nice kick off

Beating the "bull drum" since March… we don’t expect anything as dramatic as ‘09 (shockwaves of 08-09 are gone!) in both directions.   Still, we expect a continuation of the rally into ‘10 as we‘ve been drumming in December to stay long.   We are seemingly on positive footing which is advantageous to our ‘growth’ oriented stock/ sector picking as fiscal initiatives (unwinding of policy stimulus) globally will be baby steps.   So, overweight equities is the strategy,  we hope this becomes universal (retail investors) as returns on capital will be in the equity markets and fund flows will occur.  High beta, small-mid caps, high beta regions, cyclical. 

This was the theme in December, R2K went from 590 to a breakout to 640/>2% today on the R2K...Into Dec 3rd trade..."Even though the rally seems to keep losing momo’ in this range up to 1120 ,  we’re not listening!.  Yesterday, we said it will be a selective stock/ sub groups pickers market going into year end and we’ll stick to that!  R2K  big outperformance up >1% of the market maybe a clue of things to come". 

We left off before holidays with DJIM #51 and some selective names..."Only 2 ½ trading days ahead this week,  some window dressing Q end may begin with some recent beat up mega  stocks AAPL AMZN  getting a bid .  We think it’s a stock pickers market now and will be in 2010 as lower volatility and the search away from zero returns brings money into risk assets (equities).... Also trading some (GMCR OVTI ) off recent low possible turns)".   One glance at charts off these stocks for the R2K period above and you can easily see the great outperformance to the SPX while it flirted with a breakout, yet finished the year below 1120. 

Today, we had the only underperforming group in December of high betas taking center stage with the Casino's led by WYNN, LVS +10%.  We`ve discussed previously how fast these move due to squeezes and today was no exception after consolidating most of December.  An upgrade and good Macau December numbers attributed to the pop.

Coals,  WLT, ANR  another high beta group also participated due to China weather again as supplies are disrupted. 

Chems' Ferts,  back near top of trading list after bullish GS call.  More firms will likely follow.  POT, MOS, CMP

This the bullish road we’re taking in early '10, a swerve would only be from tightening too soon, an error of policy here or abroad will cause us to change our stance likely.   Heading into this earnings season, 3 strong Q’s have already been seen in the recovery and a 4th should be ahead.   But, before earnings kick off, we have Global PMI December readings to chew on and U.S unemployment # to signal more broad recovery strength.   Today's PMI globally/ ISM in US were solid, if not robust!.

We are curious too...

 After witnessing some steady selling for nearly two weeks long, we finally got some broad buying today off "weak" volume.    Well, it's weak volume according to many market analysts because the average declining volume during the last few days is much higher than today's volume.    However, today's volume is above average if you take into account the three months average.    In another word, volume isn't bad out there.   What most people are concerned, at this point, is whether this is nothing but a temporary bounce which may leads to further decline sooner or later.  A positive is strength was not sold as in any uptick last week and finally Oil/ Gold gave overall upward direction.   We need some follow through, today we had no bad headline news flow and a few positive catalysts in Volker rules possibly not passing, ISM and the budget details were not as feared for foreign corporate profits.

It's true, after some relentless selling during the last few days, any bounce is not trustworthy.    Since many of us have accepted the notion that this market can drop another 5% or more, today's action seems like just an inconvenient step stone to the inevitable outcome.   Or is it?     Over the past few months, we have witnessed market's move that is anything but rational.    Even though the possibility of market going much lower is pretty high, it doesn't mean that it will..     How do we play this then?   Right now, many plays on our listed plays are due for a bounce and this is the way we are calling it.    Whether this moves translates into something else few days down the road, then,  we'll give it a new assessment.   For now, we are treating today's action as simply an oversold  ‘short covering’ bounce with the hedgies stopping end of month selling as discussed late last week.     If some plays happen to establish some strong support at the recent low after a few days, then we'll likely enter a more meaningful position for a trade.      As far as this bounce goes, if trading, sticking with ETFs and some sector beta stocks for as long as majority of stocks below 9ema.  Friday, we alerted the ‘Casino’ Macau space and today LVS WYNN  were the big beta winners.

Remember, if we are treating this move as nothing but a short term bounce, we ought to stick our trading strategy as fast trade only.   If this somehow establishes a support for SPX and the market sentiment picks up, we'll likely add back some longer term position.     In any case, there's no rush to go big into some smaller plays on first sign of positive action.  

Shadowlist update

Shadowlist by sector money flow/ rotation to follow. (visit site).

..you can taste the difference

As the broad markets tumbled with enthusiasm dampened for QE all the way to SPX1173, (WSJ says the Fed will “unveil a program of Treasury bond purchases worth a few hundred billion dollars” over “several months”, the Fed is opting for a more measured approach vs. the initial “shock and awe” of QE1),  DJIM traders should have hardly noticed, if following the premise layed out all week of fixating selective individual equities (earnings) vs. broad markets goings on.   

Yesterday, the lead into the trading consisted of 5 EPS linked stocks (CML (the highlight ,+30%), FFIV, ILMN, LIFE, EQIX) from the previous AMC.  As noted, EPS stocks ‘have room to run’ after gaps premkt and/or post opening bell.  Again this aspect pointed out early in the week worked again, notably with CML and FFIV, ILMN.   Another on AMC off our list, LVS  showed there is room to trade to higher after the initial bump off earnings.  As far as the overall Virt-cloud/M&A gang shooting higher, remember this note following the huge sell off in the space.."To put this 'cloudy' day into perspective, ask one question.  Do shorts or the acquiring executives at IBM, HPQ DELL, CSCO know better???.   Easy answer, cloud is the only growth shift going on, besides anything smartphone related.  One good report, one acquisition and it will be sunny and not cloudy days in the forecast".

This EPS has seen over 80% of reports beating expectations, but the macro/QE2/ FX trade is the number one issue today.   Once again the early foucs was USD was stronger/ Euro weaker and the bond sell off continuing.    By end of day,  maybe some are finally getting drift that a strong USD/weaker Euro does not necessarily mean lower equity prices and that there is actually an allocation shift from TSY to equities to sustain the market as alluded to earlier this month as a possibility.   This last minute Briefingcom day trader headline shows the bewilderment, a little too late for those shorts who tried to press the issue again early, only to be squeezed out again by the ‘resiliency.’ of this market…“Squeeze off the lows continues as we approach the close..The dollar is off its highs, but its pullback has not nearly been of the same magnitude as the bounce in stocks”.

What’s interesting now stems from what was noted here following the beige book which showed eco’ is getting better.   Since, we’ve had some more good data points, including China/UK GDP numbers, better than expected earnings that is showing things are ‘stabilzatizing’  here and globally and thus QE2 is becoming less relevant in the size scope the market wanted days/weeks ago.   The expectation today should be what ‘Bernanke’ likely leaked to WSJ to cool the enthusiasm beforehand and just maybe the equity market is not about to sell off on the news like the Bond market has judging by the reversal today.   The more pressing issue for the broad indexes is the signs of tiredness at SPX1180’s for what seems like all of October now.   All in all,  this should not matter to how we all go about trading the market day to day with the noise getting more nauseating as we get closer to FOMC date.  We can avoid this noise and not throwing up over ourselves and our accounts in case of a sell- off by staying selective in stock picking and by switching those names/taking profits as new oppy’s come up.  

*Again you can follow additions to our Shadowlist by visiting the on site 'Playpen'.

http://www.djimstocks.com/djim-journal-2h-2010/2010/10/11/on-site-playpen.html

Ad infinitum

Just imagine staying short/ Bear for the last 4-6 weeks counting off the days to the “day of reckoning“, while the market mercilessly inched it’s way up day after day, only to get a "sell on the news”  in Treasury’s, not equities today!.   Okay, maybe one equity (POTASH;)

As opined all week with reasons why ,  if the QE2 ‘consensus’ is correct, the market has reasons not to sell off as consensus thinks and we‘d see higher days soon instead…”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).”…The choppy came as well and we tested the previous days gap bottom SPX 1184, but all you had to do was watch the TSY ($TNX-10yr and 30yr sell off ‘ hard’ to know this market was going to hold. (SPX ~14pts move post gap fill).  *Recall, the premise here in October regarding the TSY into equities allocation shift,  if this wasn’t the harbinger for it at work today, it will be a big surprise!!

Probably some confusion initially as they released a NY Fed supplement, the pace (75bln/8mths) seemed a little light, but add the MBS and they will buy 110bln/monthy anyway.   This gap will be the ‘support’ line to look for ‘dip buying’ going forward.   If a subsequent downdraft to those levels occurs, it will be the global gov’ts reaction to QE2 and/or the eco’ data going forward (again more good data today).  So, let’s just move on to why we’re here and that is trading stocks (we’ve got DJIM’s eg. LVS, MOTR, JKS, MA  all reporting well and climbing since alerting most again in Oct.) and slap fines on ourselves if we ever note the ad nauseam “QE2”.    Eventually, ad infinitum (argument made repeatedly until nobody cares to discuss it any more) will win out and we can do it all over again with QE3 next year;)

Simply, Bears need a new ‘plan’ now…go to work, Cubs