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.

Shadowlist update

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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.