’ went off as the market looked ahead to the FOMC with a 'big breakout'  (The constructive action all week is lending to the thought we could have a big breakout if the man vs. machine theme is hit by a favourable catalyst... ).  There were no real ‘catalysts’ besides the FOMC anticipation talked about here spreading through the media outlets over the weekend and today.   Okay, let's believe IBM's 1.7bln tag for DJIM's NZ  play had a little to do it with it;)...Now, we just need to get some follow through this week and start grinding the Bears away into mid Oct earnings season.   

The crying on some Bear tilted blogs shows the surprise in their misery and the fact this was still a ES futures based rally not supported by MF’s / retail investors highlights this caught those sidelined off guard.   Individual equity moves were not in step for the most part, but still the high flyers of DJIM, we said were being “accumulated on slight dips for broader market highs to come” …like high flyers CRM, VMW, FFIV, PCLN, AAPL, BIDU  and others off Shadowlist eg. EDU, MICC, ROVI, JOYG, WYNN, APKT,CMI  were striking new highs today.  While PVH  and MA  have added 6 and 8 pts respectively since added to our list in the past week or so.

Considering the sizable move all in one swoop, the market will likely look to take some profits once the FOMC statement hits.  We would look at it as a buy the dip oppy coming.  If they (FED) don’t give a piece of QE2 or hint for it very soon, every firm from MS GS JPM should be shot because of their calls.   A follow through post -FOMC (if out as expected) would show those off guard are getting off the bench.