That's it?

Was that it?.   Was the gap down to only 1153 SPX,  the pullback/ consolidation before end of Q dressing, we’ve been discussing as a possibility into Q end.   If that’s all there was, than it was quite impressive.  “Performance Anxiety” was at it’s best and shorts were at their best running to cover at the first hint of today’s reversal after laying down some fresh positions over past few days, including some very early today.   Waiting for a decent pullback seems to be a lost cause into Q end and earnings season unless an unexpected ‘catalyst’ hit’s the wires or familiar liquidation.   “Worries” over China, Greece, and HCare today are just that…’worries’ that come and go on a daily basis and the market has started to deal with it, seemingly by finally believing in a recovery.   The action in what we call consumer discretionary stocks was definitely present today as Casino’s  did one of those regular Q squeezes on an upgrade/ some newsflow and Auto  related stocks rode the ALV report. (HAR  a shadow stock at B/O levels and MGA  is where we look.  

We all can crazy guessing where this market goes next, the nuances of the SPX,  let’s not worry and continue to just concentrate on individual stocks selection and sectors.   Even, not following the HC bill and the sectors involved,  we still dug up a shadowlisted stock to play into the story, EMS  last week on an alert on the story at $54-55 hit $61 today. 

Two things can happen, the market can roam freely and grind higher till Q end on performance anxiety and /or even until early April when the next eco’ data of significance the NFP (next Friday) &  AA-INTC earnings in reminiscent fashion of last Q or we get one of those big dreaded ‘liquidation’ moves from the hedgies we’ve seen more than once at Q end after a run-up.    Again,  let’s not worry either way by just not outweighing positions in numbers or size and take it (profits) where we can along the way and hope a move up/or down is not exaggerated for the sake of a future healthy market.   As long as new highs are being confirmed on a seemingly daily basis from different indexes,  the momentum grinder is in the Bulls hand.

A little promising...

Forget about the CC# that came in better than expected and forget about the nice EPS report by AZO   (on heels of AAP, one of strongest groups),  this market is totally emotionally driven with no concern about what the consumer thinks on the recovery front (CC# is labour vs. financial market weighted) or earnings at this point for a positive twist.    Honestly, the best case for anyone who's playing on the long side is a massive gap down morning like today.    Basically, when the market gaps down these many points on catalysts that are only emotional or none at all as the case was today (in addition to an already way oversold environment which equals Feb. Bounce low), what you end up having is the end result of today, a bounce off 1044 support.   A nice rally, but one that came with no conviction on the morning selling or real afternoon conviction buying.   We want to see follow through with not a lack of sellers, short covering,  but one that has buyers chasing!!.   That is conviction buying.   This day could be promising, but does not prove anything yet.

So,  does today mean the end of the slide and beginning of a huge rebound?   Probably not!  What it means is that unless the market's volatility eases, this is the kind of market action we'll continue to see on a daily basis.    So when is the volatility going to ease?   Well, nobody has the answer at the moment.    What we do know, at this point, is that most of us are immune to the wild swing and 300 pt+ reversal these days.    About a month ago, any day where the market drops over 100 pts on Dow, it kind of spooks people and a back to back drop of that many points was even unthinkable.    This month, it seemed the world turned upside down as far as volatility is concerned.    Believe it or not, the volume of SPY within the last two weeks is actually more than the two weeks of Feb. 2009 when the market went from SPX 800 to SPX 666.    This goes to show the kind of action we are going through right now.    Here's the good thing, the volatility will eventually die down and we are definitely closer now than a week ago.   Perhaps, the long weekend that officially kicks off the summer season for traders can get this market to move in a quieter and more manageable fashion ending the ‘Mayfest’ .

There are two things we want to point out though.   Market's advance and reversal today has been led by Financials and Commodities.     Why could this be important?    Financials represent the area where people were backing off due to the European concern in the last couple of weeks.   Commodities represent the area of Economic recovery for the world.    Both are key representation of investors' sentiment.    Well, it may not mean that much if we get another gap down next couple of days ,but we just wanted to point it out because some charts of the plays from above sectors look like they are ready to rebound. 

Bottom line,  regardless how the institutions play out their game,  right now is a time to dip some toes on the long side.    Whether we have more points on the downside from SPX is somewhat irrelevant at this point because looking at a lot of individual plays,  the upside just looks way more appealing than the downside.

Shadowlist update

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

..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.

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.

Quick fix..

After the largest one day loss in a few months,  it’s comical to see CNBC Amercia spin on why the market reversed all it’s previous losses intraday.  This spin consisted of Airline, KO, BA etc. earnings, USD, Beige book!.  Oh Please!.

Just 24hours earlier, the sell off in reaction to China hiking was all the news and today’s it’s how great the US  economy is!.   The overwhelming reason for today’s reversal is the fact Shang’ made it back form losses and eked out a green day as reaction to the hike turned ‘positive’.    This was the lead here at DJIM to look for a sentiment change with US markets acting ‘favourably, if we got it ..

…”.As far as PBOC,  it’s really not bad at all and probably positive for their equity markets as it’s a sign of official confidence and will not cause China to slow.(definitely good for their big banks).  It will be interesting to see how their markets react tonight and rest of week when their data/ inflation hits their market to get a clear read.  It would not be a surprise to see US markets act favourably, if Shang puts in a green day tonight".  

Of course,  this leads to a Euro strengthening/ USD weakening, reversing yesterday’s big USD up day in response to the hike news.  This dynamic reversal didn’t just come out of the blue air, it needed the China sentiment change to reverse the initial response of USD gains/ resources losses.  Last week, said 1.43~ Euro is in the cards, we’ve probably got the early week corrective phase discussed over with.  Now, with most recent developments, G20 is looking to be more of a USD weakening story.

The other overwhelming reason is MGA , one of the top influential global firms on “Macro Intelligence” for the world’s top HF’ Institutions made a gutsy QE call!.   According to MGA,  the FED will set forth a $500bln treasury buy program on FOMC day and leave it room to buy more in the next 6 months!.  This brought back the QE2 risk trade, thus also helping USD dump.  Why gutsy?.  Well, we better get the 500bln in November as that is the expectation today.   Back to Beige book in the afternoon, this did nothing but hurt stocks and strengthen USD as it upgraded the economy, so how it supposedly helped the rally is a mystery here.

As also pointed out,  China macro data (GDP CPI etc.) coming out overnight will be important because it will likely show the hike was a vote of confidence in China and not a change in policy sign.  Still, no matter the data, interpretation will be subdued now with the MGA-QE in the background.