DJIM #38 2010

Friday’s gap up possibility (ES was 1132 ) not surprisingly deteriorated as v.good earnings tech earnings are not a mover and shaker at this stage for the market.  ORCL/ RIMM earnings were not one of the moving pieces we included as a worthy bit for the week and it turned out that way.  Market’s inability to breach 1130SPX was not because of renewed sovereign issues as CDS ‘ widened to new heights in peripheral Euro countries (same song and dance), but, mostly because the Euro was already in it’s textbook descent off fresh highs overnight.   Overall, the problem was there were too many little things interwined (Euro, CPI, financial weakness) and notably a big thing ahead next week that postponed a stand off today at 1130 levels.   It was more like shooting blanks from both sides.    The market’s focus has turned strictly on the September FOMC meet up  as the week progressed and what the FED may partially do has intensified ( give a taste of QE2 ) and/or hints of it’s readiness to do such or much of it for later.  

So, there is no disappointment or signs of failure at 1130.  The market was able to consolidate above the Monday gap all week, which is bullish, even if the majority of high flyers off DJIM’s list are pausing.  They are more likely being accumulated on slight dips for broader market highs to come.  As discussed earlier in the week about high beta action and steels as a ‘toppy’ possibility sign is gaining noise as the week concluded.   We still don’t think this is the case as long as an ‘accident’ catalyst doesn’t hit.   Another mark getting lots of attention is meteoric rise is ‘sentiment’ gauges over the past few weeks.  A couple of these readings (AAII for optimism on markets) correlate to previous market peaks (Jan/Aug).  Just like overbought technical RSI readings can stay overbought for longer than expected without market cratering, these readings should prove to do the same now for the short term.  What’s not getting a lot of attention is a ‘huge’ reversal in equity ETF inflows from outlflows the past few weeks.


In this view, the April-Aug DT and DJIM’s 20ma ‘bullish’ benchmark was Bull captured.   Also, holding the 200ma for the week is significant.  The longer we stay above 200ma, the sooner it will finally curl up, which would be very bullish.  The constructive action all week is lending to the thought we could end up with a big breakout day still, if the man vs. machine theme is hit by a favourable catalyst sending the market into an Algo covering /buying fit.    Question is where and how much of it is set in the 1130’s -1140'ish or ES levels to run the market into mid-Octobers earning season.

...holding it's breath

The market continues to hold it’s breath at ~1180, Euro at 1.405,  letting the latest noise on QE and now G20 control emotions.   The up and down gyrations is just proving many can’t sit comfortably. Unfortunately, the earnings story can’t take shake the markets up as there is nothing substantial to move the tape.  Today, all the good reports sold off from highs as Fed  ‘Bull’’ards ‘100 bln comments rattled the USD and markets did their usual tandem move.   All in all, the market is still showing ‘resiliency’ by finding a bid on any shallow pullbacks.

A little excitement today away from the broad markets was in the speculative space, (which is not the gig here).   We’ll, guess it’s not excitement if your stocks drops 25% in one day as in REE  and BORN’s case.  DJIM’s avoidance is based on not buying first and asking questions later, but the other way around.  BORN, supposedly re-discovered how to make moonshine;), almost the oldest profession in the books /  REE, from Canada where we have always had the biggest speculative west coast market relying on promoting ‘swamp land’ companies/ penny stocks with minerals underneath are of no interest to promote here now or ever been.   (At least, MCP  is real,  if you want the hype of the rare metal trade.) Most of the 'Shadowlisted' stocks last a year or more/ or before they are taken over as has been the case time after time, not a month.  An example is tonight, 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.

DJIM #43 2010

Market’s G20 headwind kept the market at par late in the week.  This weekends G20 produced a status -quo communiqué, no headline risk/ not hawkish to USD and all focus goes back on FOMC/QE date.    In last weeks case,  it was more of the market holding it’s breath at ~1180 levels despite a slew of earnings exceeding forecasts/ China surprise hike while USD consolidated.   The ‘little surprise’ over the weekend should put the risk back on to start the week,  so we’ll likely have some commodity linked stocks rotation.  

Away from the broad market dullness, (SPX hit 1084 on Oct 13th) most of the trade leads/alerts here last week were on ‘set ups’ instead that worked quickly..MCP  for Tuesday $30L-35H,  MOTR, (9ema) $15L to near $19 AMC on Friday, KH , (9ema), 18L to 19.50H.  So, despite a flattish market for awhile now, we have those ‘daily’ sector rotations and/or earnings (below note)/ set ups making for a good traders environment, while the QE2/election outcome is being waited on.

You can already paint a macro picture from earnings as the notables in each sector have reported,  now it’s gets into being more of an individual game as 2 DJIM stocks showcased on Thur/Fri. ..FTNT, RVBD (+~20%).   This may help rejuvenate the ’cloud-virt’ space, but this week’s up coming names need to keep this out performance up with their reports.  * A good thing to see is there was upside from open gaps of 7-10% from their upbeat earnings for this Q and next, plus, many techs that didn’t ‘guide’ well for next Q,  traded well anyways!, (eg INFA,PMCS,CTXS,SNDK)  is a good sign for the market.   This is a change of pace this group this EPS season.

..underlying stocks

Today might be looked on as a blown oppy’ for the broad market after it closed near the low’s on the heels of the risk trade put back on globally, following weekends go ahead to weaken the USD.  U.S market’s couldn’t carry what was put in other markets globally off the G20.   Add some M&A activity, decent eco’ data here and you see,  it just doesn’t really matter now to the broad market ahead of the early November catalysts.  So, instead,  let's decipher broad market from individual stocks.  The underlying stock tape is where there’s light and life.

As pointed out yesterday, the reactions of individual equities is something that can keep us traders busy while market stalls and today was a good follow through/ confirmation on this front.  This falls into DJIM’s trading methodology, instead of the ETF trade that has been ongoing.   First, we had commodity linked stocks here like eg. FCX/WLT  do the sector rotate game off the FX game.  Secondly, it was  pointed out that earnings are getting a good reaction and today SOHU  was a prime example…traded low $70’s premarket after EPS and made it up to $76’s intraday, exactly what was pointed out post FTNT/ RVBD, stocks still have leg room to move after gap ups.  BIDU/SOHU's  results are also helping the China stocks move, so we have more individual names moving within a group.

Also,  the Virts’clouds extended off the RVBD/FTNT  reports with CRM, FFIV SVVS RDWR  having good days with RDWR earnings helping/ and M&A noise coming back into the group as well.   Also, you`re seeing some individual names  go without catalysts like BID (alerted Sept 27) at $35 hit about $42, MA,   (alerted Sept 16, $210 hit $248 (both >20% since) made fresh highs and fresh names like MOTR  got a Cramer fix supposedly and ran another ~15% to $20.70H , KH  made an early intraday H/ NCH.  PCLN  running off and with good ole`TZOO  earnings.   Geez, even RIMM  made a new high since added back to list (Sept 21).   Simply, there is plenty to trade off the Shadowlist, while 'broad'  market still struggles with SPX ~1180’s. 

In the end, you can’t expect the market to do much as a whole before next weeks FOMC/Elections, so don’t worry about it.   Just fixate on individual stocks as this trade has come back for now.  Nothing broke out today like USD to new lows, Euro, Gold to new highs, so nothing has changed to give this broad market a shot in the arm. 

..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 .

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“.