Clouds still pinched..

VMWorld starting tomorrow 12-14th potential catalyst for space.

http://www.vmworld.com/community/conferences/europe2010/

Stocks >$10 linked to group below (site)

.."before long"

If the market needed reassurances of loose money and strong earnings to continue to chug along, it received it’s reinforcements today.   Okay, INTC/LLTC  (industrial tech end markets) wasn’t all that strong, but INTC's commentary was sanguine enough for Q4 with business improving the last 4 weeks. Add loose money relief  "before long”  in the FOMC minutes and the market should get to the next ladder step tomorrow (~1175'ish SPX).   

Despite all eyes on minutes/INTC, the interesting tape action occurred much earlier in the day.  A quick opening 10pt drop to 1155 (9ema) was swallowed up (as it should with no fundamental sell off catalysts).  Once again this showed the markets ‘resiliency’  and guess who led the upturn.  Well, yesterday in the afternoon,  we pointed out the cloud stocks  having a potential catalyst,  so the stocks list attached on site was being watched and it was the first thing to turn, leading the Nasdaq back off it’s morning fall and outperformance on the day.   Whatever the catalyst (it was afternoon in Europe, so some conference dissemination at bottom feeding time), the big momo names VMW CRM FFIV  bounced off lows and had 5-7 pts intraday reversals  each even before the late ‘minutes’ rally.    By this late rally time the ’clouds-virts’ had all the gains they can chew, besides the rally was nothing more than an ES/ETF driven move, so no top off gains in most equities.  This will be interesting to see tomorrow, if a bid comes into stocks and not just be a ES/ETF follow through move higher off the open.   All other groups were basically in line with the Euro/USD and/or the SPX tape all day.  Maybe of significance though is in the financials as GS  traded above 200ma with JPM  earnings on deck tomorrow.

As the last few days point out, it’s very possible to trade from a ‘defensive’ posture (as in not being heavily exposed ovrnight mostly) to avoid any surpise 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.    At this juncture the DJIM Shadowlist has maybe 35-40 stocks in it broken down in groups, which make it easy to see where the money flow is going.  Monday, it was the casinos, today the clouds.   Tomorrow, who knows...Commodities?..Banks?..or some EPS stuff.

..underlying stocks again

Oh, those shorts, who tried to press the issue of a Bull ‘blown oppy’  yesterday were rudely (once again) beaten by the ‘resiliency’ of this market as it bounced fast off the opening bell SPX 1178 touch(off ~20 points since Monday’s fresh high).  

They were broken by using the old adage of a stronger USD/weaker Euro = lower equity prices,  ignoring what was pointed out recently here that rotation from TSY’s was going to happen as QE2 expectations gets priced in.  (see DJIM #42...“..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…and market remains steady because individual groups get enough liquidity to sustain it. ).   This was overwhelming theme today as 10yr TSY’s made a big move crossing a trendline at 2.65% from April, while USD got a bid, but  the market ‘surprisingly’ to the Bears did not drop.   This is quite positive to hold up as we did.
  
As noted,  fixate on individual stocks and not the stalling market for oppy’s to trade.  So, while the SPX traded in a very narrow band after 10am, our DJIM listed stocks, including some bolded  yesterday added strong follow through.   Notably, RIMM  powered to a 10% intraday H, our little MOTR, motored another 15% before running out of the 9ema play, right back down the hill.   BID >3% and MCP  to a NCH.   BIDU, NFLX, post -EPS were making fresh NCH‘s.  The clouds-virts were strong with RVBD, FTNT extending post earnings gains as well.  The group was also helped by CML  retaining advisors for a possible sale (v.nice earnings AMC was a no brainer, if you announce such a deal possibly in the making hours before). AMC,   FFIV,EQIX  helped out the group some more.  The premise here that there is room to run after a gap off earnings was shown  again today in MIPS ( it’s another stock that has been mentioned in M&A discussions).   Also, note if the market gets into any defensive rotation soon LIFE, ILMN  are two strong earnings today to go to,  probably even right away tomorrow. 

Clearly, if you want to outperform now, it’s primarily selective earnings stocks we should be driving as broad market’s uncertainty is abound around next week’s catalysts .

..you can taste the difference

As the broad markets tumbled with enthusiasm dampened for QE all the way to SPX1173, (WSJ says the Fed will “unveil a program of Treasury bond purchases worth a few hundred billion dollars” over “several months”, the Fed is opting for a more measured approach vs. the initial “shock and awe” of QE1),  DJIM traders should have hardly noticed, if following the premise layed out all week of fixating selective individual equities (earnings) vs. broad markets goings on.   

Yesterday, the lead into the trading consisted of 5 EPS linked stocks (CML (the highlight ,+30%), FFIV, ILMN, LIFE, EQIX) from the previous AMC.  As noted, EPS stocks ‘have room to run’ after gaps premkt and/or post opening bell.  Again this aspect pointed out early in the week worked again, notably with CML and FFIV, ILMN.   Another on AMC off our list, LVS  showed there is room to trade to higher after the initial bump off earnings.  As far as the overall Virt-cloud/M&A gang shooting higher, remember this note following the huge sell off in the space.."To put this 'cloudy' day into perspective, ask one question.  Do shorts or the acquiring executives at IBM, HPQ DELL, CSCO know better???.   Easy answer, cloud is the only growth shift going on, besides anything smartphone related.  One good report, one acquisition and it will be sunny and not cloudy days in the forecast".

This EPS has seen over 80% of reports beating expectations, but the macro/QE2/ FX trade is the number one issue today.   Once again the early foucs was USD was stronger/ Euro weaker and the bond sell off continuing.    By end of day,  maybe some are finally getting drift that a strong USD/weaker Euro does not necessarily mean lower equity prices and that there is actually an allocation shift from TSY to equities to sustain the market as alluded to earlier this month as a possibility.   This last minute Briefingcom day trader headline shows the bewilderment, a little too late for those shorts who tried to press the issue again early, only to be squeezed out again by the ‘resiliency.’ of this market…“Squeeze off the lows continues as we approach the close..The dollar is off its highs, but its pullback has not nearly been of the same magnitude as the bounce in stocks”.

What’s interesting now stems from what was noted here following the beige book which showed eco’ is getting better.   Since, we’ve had some more good data points, including China/UK GDP numbers, better than expected earnings that is showing things are ‘stabilzatizing’  here and globally and thus QE2 is becoming less relevant in the size scope the market wanted days/weeks ago.   The expectation today should be what ‘Bernanke’ likely leaked to WSJ to cool the enthusiasm beforehand and just maybe the equity market is not about to sell off on the news like the Bond market has judging by the reversal today.   The more pressing issue for the broad indexes is the signs of tiredness at SPX1180’s for what seems like all of October now.   All in all,  this should not matter to how we all go about trading the market day to day with the noise getting more nauseating as we get closer to FOMC date.  We can avoid this noise and not throwing up over ourselves and our accounts in case of a sell- off by staying selective in stock picking and by switching those names/taking profits as new oppy’s come up.  

*Again you can follow additions to our Shadowlist by visiting the on site 'Playpen'.

http://www.djimstocks.com/djim-journal-2h-2010/2010/10/11/on-site-playpen.html

DJIM #43 2010

After +/-5-8% monthly moves in the previous 5 months, October looked like a walk in the park for the market, especially since mid-month, stalling out as the broad market was taken hostage by QE2-elections.   Well, the release of hostages is set for next week and seemingly the consensus has been it will end in a “sell on the news”, even 'bloodbath' scenario to some because of the substantial Sept to Oct market run putting the market back to it’s 5-8% monthly swings.    Of course,  the ‘fatigued’ 2 week stall state is just asking for (trouble) anything less than expected to spiral the market downwards,  but if we get status-quo expectation revelations, this may likely turn out to be a non-event (yet choppy) and therefore, not necessarily sell the news event(s).

Despite, the broad market tied being tied down mid month, the coinciding earning season has provided plenty of oppy's to trade the reports.    Heading into the mid month earnings, speculated here ..“..selling TSY’s is probably underway`…rotation/liquidity into stocks from Treasuries is the natural course….It actually might not be as the market remains steady because individual groups get enough liquidity to sustain it...".   As you can see by the charts this occurred and coincided perfectly with individual earning stories -linked groups getting the money flow.  The overall better than expected earnings that haven't moved the broad market higher, may just be a pause until QE2/elections are out of the way, at which may point the market will begin to look towards 1H/2011 with a rosy outlook off these earnings and stabilizing eco' data that we've seen most recently.   The market is also going to get the first important October end Q reports from CSCO in 10 days that may coincide with recent eco’ data to paint a better overall picture going forward.   Before, we get China PMI out by Monday morning, NFP print comes end of this week.

So far this 'strong' earnings season,  highlighted the fact ‘headline beat earnings’  were getting very favourable post reactions and this streak continued as stocks gapped, but still had room to roam with CML, FFIV  as prime small cap examples this week.  Unfortunately, this streak ended with FSLR`s report/call and caught all solars and one of the best Q beats /best accelerating guidance calls this Q in PWER  with it.   This was probably 1/100 odds type of reactions,  especially after a stock already trades higher AMC and BMO the next day.    Group reaction is similar to the EQIX  small rev' miss and subsequent sell off on all Clouds-Virts that turned out to a hiccup.  Double top probably played some role as well and-or it's just a dirty AMEX -like stock.   One thing to remember is,  if you don't know a stock/ what group it belongs to and/or never traded it before,  it is best to begin with a `starter` position if chasing a headline number.   On the other hand, if you always trade on your heels and don't go big into huge beats,  you miss excellent oppy`s in the CML  types, who's reaction is usually what you get 99 out of the other 100 times and/or one like FTNT  recently that had huge upside numbers like PWER and you miss not only the earnings buy in,  maybe even M&A possibility…AMC, reported FTNT was in advance talks with IBM. ..“..FTNT an add here at $18 before it was discovered as a play in the space anywhere, showed something many can't and that is accelerated growth.  It's potential takeout price just zoomed to over $30 on this report“.

..market padded down...use scanner!

As trading desks empty slowly into Thanksgiving,  the market is at the mercy of low volume volatility.  Today’s 20pts ES drop from overnight H and then a return ticket in the afternoon is probably indicative of what is at hand for the rest of the week.  Clearly, the issues of Ireland/ China/ CSCO consequences are not going away and more (FBI probes) is being thrown at the market.  *Even though, HPQ refuted CSCO’s claims, what is not being noted AMC is the how brutal BRCD’s  EPS guide (they have one the biggest gov’t/ federal  stakes).

Luckily…. yesterday it was noted ‘dip buyers” are back and today’s reversal exemplified this as does the easiness to change directions due to low volume.  If you watched the market get padded down by all the noise, a soothing aspect is to use the ‘Shadowlist Scanner’  to see if it was warranted.  Clearly, the only pressure on the % loser side was the Financials and if you flipped the list over, you’ d see all our momo/clouds in NFLX, FFIV, RVBD, CRM  etc making NCH’s.  Simply, what this points out is a lot of the tape is ES/ETF related, while individual equities outperform as noted yesterday regarding ‘correlations’ and broad market tape not mattering that much.   As long as this visibility remains in the underlying tape, Thanksgiving will come even with ‘war games’ now on the table to test the market.  

...data..data

The premise to start the week  ….”market’s ‘resiliency’ keeps on showing it’s hand as it hold ups on economic drivers withstanding depressing events”…” only hope is eco’ figures this week turn some heads away from European perpherials..”.    Slowly this is playing as the big media debate for the last 2 trading days has turned to‘Eco data vs. Contagion’  as the market bounces back to back after terrible openings.  The plan here is taking effect as focus is turning to eco data and away from European peripherals for the time being.   Today’s data points (Chi PMI, CConfidence) moved the market in the right direction and tomorrow should be no different with key data to hit (China PMI, US ISM).   The European peripheral situation will remain center stage, but if eco’ data continues to be strong (as expected), the headlines out of Europe will get muted somewhat.   A combination of European fears easing and v.good data, including euro figures and we may finally break out of this 30 point November range.   In reality, market needs to do it soon and gain some momentum as ‘important eco' data’ wind down after NFP on Friday into year end.

As far as the trading tape,  today was more of the same (see yesterday’s bolded comment).   As long as this trend keeps up, which we watch via Shadowlist, the market will hold up and you shouldn’t fall into ‘panicked’ selling because the market slides 160 and 110 points as has been the case last 2 days.   There was some negative noise (liquidation) about techs/momo/internets trading patterns (FFIV, CRM, PCLN, AMZN  types), but viewing it as a (month end/holiday end sell on news) phenomenon more than anything at this point as the selling wasn’t really aggressive.   Still, despite a negative day, we had some good individual stocks action off our list with APKT, KH, TFM  putting in NCH’s with >6% gains.

..some deja vu

Trichet’s tricks consisted a comforting/ soothing massage, delay of liquidity/exit strategy and no radical ‘nuke’ as expected here.   Luckily, the market really did not believe their potential luck (a massive bond purchase) and proceeded to go on their merry way to more upside.  Included was an excellent >2X oversubscribed Spanish offering/ ECB buying and all peripheral CDS tightened.  Add, an ‘economic driver’ in pending  US home sales, which has been the laggard in improving data and SPX is now up >2.5% on the week.  Oh yeah, lost in all the events are slight China monetary policy changes for the better.

What was interesting about today was the ‘tape’, which included the momo/best of year stocks cooling off/very tepid action and lower tier stocks/groups broadly play catch up seemingly.  This is something we haven’t seen all year and maybe not since March '09 as economic sensitive recovery stocks/groups (a lot of crap too) led the climb.   We said weeks ago to watch for a rotation from TSY’s to stocks and with the yield hitting 3% today, we were hearing this premise from the media and importantly, saw this in the tape (Shadowlist).  On most days we’d be disappointed or questioning a market move to the upside if the AAPL PCLN NFLX FFIV’s  types were not participating (even best of commodity linked stocks lagged a nice $CRX gain/and cyclical techs outperformed), but with the ‘overwhelming’ turn this week on economic outlook, it is probably ‘growth’  stocks taking a backseat as they may seem ‘expensive’ compared to the all the other stuff out there.   If there is ‘performance anxiety’ out there into year end, managers may feel there is more upside to the cyclical laggards.  Still, you figure they would like to show ‘big winners’ on their books EOY, but they will need some money to rotate into cyclicals, so the action in momo’s should be watched, even though there should be enough ‘bond’ money for everybody.

In all, all eyes on the high expectations of NFP#.  If this figure does bomb, importantly, we still have Santa Ben  to possibly stuff some stockings on 60 minutes.  He didn’t do too bad in March 09, did he??