Job report, still relevant?

We know a title like the one above will raise some endless debate among the traders.   So, we are not going to defend or embrace the notion of it.   So what's the point of even raising this topic, you ask?   Here's the thing!   It seems over the course of last few days or even longer, there's this particular story developing that the health of this market, at least short term wise,  hinges on the quality of the job report tomorrow.    It's as if tomorrow's job report will provide a definitive catalyst for people to either go short big time or go long big time.    Well,  perhaps this is the way media has played it for a long time.    The truth is, to us, it's just another piece of Eco' data in a series of many many such Eco' data to come in this recovery theme rally. 

Maybe,  we get a really good report tomorrow, or maybe we get an okay one or in an unlikely scenario, we get a bad report.     In any case, any kind of report may cause a "sell on news" reaction as the market maybe looking ahead to earnings season instead.    Of course,  it may cause this market to breakout to the upside even further.    As far as the actual importance of this job report in the broad picture, we think people have put way too much emphasis on it because the potential reaction to this report.  It may simply be irrelevant when earnings hit soon.   In the grand scheme of things,  this is just another report people look at to confirm the validity of this economic recovery.  

Today's action, we got some decent pullbacks from many of our leading shadowisted plays, yet the all important SPX index managed to inch up a couple of points due to what now is BKX >10% on the week.     The sector that worried us the most during last month, financial sector, is the same sector that's getting strong underlying sentiment for this market.     Like we have said before, as Financials start to roll to the upside,  this market won't slow down.    While we give some momentum plays some room to consolidate, we have enough of positive from financial sector to keep the index high and afloat.   This is what exactly we want to see for a healthy bull run.    There's enough market rotation to provide different leadership to this market so the market does not feel tired.  This environment also provides technical trades.  This week CMP  moved for a 4 pts and MAN  3 pts from our breakout alerts.   If were getting fast points, we’re not shy about taking the points and finding something else for a fast trade before the report.   

As money moves, we’re looking for potential money flows sub-groups:

Trends were the same today as all week.  Tech weak and financial really broadening out and catching shorts and sidelined money by surprise.  One NASD sub-group feeling no effects of tech weakness is our DJIM LED trio of  VECO AIXG CREE.

The positive retail numbers provide collateral trades in groups such as Casino’s, Lodging/Hotel.  You don’t need to trade retail stocks to make the positive retail numbers work for you.  We’ve put HOT a previous DJIM winning stock on our trading.  Another idea is if financial strength continues to broaden we’ll look for laggers such as Asset managers (BLK BEN).

Tomorrow might be a busy day for many of us,  but we don't really think tomorrow's any more special than other days unless the number is a surprise worse than what is being whispered around the last few days.   If market is looking to sell on news`,  then it shouldn't be surprising to anyone and we'd add to our plays either today or next week as things settle down.   If the market enjoys the job report enough to give it a good chase higher,  then we'd definitely look for some beta plays on our list to get our money's worth. 

Earnings will matter...

Honestly,  it doesn't really matter what the negative headlines suggest,  profit taking is all we need to know.  Instead, media and analysts alike would love to pinpoint a couple of specific reasons for any day's decline.   Well, it's their job.  Today, rumor that China is tightening its lending is sending "shockwave;)" throughout the world before the release of all their Eco data tonight that is expected to show overheating of sorts.   Ummm,  unless we just heard it for the first time during last few months, we swear this is just recycled news.   Yes, they will withdraw excess liquidity, let’s get used to it. (headlines).   Also, there's always people who like to remind us that we've already had such a terrific run from last March and it's time for a meaningful pullback (again, eh).   Well,  we also like to remind people that this market has ran up so much since 1960s and it's time for a pullback now;).  The point is, you have to have a pretty good idea about this market in order to dissect what news is helpful and what news isn’t these days.

We have literally entered the second week of an earning season and we'd like to think corporate earnings should dominate the news media.   In our opinion, it should and it will!   No matter what causes any little pullback, or in some people's opinion, healthy consolidation, we have to focus on what's more important.   Do corporate earning suggest an Economic recovery?,  if so, at what pace are we recovering.  Here's the thing, we don't expect SPX to hit 1200 anytime soon and breaking over 1150-1160 would probably take some time without a “BIG’ catalyst.  In 2009,  we’d see SPX going 5-10% in either direction in a matter of weeks, sometimes days, but it’s just not likely going to happen in 2010. Why?  Things have stabilized and people will invest/trade in a much more rational way than past few years.  So, compared to last year,  this year will give us this "grind" feel.   This is just fine with us because it allows us to ultimately focus on our game, the earnings game!

CREE,  from last night, came out with an outstanding report/guidance as noted and was rewarded with some nice add on gains along with VECO,AIXG .  This morning, many financial institutions have come out with reports that have exceeded expectation and are probably the main reasons we had a little comeback in the afternoon.   In AMC today, names such as SBUX and STX, PLXS (add to list) all came out with quality reports, basically as many as 5-6 NASD/Tech (incl. FFIV  on our list) did as well.  So, trend is still pretty clear where this Economy is going.   As long as people's favourite companies come out with good earnings, you can assign a reasonable P/E behind them which in turn will give a strong support to the overall market.

Bottom line,  we may be in for some range trading (again, we bounced off ~1030 and closed on Nov trendline) until the assessment is clear that the market deserves a higher valuation.  Majority of the companies have yet to report and their earnings are an absolute key to the health of this market.  Forget about rate hikes or inflation because right now,  it's just the excuse bears use to get out of their position.

Torch firmly in bull's hand...

If an Olympic torch run can be used to describe this market, then the torch has been carried by bulls for awfully a long time.    Heading into last weekend, we were a little concerned that the latest rally pace was finally a bit "excessive" and we had to respect the idea of consolidation/pullback.   We have to be careful these days using any sort of adjective to describe this market because every bull run is new and fresh to all of us.    However,  we still have to use the trading experience in the last few months in order to execute our strategy efficiently.    One thing that's getting obvious though, this market won't go down without a fight.    And fortunately, this fight does NOT involve any Bears and their shorts at this time. Since shorting this market doesn't make any sense at all, and it hasn't made any sense for a while, we firmly believe that this market is currently in total control of the bulls.  

What does it mean?  The only way for this market to stall/pull back without a very negative catalyst is for the Bulls to stop chasing and buying.   We saw more of this today, after meandering all day, the market surged to a SPX breakout late as investors/traders don’t want to be left behind.   We alerted 1pm to such a possibility and the SPX fell just shy of a couple of points of hitting our next resistance target of 1177, the SOX made a NCH and joined every other pulse of the market in doing so. 

Now what?  It's pretty obvious that the latest move is being carried by some heavyweights.    Even though that the new high list is popping up with plays left and right, none of them are as significant as the ones that make up the key index.    Many of our plays, and especially those are sensitive to the Economy, are being helped along by this strong bullish environment.    The toughest thing for the bulls, regardless new or old, is that they can't shy away from this action.    Waiting for better price to enter is what we like to do, but we also don't want to miss out on any strong action from different groups on our shadowlist.     Today, we have some strong performance from Techs, led by semi's >2%, LED semi group (VECO ), and Commodity linked metal stocks (coals, steels CLF X WLT ) after getting sold off last few sessions came back roaring.   Also, Auto parts & Equipment stocks noted yesterday continued to get momo (HAR ) last alerted March 10th a as a breakout potential exploded out of the gate, continuing its previous days break with a very quick 5% lift.  

So now, the guess is on!  Where are we really going to settle before the NFP report?   Before the next round of earning starts, where does this market want to be?   Does it matter in the grande scheme of things for the rest of 2010??.  Probably not,  but,  we'll know the answer soon enough for the short term prospects.

What worked... still works...

Is this the "everything is going fine" melt up we’re witnessing on the back of solid NFP# / global PMI‘s from last week and today‘s ISM non-manuf‘ & Pending home sales?   Is this the same stock market we've been playing day in and day out since early last year?   The more we ask ourselves, the more uncertain of an answer we'd come up with.    Cast aside any personal opinions and too much analyzing, this is what it is…the market is still very resilient,  investors are favouring risky assets, especially on any shallow pullbacks and that is all that matters.    We are at SPX 1187, up over 500 points from the low we hit early last year.    If memory serves correct, the pace of this bull market will slow down dramatically,  just like in the other bull markets of the past.    Of course, knowing that the pace will slow down and knowing when it will slow down are two different things.

Our speculation is that sometime during the coming earning season, the pace will slow down.  Possibly a May sizable correction coinciding with the “Sell and go away in May” almanac trading mentality returning as things have gotten back to normal.    Right now, market has risen to a point that a lot of positive things are expected for this quarter and beyond.    You can also say that some of the price movement from some of the plays on our list may reflect all of the potential good things in them.     Does this mean the end of the bull run is near?    Hardly!    First, we have merely gone from being really undervalued to somewhat fully valued.    This is also a big if because we can't generalize everything in this market as being fully valued.   Some companies, given the current environment and their prospect, may still be "cheap" if they can capture the growth opportunities.    Here's the thing, not all of the companies out there are in the same phase of this Economic recovery.   Some companies have indeed been recovering, like many commodity plays, from the slump in demand over the last couple of years.    Other companies, such as those in technology sector, are having the kind of growth they've never seen in their history.   In other words,  recovery or not, some companies are seeing their business at the best level despite the fact we are still sitting at a "cough" 9.7% unemployment rate.

Here's the thing though, it looks like we are playing both the recovery and growth theme at the same time.    In our opinion, it can probably only get better from here.    Today's action is simply broad based and led by familiar DJIM shadowlisted plays hitting new highs, outperformed with R2K the other major indicies.    The semi LED group ( RBCN CREE VECO AIXG ) being the strongest, as well as gaming stocks ( WYNN  LVS ) and our favorite X CLF WLT  commodity linked plays all taking on some nice gains throughout the day.    We are talking about mostly EPS winners that have made it to our list in the past,  econ. sensitive material stocks and as well as consumer discretionary gaming stocks going up all at once.    It truly is a bullish feeling out there.    

However, although we broke out of the recent high of SPX 1180 and closed at a new fresh rally high, the volume is somewhat disappointing, but the majority of world markets were still on holidays.    We can only conclude that many longs are just holding that much tighter to their holdings, in spite of recent gains.      Again, sometime this earning season, we may able to see if people are willing to lock in some profit before the lazy summer hits.

Bottom line, we definitely started the week with a bang.   The question is, can we keep this going...

Bull's Channel

The market refuses to give up the recent breakout over 1180 without a fight on the close this week.  Is it really a fight the Bears want???, it seems they run away and cover their freshly laid shorts on any reversal as today showed.    Today,  seemingly was just a tease by the Bulls to let the market dip to 1175 to show support.   Yesterday ..As far as pullbacks, 1174 would be a negative break of Feb channel.) . The chart below on site is the ‘ Bull’s Channel’, we’re referring to.   Remember,  our watermark for the Bull run to eye since 2009 has been the 20MA and we’re quite aways from it to even become worried.  At this point the 20MA constitutes a 2% from 1191 high and that is all we’re looking for as a decent pullback.   Maybe just over 3% at worst if and when it comes.    As pointed out yesterday watch for clues from our Shadow list as to the severity of the pullbacks for clues of liquidation.    One thing you can clearly see this morning is the list hardly showed any selling, unfortunately, you also didn’t see them participate in the reversal as there was really no losses to reverse from and most closed pretty flat on the day.

Bull's Channel

Discussed earlier this week was the out performance of Financials continuing into the week, as well as the retail SSS numbers.   Today, this was the backbone of the market as it negated all the negative noise…Jobless claims,Greece etc.    We didn’t expect this to move us higher, but it has kept the Bulls from surrendering.  The April SSS expectations were above estimates and the hope of selling off on anticipated strong March #’s didn’t materialize because of it. ...“Maybe some of today’s out-performance from Financials is compelling and carries over for a few days and/or retail SSS numbers will allow this market to tick up, but we`re not holding our breath.”

Despite the market seemingly not going anywhere before earnings kick-off,  opportunities to trade most days is still there off our sector shadow list.    After LED’s  big out performance early in the week, the Casinos  from our consumer discretionary sec’ caught a big headwind from strong Las Vegas strip revenue numbers.   On the soft side, the commodity linked stocks, notably coals/ steel are dealing with China’s internal talk to stop iron ore imports for the time being in retaliation to recent price hikes.

SPX ~60 in 5

It’s been nearly two weeks since noted..”Earnings, if they keep at this pace 'will trump' any Eco data-FOMC statements..”..   

Immediately, following this statement we ran into a few days of roadblocks where earnings were missing the revenue top line and most proclaimed Macro victorious over Micro (corporate) as the SPX dropped to 1055.    Now 5 trading days later, yes only 5, the SP hovers near 1115, some 60 handles  higher on the heels of Micro winning out.    Of course, this stands till August …“….because eco`data will be sparse until August hits and we see how July was.  Starting next week, we will live by the guidance from the CEO/CFO`s."    In other words we have some time to climb higher if we get through a boatload of technical ‘R” numbers around today’s close, but once August hits it will be eyes on US eco data’ starting with ISM’s to verify what the corporations and global markets are saying. 

The good part is we have good things on the Bulls back coming into August data...Micro (earning) fundamentals,  Western Europe accelerating into 2H and China ‘bottoming’, plus FINREG/ Stress tests over with.   We didn’t have any of this when the market was toying with a potential summer under 1K SPX in June.

Today, market had FDX  add some validility to the global picture,  but we’ve had this already here at DJIM 2 weeks ago as part of an improving global snapshot.. “EXPD , bot some, 30% upside is a great pre-announcement, should help FDX -transports”.    

A few other earning highlights noted VMW , CRUS, also making NCH (New highs).  Past DJIM Q's/2010 plays, AZO, RBCN, OVTI, NTAP, ROVI, CRM  continue to grind away at new highs.   We also have APKT, DLB  on 5-6 trading day moves that we suggested as potential run ups into their earnings this Thursday flirting at NCH‘s..“Look at tech reporting soon on sell off..APKT DLB etc.on this 20 day hit. Apr 16.     Also AMC,  VECO  report shows DJIM LED stocks (CREE AIXG RBCN ) still have momentum in ‘10.

In conclusion, if the breadth of the market stays on par and/or performance chasers come, a try at the 50% retrace would be in the cards.  This is also where we have June peak to contend with.  Still, don’t think these levels should cloud our thinking with new earning plays emerging and getting some recent ones back on pullbacks remaining the premise.   Starting tomorrow, looking for a close over June high close of 1118 for ~1130 sooner than later,  otherwise a dip is probably in order.