DJIM #35 2010

Every day this week,  DJIM highlighted the importance of ‘Jackson’s Hole'.  This was in order to take everything else with a grain of salt Monday to Thursday.  This was the potentially a ‘catalytic’ event as the market had been mired in confusion since being caught off guard August 10th/FOMC.  

Today,  Bernanke heard DJIM and market cries for a ..'Oscar' catalytic performance”…”.. Bernanke pulls a rabbit out of his hat…”   Hell,  we even almost begged heading into the address…..”Please, Ben”.    

The only thing to watch as the address became public was to see the camels back get broken ($TNX ) to understand the market’s approval of the address.    It was a thing of beauty as seemingly the stars aligned from premarket…a GDP, not close to whisper # under 1%, but 1.6%, a beautifully timed INTC warning to smack SPX 1040 again in heavy selling.   BTW. This was in play here at DJIM before all the downgrades, CSCO news began in August, so this was hardly a surprise and the real money bought it up or covered fast most likely, ”(signs of technology softening demand is showing up globally (possible correction in technology coming)”.   This tech correction is a thing in progress and will last into Q4, so it’s not the end seen today just because INTC/tech rebounded hard and/or  found a long lasting bottom.

Back to TSY, the real mover of the equity market!!.   As alerted at SPX-1257,…”...Just watch the $TNX heading into Tuesday's gap,  Ben blew them out today.”.    Market was thinking 1060SPX, this weeks “R” was going to be it for this leg.   DJIM thought differently as there was no evidence in the market internals in stopping the market till 1065 as printed here this week as “R“.   Yep, right into the middle of early weeks gap 1063-1067.    Most importantly, watching the TNX, which only improved some more after a 5% steep morning move, solidified we’d head into the gap and that there would be no ‘usual’ late day selling.   Add the “something missing" from this week ...metals snap backed this time…FCX +6%, steels 4-5% and you get the drift why 1065 was possible.

Away from all the broad market hoopla, the real ‘fun’ was in small cap fever as in past years with speculative big bids entering a few plays.   On the 20th,  alerted an unknown stock that was not in traders minds as a play off MFE/INTC deal.   But, slowly and surely the past week, you could see the accumulation of shares in FTNT  as some got wind of how ‘good’ and relevant this company is.  When ARST got rumoured for a $40 takeover Thursday,  FIRE joined the fracas and FTNT popped quietly up while under radar.  Today, it was accumulated early away from all the broad market hoopla and eventually exploded to a high of $21.70 from an open under $19.  

Even NZ, off blowout earnings…(revs came in $63.8MM vs. the St $54.27MM,· EPS came in .09 vs. the St .06, we are increasing our guidance for the full fiscal year to approximately 30% annual revenue growth ), popped another 7% from alert with crazy bids coming in and out.    As all attention turned to POT recently, the real M&A play has been off the circus surrounding PAR, which has brought out momo/speculative trading in small caps.  Cool.

So, the question is today ‘the’ turning point?.  In all honesty,  it’s irrelevant as long as there are spots to trade in this market as has been the case even through a recession.   We’d like to think the Bulls have reclaimed home court advantage finishing at ~1065, but, next week we’re going to deal with China ‘PMI’ and US ISM /payroll to seal the deal or not.    What needs to happen is a return to calmness amongst investors and see real money/conviction come in and push nicely over 1065.   Bernanke may have started the ball rolling in accomplishing this.  If not, today will only be classified by next week as a ‘short covering’ and those taking a rental out on the market for 2-3 days.   It’s great Bernanke spoke positively of 2011 and almost promised the ‘world‘ to fight (with conditions though) but,  we’d be silly not to worry still about the rest of 2010 and possible retrenchment by businesses because of recent macro data, which would equate to a recession all over again with monetary accommodation or not.

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…