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!

Slow and ugly

Those anticipating a ‘reprieve’  from August's selling in a holiday week were quite happy at the gap open to 1081.  Unfortunately, that joyous mood didn’t last longer than 20minutes and the next 5+hrs were a drift down and sombre reminder empty trading desks can still do damage.   The only question was how low?    SPX 1067 (-4 on day)  is the answer and a low close for the month is achieved.    The SPX is off at least 25+pts now off DJIM’s benchmark 20ma, that’s a long ways off thinking about being too long (oversized in lots and /or positions) as 1057 is the next zone area support.    As noted heading into the week, stay slim and trim despite the idea of a beach week trading environment.   Today was just ugly,  if you just look at the fact that this market couldn’t hold a cheap gap and went on to finish at days low and month low, you get a simple ugly day.  The selling is again reminiscent of the action since the August 11th big down day,  first clue of profit taking was Friday the 13th, this day had very late day selling and here we are again today in the morning and end of day with the same selling.   Simply, the market can’t hold it’s liquor you can say (small volume or not).   Traders want some of their previous summer gains back, something discussed here last week and will take off positions on any up move.    As slow as today was and on par for slowest day of year,  it didn’t stop a last 30min volume push (SPY notably).   If the market participants think the market can outduel the macro side by “may bid”  type M&A  rumors like today,  it’s mistaken.    This goes back to what was noted last week that all the M&A hoopla will take a step back off Initial claims etc,  if bad!.  

Only a dozen or less stocks ended green off our DJIM list as the tape was ‘safety’ biased.  The names noted yesterday, safe in our terms in an unpredictable market were some of the only green names on today’s board…FTNT, HANS, GMCR.   

Anyways,  market should find some footing/bounce some before Friday's Bernanke address, if 1050's are re-visited.

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…

Shadowlist update

Closely followed equities for sector money flow/ rotation. (Visit site).

DJIM Shadowlist outperformance

Entering the trading day,  yesterdays ‘biggest takeaway’  reversed and allowed the market to have a decent day, although the highlight around here was the outperformance of DJIM’s closely followed stocks.   Our alert in the premarket noted the nice reversal of the FTSE with ECB stepping up the buying of their problem children debt (Portugal, Greece etc. )/ bond buying program.   Once this ‘comforting’  act was done,  you knew the Euro was not going to slide further today and the US markets would be able to stabilize as yesterday‘s missing buyers would appear.    Also, the Irish sobered up and compromised with a good/bad split of one their banks, which is better than a complete wind down.  It’s good to see action being taken on all these Euro fronts immediately, instead of allowing problems to drag and watch the markets get spooked.   

Speaking of problem children, we have one in the US markets that underperformed badly (Semi’s)  and will keep this ‘rest period’ below 1108 extended if such bad behaviour continues to be exhibited.  SLAB   is #2 warning now after INTC.  Considering how early this comes, you can expect more from this sector.

On the home front (DJIM’s), we had an array of stocks outperforming off the latest Shadowlist update this weekend…

NZ , up >14%, flying already, it got some rumor mill action (IBM).  Stock is now up a good 25% since alert buy.   Note,  ARST  rumors from last week were refuted today and so this one may be too in days ahead.    Still, NZ is an EPS stock foremost in DJIM books this Q.   GMCR , announced a raise in product pricing and exploded to an intraday new high above $40.     NFLX  mentioned here plenty of times just the past week or so, kept on ticking to an intraday high of nearly $148...PCLN  >5% off upgrade,  APKT , NTAP , LVS , HLF  were also outperforming the tape with NCH‘s intraday.   In the commodity section off DJIM’s shadowlist, machinery’s outperformed, BUCY/JOYG  >5% were the winners going into Obama’s afternoon promises.    This was a day you can just ignore the broad markets stocks and sectors up and downs and just trade away the DJIM composite.  

Note: add retail PVH  to Shadowlist in consumer sector.

FTNT, Fortinet Inc. NZ, Netazza Corp.

Mid-August alert additions to DJIMstocks.com closely followed trading list.

FTNT, Fortinet

 

NZ, Netazza

..CSCO on deck

If you blinked, you missed it!.  That’s the 7% blink in of an eye in the SP over the first 7 trading in September that has left those on the sidelines scratching their heads and/or suffering from some performance anxiety.    What’s come to fruition is simple …Journal sept1st/AMC….“September will be no different in dependence on data…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'’ . .  Buffet said today, no double dip at all and slmost all his corporations are coming back!

Today was no different as our lead-off hitter for the week (China data) got things rolling with a single up the middle and Basel iii was well received for not being (oppressive)as expected here.  That’s 2 critical groups (materials/ financials to get any rally up and running with the euro .  Also, the missing link (semi’s) came from nowhere and continued their late push from Friday for the market to bust through the 200ma (1116 last week here for next step if 1108 was closed above).   So, we had all the necessary Bull leaders in tow today, including small cap space (R2K) as evident in DJIM’s composite stocks making NCH’s across the board…RVBD+8%, FFIV 5%, NTAP, GMCR, HLF, HMIN, JOYG, EXPD, CMI, SXCI, LVS, APKT , ROVI, NFLX with FTNT/NZ flirting with NCH’s off ARST /news.   That’s a high percentage of stocks breaking out/ flirting with breakout moves at NCH levels, if you consider some stocks are just for watching money flow/rotation as part of the trading day.

What now?.  Playing around ~1120+ is probably getting shorts all riled up, especially those (this includes Bulls), who may think the market is going to continue it’s range bound  trade(1040-1120/1130) to eternity!.  We’ve laid at the catalysts for the week, now with our lead-off hitters doing their job, it’s up to the meat of the order with CSCO’s analyst meet up today (8:30-9.45am) and BBY earnings to continue the move to August high/June highs/ semi's continuation or the shorts will have some juice.

Live with it!.

Oh, the disgust amongst Bears and shorts tonight after the late 30min ramp in the markets.  Why would they expect anything less on a day when the FED fills 4bln into the coffers of sellers of treasuries that can now go buy something else?.    Also,  it’s clearly been a better to buy market with stocks having an underlying bid on dips, especially when technicals come into play.   Anyways,  we always enjoy the disgruntled tone and this sort of action,  even if it was just a ES/ ETF trade  for the most part with DJIM shadow listed stocks basically flat on the day.   A few days ago,  DJIM closely followed stocks and their NCH’s were posted, clearly these stocks ran before this market inch by inch move to fresh highs mid week.   

As expressed last night ignore the QE2 noise / why all safe assets are running in tandem as yesterdays trade would end shortly and all explanations would be worthless.   All you we need to know is..‘equities are better to buy’ as has been the theme in the 10 trading days of September.   The ‘all we go up’ trade noted fizzled 24 hours later.  

A possible myth in the market is if SPX1130 resolved to the upside, it will get traders/investors active again.   Yes,  “PA”,..some performance anxiety will hit, but it already has as noted if a break of April-Aug down trendline occurred.    We’re not getting the 30% loss in volume from last year back overnight on a catalyst free breakout.    So, even if this summer’s nightmare range is resolved shortly,  it’s breaking out to the upside is really no biggie as it’s not going to be a wild rush in.   Hate pointing old stuff out, but remember breakouts are not of years gone by in the major indicies.   Instead, breakouts have been of the grind you Bears /shorts to death over days and days/weeks.   

Recall, a market top call this year because of the turn in X  first in April.    The last few days have included warnings from Steels..NUE, STLD AKS  for Q3.  We don’t think this is another top.    Just throwing this in as fear mongering is abound after these warnings.    This weekend’s edition overview of week ahead has gone to plan with China data/Basel/BBY-CSCO  playing their part and brings us to Thursday’s watch on FDX .  Considering the market action this week, watch if a good report gets sold off after a move higher as it could signal a broader market move for the day.

Simply,  if 1130 is gonna fall or fail,  it’s going to do it without much fanfare on this side.  The trade has already taken place with DJIM list as a lead.    If our list is foreshadowing a temporary top with steels, it will only be a buyable pullback.   It may be best to wait for the outcome of 1130 as most of the heavy movers are already pausing and pick them back up around 9ema ( like note here for Sept 8th trade when FTNT  kissed 9ema at 20.30 and moved 15% in 5 days).  This pertains to recent movers like GMCR, RVBD  types and of course, excludes commodity linked stocks.