...upside risk coming back slowly

After breaking the string of lower highs closes on Friday,  the market woke up to be powered out of the gate by a string of M&A activity worth about 50bln  + more Greece aid package noise to close at flush levels of 1115 SPX, we discussed last week.   This is just above the 7 day recent range and if a good ‘breadth ‘ day is indication, as many times it is for a few days more,  the risk is upside and those conviction buyers may have reason to step off the sidelines as the shorts will keep their distance.  What’s good about the ‘ breadth’ is even the big momo laggards got in the action..AAPL, AMZN.    This appetite for techs helped propel the SOX over the 50ma after trying unsuccessfully last week. 

Of course,  the financials are always the disconnect from the market tape it seems.  Last week they outperformed the tape,  today they stunk the joint out.  Well, we’ve learned the past 6 months or so that GS and the boys are not greatest barometer of the tape, so it’s no big deal.    If we follow our shadowlist names and set it up as we did in our last update, you know where the money flow is going and therefore what is the trade.   We can see by the example below of where some of the flow was today and it was into our Q earnings plays.  Some names noted in February off earnings enjoyed a NCH day…ie. WFMI  MICC DLB NFLX PMTC

..it ain't rocket science

On a business trip?… grab a  room at MAR/HOT..get yourself a SBUX and order a flick at NFLX.   Okay, if you’re a DJIM..u ain’t getting SBUX , its not on the shadow list and it isn’t BF.A or STZ …. but the other 2 are moving in front of our eyes.   One is the hotel sec/consumer discretionary.. (MAR HOT), we’ve covered as part of recovery trade and the other (NFLX) is in the Earnings winner column since last q.  The importance of a good ‘tradeable’ list prevailed once again…

As traders,  we try to compile a list of approx. 50 stocks of the best of class to monitor daily.. adding and subtracting stocks as we go along.    EPS growth, sectors, sub groups that will show you the money flow that day(s)/ weeks.    The point is,  we are traders and we are here to trade and not spend market hours and non- market hours looking for the next big trade.   Just have the right list and the potential is endless…rotate and rotate the names/sectors.   We all want to have ’lives', we want time with family, friends and have hobbies outside of trading and not be consumed 24/7 by what is an already lonesome gig.   To be honest,  if there was a new edition of trading for dummies handbook, we’d nominate our methodology!. 

Anyway…that’s the market today simplified..NFLX MAR ..etc.  News pops next to a Shadowlist stock..read it and than watch if the money flow comes.   Trade.

Oh yeah..so… who was that masked man who has scared the market since Wednesday noon.   Well, today he put on a different face for once and had no new market damaging revelations.   Even JPM's Dimon agrees with 80% of the reform.     Simply,  this was short covering bounce as impressive as it was, it was short covering on 'relief'.    This is cool!.. it just keeps on showing shorts can’t keep their shorts on for too long as they scamper out the door on any sign of strength.    Oh yeah,  seems the bullet points of the speech were public before Obie’ moved his lips on the tube.   Once he shut them … the bounce really ensued.    The dip buying money was probably waiting a  few points above the 20ma for the move to kick into gear with the speech text in hand.   Yes,  the same 20ma  we’ve noted for the last 12 months as the single best market barometer and alerted again a couple days ago for a oppy’ buy was in play again today.   We would love SPX1175,  but it’s a bugger to get as the fight for 1200 is really the tape battle line it seems.

...looking ahead

Following an eventful 4 days for the Bulls, today’s flat session is perfectly fine with us.   Actually, even better than fine if you consider the 200ma provided support.   Even though, we didn't see a lot of new buying/ conviction to push this market even higher (let’s be realistic short term..digestion needed),  it is almost as good because we saw ‘dip buyers’  come in.    An oppy’ to buy the market on dips has been methodology of longs for a long time to get into this market.  We just haven’t seen those explosive breakouts of years past, instead those wanting to be in the market..buy the dips.   This is what we will center around going forward and will use it ourselves to position into Q end.  

Speaking of Q end, entering the week, we discussed “…sidelined money should come in for June Q end”.  This Q provides more than one reason for this to occur.    First, look at where the SPX is today on June 16th…almost half way through the year…1115.!   Yes, that’s a hefty return of 0% on the widely followed benchmark for every manager with a book in 2010.   Secondly, consider this…Hedge funds – “Hedge funds hit in monstrous May….Global hedge funds in May suffered the heaviest losses for 18 months after some of biggest and most successful managers were wrong-footed by world markets”.      Simply,  if we’re these guys we’re in a mess after May and need to put up some numbers, not only for June to make-up losses and avoid consecutive months of underperformance, but they also have to put up Q numbers!.    To us at DJIM, this is almost a perfect storm for money flow to come in the next 2 weeks.    This is why we will be watching the dips carefully for oppy’ for accumulation.

As far a individual stocks, sectors, we are seeing many of our listed stocks hitting NCH’s the past few days…EDU AZO VCI SXCI RBCN  and these aren’t even offensive high beta stocks.   At this point,  we are concentrating on the tech’s and have many from our lists of techs/and earnings related that on any given day can pop..from VMW  to NFLX AKAM, NTAP (SNDK added)  etc.   Many like DLB VRSN  are also setting up near highs.    Hopefully in the days heading into Q end, the number of sectors in play extends to beat up commodity linked stocks and more high beta names/sec‘s.   Until this is evident, we’ll concentrate on Nazzy/ tech linked stocks.

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!

Macro data driven!

If August’s market downfall was a macro driven event, today’s powerful action to the upside emphasises September will be no different in dependence on data.   Fortunately,  the relentless negative data gave way to improved data led by China PMI, US ISM  and consumer spending  the last few days.  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'

Coming into the trading day,  we discussed the previous days action in commodity linked hinting at better data...leaks or not.   China PMI continued the market’s late push from Tuesday right into much talked about here SPX-1065 (resistance last week) and with the US ISM on deck, (not only beating consensus, but better than July’s), the market had the ammunition to bust through resistance easily.    In discussing the market’s vulnerability at SPX 1040, we said if poor data came out at that specific level (wrong time) the market would likely be breaking down to this years lows no matter how many times it was support.   The opposite occurred today as we got excellent U.S data  right at resistance instead of bad data at support!.   Almost perfectly timed.    Still, as good as the data was,  it’s clearly a TSY  watch to the market direction.  Today was almost no different than Friday’s $TNX  up 5% day, but recall how fast this reversed this week.   Simply, this is the guide once again to where equities are headed in the short term.

Discussing the broad market and stocks/sectors is irrelevant as anything works on a broad based rally. Of course,  the commodity linked stocks from yesterday CLF,WLT  etc. led off the data,  everything else just follows the tape in sync with those most beat up in August (financials, tech) getting bid up on covering the most.  Also, high beta comes back as stocks here like NFLX, CRM  make NCH’s, even last M&A spec stocks here FTNT, NZ  made NCH”S.

What is relevant is noting the flat tape after 10am till close has many doubting this market move.  If data continues to improve into weeks close (retail..NFP#)..watch out Bears!.   The flat tape today makes people skeptical of the move, this is besides the overall daily skepticism that the market can’t hold onto anything as profit takers appear.  These negative sentiments today may just have positive implications this time for the market and thus more upside from here.   Market needs a couple days above SPX1065 for this to be 'Bull's home-court advantage'.  

..NFP /TSY on watch

If today’s follow through action seemed quiet and slow,  just look at a chart and the last 2 day sticks of 40SPX to understand the kick ass move.  The only thing quiet and slow is the slow and quiet burn of the Bear’s shorts as the market comes to 1091-1108 “R”.    We are handily in Bull’s court above 1065 for a 2nd day and above DJIM benchmark 20ma.    If NFP spoils the party look for dip buyers to come in at some stage (1075-1079) as Bull’s have the agenda above 1065 due to a sentiment shift.   Only a number in the vicinity of 100k private may be looked on as a pleasant surprise because it would come on the heels of a 90pt move since Tuesday’ FOMC minutes.   Let’s be a little realistic as much as it hurts in a rally mode.   Still, once again 10yr TSY was the precursor to today’s move and it remains the necessary tool to watch.  The TSY is up against a key technical (TNX 26.50/TSY 2.65) as is the equity market.

Noted yesterday was ‘skeptic view’ off the previous day’s rally and flatline most of the day leading to ‘positive implications’ for more market upside.   This is just more prevalent after today’s add-on 10pt move.   If more upside comes shortly, performance chaser may have no choice but join the party.  If you entered the trading on the belief of more upside coming into the day because of the ‘skepticism‘ angle ,  DJIM stocks noted yesterday flirting or /at NCH’s had some excellent day trade oppy’s, if you don’t hold some of them already.   The LOW-HIGH spreads offered some nice points on the day for NZ (19.93- 21.20), FTNT  (20.75-21.93), CRM (115.63-119.60), NFLX  (132.61-138.58).  

Have a good and safe long weekend…

a rest period unless...

Biggest takeaway today is in what we’ll have to monitor this week and probably beyond for the short term.   Most recently, we’ve concentrated on the 10yr TSY/$TNX for market direction, now the focus turns to the Euro.   The Euro plunged through 1.28 signalling Euro-land worries ahead, next and possibly only short term key support 1.268-1.27 before the levy may break.   Sovereign debt issues and Euro banks are back into the picture due to a few major newspapers articles doubting the stress tests credibility.  "DUH!"   There was actually a similar piece in FT (Friday) and you know what took precedent that day.   As before, these peripheral Euro issues may disappear again, but , in the meantime damage still can be done if Euro keeps dropping and spreads widen, which will push risk markets down further.   The problem today is not only,  if the Irish can make it home safely from the pub, it’s the amount of capital raises by banks/countries coming, management chances at key banks and a profit warning from one financial name today that is causing the market hangover.

The market has no catalysts ahead as discussed this weekend after the ‘Bernanke/ Macro’ rally other than a longshot chance, Obama’s posturing promises for the mid terms helps a few mkt participants/sectors.   The markets eyes are focused today on Europe because there is nothing else on horizon.   The premise Friday morning here of taking a rest = taking some profits, as the market hit 1105 is unfolding today with a (1.2% SPX decline/ 15pts from Fri. high) market dip.    Unfortunately, even a 1% loss in the broader markets gave little chance to pick up back some of the favorites here lately as they hardly pull backed, even some like NZ  NFLX  were outperforming and making new highs.   (note: FTNT kissed 9ema)

See last week’s Journals for dip buying levels that may come into play “if” Euro doesn’t find support here.   Considering the 'slew' of negative headlines today didn't come with any panic (just a lack of buyers),and if Euro holds,  today will be looked as nothing more than just the profit taking/ rest period we were discussing coming into the trading week.

..Whatever

As we come to the end of a very successful September (6 tradings left) with many technical targets achieved and/or brushed with 1130, 1140, 1150 SPX + notable Macro data /FOMC out of the way, the market has only a few things to do!.  Most of it consists of taking a breather, rest period, back filling, consolidating, digestion, sideways action …..'Whatever', you want to call it,  it’s happening since SPX1049 as the market works off some of September’s ‘overbought’ gains (SP~8%, Nazzy ~11%, Dow ~7% and investor ‘bullish’ sentiment.  

Most of the workout today occurred in the techs (ADBE, PMCS-these warnings are nothing new, we’ve said to expect more in this group into EPS season) and Financials off >1%.    This reaction in tech is really not due to these warnings being a surprise, but the fact it’s the best % September group and these news bits become an ‘excuse’ to take profits.  Considering the big ‘overweight’ in these 2 sectors on the SP,  today’s broad market performance was not bad as selling pressure is seemingly contained.   

DJIM can hardly complain as Tuesday’s alerts to RIMM  in low 46’s, hit $49 today and NFLX  exploded ~10pts from alert..(” NFLX looks to copycat the movers from yesterday with NCH not far away.”)… Not bad to catch a few of the best movers since the market hasn’t done anything to the upside since.   RIMM should still be in play till next weeks developers conference (tablet intro?) and with AAPL at potential resistance levels, a pair trade may be conceived here.

Performance anxiety over these September numbers should be enough to keep this market steady as managers come to ‘window dressing’ time.   Still,  it’s not a bad idea to take off some exposure and be more selective as upside risk fades here late September with potential upside catalysts not on the agenda.  Post FOMC and today, commodity linked stocks little reaction to weaker USD was enough reason to reduce exposure (alert at 1040SPX/10am) as the usual trade had not began not materialize.  You could see the expectatation and spikes in WLT X CLF  charts at the open and the tops put in early and subsequent 3pt drops in X /WLT  by close.   If you're 0 for 3 leading off the day..1.tech, 2.financial, 3.commod's as today, there is no (DH)Designated Hitter to clean up.

..market padded down...use scanner!

As trading desks empty slowly into Thanksgiving,  the market is at the mercy of low volume volatility.  Today’s 20pts ES drop from overnight H and then a return ticket in the afternoon is probably indicative of what is at hand for the rest of the week.  Clearly, the issues of Ireland/ China/ CSCO consequences are not going away and more (FBI probes) is being thrown at the market.  *Even though, HPQ refuted CSCO’s claims, what is not being noted AMC is the how brutal BRCD’s  EPS guide (they have one the biggest gov’t/ federal  stakes).

Luckily…. yesterday it was noted ‘dip buyers” are back and today’s reversal exemplified this as does the easiness to change directions due to low volume.  If you watched the market get padded down by all the noise, a soothing aspect is to use the ‘Shadowlist Scanner’  to see if it was warranted.  Clearly, the only pressure on the % loser side was the Financials and if you flipped the list over, you’ d see all our momo/clouds in NFLX, FFIV, RVBD, CRM  etc making NCH’s.  Simply, what this points out is a lot of the tape is ES/ETF related, while individual equities outperform as noted yesterday regarding ‘correlations’ and broad market tape not mattering that much.   As long as this visibility remains in the underlying tape, Thanksgiving will come even with ‘war games’ now on the table to test the market.