DJIM #35 2010

Every day this week,  DJIM highlighted the importance of ‘Jackson’s Hole'.  This was in order to take everything else with a grain of salt Monday to Thursday.  This was the potentially a ‘catalytic’ event as the market had been mired in confusion since being caught off guard August 10th/FOMC.  

Today,  Bernanke heard DJIM and market cries for a ..'Oscar' catalytic performance”…”.. Bernanke pulls a rabbit out of his hat…”   Hell,  we even almost begged heading into the address…..”Please, Ben”.    

The only thing to watch as the address became public was to see the camels back get broken ($TNX ) to understand the market’s approval of the address.    It was a thing of beauty as seemingly the stars aligned from premarket…a GDP, not close to whisper # under 1%, but 1.6%, a beautifully timed INTC warning to smack SPX 1040 again in heavy selling.   BTW. This was in play here at DJIM before all the downgrades, CSCO news began in August, so this was hardly a surprise and the real money bought it up or covered fast most likely, ”(signs of technology softening demand is showing up globally (possible correction in technology coming)”.   This tech correction is a thing in progress and will last into Q4, so it’s not the end seen today just because INTC/tech rebounded hard and/or  found a long lasting bottom.

Back to TSY, the real mover of the equity market!!.   As alerted at SPX-1257,…”...Just watch the $TNX heading into Tuesday's gap,  Ben blew them out today.”.    Market was thinking 1060SPX, this weeks “R” was going to be it for this leg.   DJIM thought differently as there was no evidence in the market internals in stopping the market till 1065 as printed here this week as “R“.   Yep, right into the middle of early weeks gap 1063-1067.    Most importantly, watching the TNX, which only improved some more after a 5% steep morning move, solidified we’d head into the gap and that there would be no ‘usual’ late day selling.   Add the “something missing" from this week ...metals snap backed this time…FCX +6%, steels 4-5% and you get the drift why 1065 was possible.

Away from all the broad market hoopla, the real ‘fun’ was in small cap fever as in past years with speculative big bids entering a few plays.   On the 20th,  alerted an unknown stock that was not in traders minds as a play off MFE/INTC deal.   But, slowly and surely the past week, you could see the accumulation of shares in FTNT  as some got wind of how ‘good’ and relevant this company is.  When ARST got rumoured for a $40 takeover Thursday,  FIRE joined the fracas and FTNT popped quietly up while under radar.  Today, it was accumulated early away from all the broad market hoopla and eventually exploded to a high of $21.70 from an open under $19.  

Even NZ, off blowout earnings…(revs came in $63.8MM vs. the St $54.27MM,· EPS came in .09 vs. the St .06, we are increasing our guidance for the full fiscal year to approximately 30% annual revenue growth ), popped another 7% from alert with crazy bids coming in and out.    As all attention turned to POT recently, the real M&A play has been off the circus surrounding PAR, which has brought out momo/speculative trading in small caps.  Cool.

So, the question is today ‘the’ turning point?.  In all honesty,  it’s irrelevant as long as there are spots to trade in this market as has been the case even through a recession.   We’d like to think the Bulls have reclaimed home court advantage finishing at ~1065, but, next week we’re going to deal with China ‘PMI’ and US ISM /payroll to seal the deal or not.    What needs to happen is a return to calmness amongst investors and see real money/conviction come in and push nicely over 1065.   Bernanke may have started the ball rolling in accomplishing this.  If not, today will only be classified by next week as a ‘short covering’ and those taking a rental out on the market for 2-3 days.   It’s great Bernanke spoke positively of 2011 and almost promised the ‘world‘ to fight (with conditions though) but,  we’d be silly not to worry still about the rest of 2010 and possible retrenchment by businesses because of recent macro data, which would equate to a recession all over again with monetary accommodation or not.

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.

DJIM Shadowlist outperformance

Entering the trading day,  yesterdays ‘biggest takeaway’  reversed and allowed the market to have a decent day, although the highlight around here was the outperformance of DJIM’s closely followed stocks.   Our alert in the premarket noted the nice reversal of the FTSE with ECB stepping up the buying of their problem children debt (Portugal, Greece etc. )/ bond buying program.   Once this ‘comforting’  act was done,  you knew the Euro was not going to slide further today and the US markets would be able to stabilize as yesterday‘s missing buyers would appear.    Also, the Irish sobered up and compromised with a good/bad split of one their banks, which is better than a complete wind down.  It’s good to see action being taken on all these Euro fronts immediately, instead of allowing problems to drag and watch the markets get spooked.   

Speaking of problem children, we have one in the US markets that underperformed badly (Semi’s)  and will keep this ‘rest period’ below 1108 extended if such bad behaviour continues to be exhibited.  SLAB   is #2 warning now after INTC.  Considering how early this comes, you can expect more from this sector.

On the home front (DJIM’s), we had an array of stocks outperforming off the latest Shadowlist update this weekend…

NZ , up >14%, flying already, it got some rumor mill action (IBM).  Stock is now up a good 25% since alert buy.   Note,  ARST  rumors from last week were refuted today and so this one may be too in days ahead.    Still, NZ is an EPS stock foremost in DJIM books this Q.   GMCR , announced a raise in product pricing and exploded to an intraday new high above $40.     NFLX  mentioned here plenty of times just the past week or so, kept on ticking to an intraday high of nearly $148...PCLN  >5% off upgrade,  APKT , NTAP , LVS , HLF  were also outperforming the tape with NCH‘s intraday.   In the commodity section off DJIM’s shadowlist, machinery’s outperformed, BUCY/JOYG  >5% were the winners going into Obama’s afternoon promises.    This was a day you can just ignore the broad markets stocks and sectors up and downs and just trade away the DJIM composite.  

Note: add retail PVH  to Shadowlist in consumer sector.

FTNT, Fortinet Inc. NZ, Netazza Corp.

Mid-August alert additions to DJIMstocks.com closely followed trading list.

FTNT, Fortinet

 

NZ, Netazza

..one summer later

..the range is breached...

Although, the market had hovered in the mid 1120’s SPX for most of last week, today’s impressive rally seemed to have caught many off guard.  Firstly, we had no gap, but an open at 1126, while the European markets were already rallying after putting the "same song and dance"  from last week behind them.  The 'no gap’ made the move impressive considering the market did ~20 SPX intraday points as DJIM’ ‘bullish’ stance amongst over confident, overbought ‘sentiment’ gauges heading into the week, plus a better to buy market call for a few weeks paid off.   The fact we sliced through not only 1130, but 1140 another resistance made it even more impressive as the ‘machines’ went off as the market looked ahead to the FOMC with a 'big breakout'  (The constructive action all week is lending to the thought we could have a big breakout if the man vs. machine theme is hit by a favourable catalyst... ).  There were no real ‘catalysts’ besides the FOMC anticipation talked about here spreading through the media outlets over the weekend and today.   Okay, let's believe IBM's 1.7bln tag for DJIM's NZ  play had a little to do it with it;)...Now, we just need to get some follow through this week and start grinding the Bears away into mid Oct earnings season.   

The crying on some Bear tilted blogs shows the surprise in their misery and the fact this was still a ES futures based rally not supported by MF’s / retail investors highlights this caught those sidelined off guard.   Individual equity moves were not in step for the most part, but still the high flyers of DJIM, we said were being “accumulated on slight dips for broader market highs to come” …like high flyers CRM, VMW, FFIV, PCLN, AAPL, BIDU  and others off Shadowlist eg. EDU, MICC, ROVI, JOYG, WYNN, APKT,CMI  were striking new highs today.  While PVH  and MA  have added 6 and 8 pts respectively since added to our list in the past week or so.

Considering the sizable move all in one swoop, the market will likely look to take some profits once the FOMC statement hits.  We would look at it as a buy the dip oppy coming.  If they (FED) don’t give a piece of QE2 or hint for it very soon, every firm from MS GS JPM should be shot because of their calls.   A follow through post -FOMC (if out as expected) would show those off guard are getting off the bench.