..some resiliency signs..

The market got an early bid and was up nearly 1%…oh wait, that was the bond market from the QE noise!.   The equity market was the one down nearly 1% before staging a decent reversal from the ~1118 levels and afterwards flat lining for the remainder of the day.   This was the expectation to consolidate and the hope not get a retest of 1131, just yet.    The view is it’s better the market didn’t even try to follow through from the previous days big gains and possibly succumb to selling if it tried to push 1131 too quickly.    Maybe this way, the market can generate some mustard by spending time bouncing around a tight range to show levels like ~1118, even 200ma~1114 will provide the necessary support to uplift the market in the near term.   In other words,  give some confidence to those on the fence at this point.

A key takeaway(s) from today could be the resiliency in the market showing up.  Despite a handful of negative reports from household names like DOW PG down 4-10% and not so hot macro data, the market held up quite nicely.   Also, the terrible underperformance of the consumer discretionaries didn't spook the market.   MA, didn't have the most pleasant things to say on spending.

Away from the broad market picture, we had numerous previous small caps put out nice reports to trade into the Q, a few like CTSH ’s amazing sequential growth and PCLN  had robust numbers.   Even, STEC  shows sign of a turnaround for the short term.   Other notables include RBC OPLK HLF VSH  to stick on the shadow list for the Q to go with the VMW EXPD ILMN CRUS CLW RVBD  earnings plays from July.   The more the merrier….                                

Shadowlist update

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

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.

..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.

..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. 

..underlying stocks

Today might be looked on as a blown oppy’ for the broad market after it closed near the low’s on the heels of the risk trade put back on globally, following weekends go ahead to weaken the USD.  U.S market’s couldn’t carry what was put in other markets globally off the G20.   Add some M&A activity, decent eco’ data here and you see,  it just doesn’t really matter now to the broad market ahead of the early November catalysts.  So, instead,  let's decipher broad market from individual stocks.  The underlying stock tape is where there’s light and life.

As pointed out yesterday, the reactions of individual equities is something that can keep us traders busy while market stalls and today was a good follow through/ confirmation on this front.  This falls into DJIM’s trading methodology, instead of the ETF trade that has been ongoing.   First, we had commodity linked stocks here like eg. FCX/WLT  do the sector rotate game off the FX game.  Secondly, it was  pointed out that earnings are getting a good reaction and today SOHU  was a prime example…traded low $70’s premarket after EPS and made it up to $76’s intraday, exactly what was pointed out post FTNT/ RVBD, stocks still have leg room to move after gap ups.  BIDU/SOHU's  results are also helping the China stocks move, so we have more individual names moving within a group.

Also,  the Virts’clouds extended off the RVBD/FTNT  reports with CRM, FFIV SVVS RDWR  having good days with RDWR earnings helping/ and M&A noise coming back into the group as well.   Also, you`re seeing some individual names  go without catalysts like BID (alerted Sept 27) at $35 hit about $42, MA,   (alerted Sept 16, $210 hit $248 (both >20% since) made fresh highs and fresh names like MOTR  got a Cramer fix supposedly and ran another ~15% to $20.70H , KH  made an early intraday H/ NCH.  PCLN  running off and with good ole`TZOO  earnings.   Geez, even RIMM  made a new high since added back to list (Sept 21).   Simply, there is plenty to trade off the Shadowlist, while 'broad'  market still struggles with SPX ~1180’s. 

In the end, you can’t expect the market to do much as a whole before next weeks FOMC/Elections, so don’t worry about it.   Just fixate on individual stocks as this trade has come back for now.  Nothing broke out today like USD to new lows, Euro, Gold to new highs, so nothing has changed to give this broad market a shot in the arm. 

...data..data

The premise to start the week  ….”market’s ‘resiliency’ keeps on showing it’s hand as it hold ups on economic drivers withstanding depressing events”…” only hope is eco’ figures this week turn some heads away from European perpherials..”.    Slowly this is playing as the big media debate for the last 2 trading days has turned to‘Eco data vs. Contagion’  as the market bounces back to back after terrible openings.  The plan here is taking effect as focus is turning to eco data and away from European peripherals for the time being.   Today’s data points (Chi PMI, CConfidence) moved the market in the right direction and tomorrow should be no different with key data to hit (China PMI, US ISM).   The European peripheral situation will remain center stage, but if eco’ data continues to be strong (as expected), the headlines out of Europe will get muted somewhat.   A combination of European fears easing and v.good data, including euro figures and we may finally break out of this 30 point November range.   In reality, market needs to do it soon and gain some momentum as ‘important eco' data’ wind down after NFP on Friday into year end.

As far as the trading tape,  today was more of the same (see yesterday’s bolded comment).   As long as this trend keeps up, which we watch via Shadowlist, the market will hold up and you shouldn’t fall into ‘panicked’ selling because the market slides 160 and 110 points as has been the case last 2 days.   There was some negative noise (liquidation) about techs/momo/internets trading patterns (FFIV, CRM, PCLN, AMZN  types), but viewing it as a (month end/holiday end sell on news) phenomenon more than anything at this point as the selling wasn’t really aggressive.   Still, despite a negative day, we had some good individual stocks action off our list with APKT, KH, TFM  putting in NCH’s with >6% gains.

..some deja vu

Trichet’s tricks consisted a comforting/ soothing massage, delay of liquidity/exit strategy and no radical ‘nuke’ as expected here.   Luckily, the market really did not believe their potential luck (a massive bond purchase) and proceeded to go on their merry way to more upside.  Included was an excellent >2X oversubscribed Spanish offering/ ECB buying and all peripheral CDS tightened.  Add, an ‘economic driver’ in pending  US home sales, which has been the laggard in improving data and SPX is now up >2.5% on the week.  Oh yeah, lost in all the events are slight China monetary policy changes for the better.

What was interesting about today was the ‘tape’, which included the momo/best of year stocks cooling off/very tepid action and lower tier stocks/groups broadly play catch up seemingly.  This is something we haven’t seen all year and maybe not since March '09 as economic sensitive recovery stocks/groups (a lot of crap too) led the climb.   We said weeks ago to watch for a rotation from TSY’s to stocks and with the yield hitting 3% today, we were hearing this premise from the media and importantly, saw this in the tape (Shadowlist).  On most days we’d be disappointed or questioning a market move to the upside if the AAPL PCLN NFLX FFIV’s  types were not participating (even best of commodity linked stocks lagged a nice $CRX gain/and cyclical techs outperformed), but with the ‘overwhelming’ turn this week on economic outlook, it is probably ‘growth’  stocks taking a backseat as they may seem ‘expensive’ compared to the all the other stuff out there.   If there is ‘performance anxiety’ out there into year end, managers may feel there is more upside to the cyclical laggards.  Still, you figure they would like to show ‘big winners’ on their books EOY, but they will need some money to rotate into cyclicals, so the action in momo’s should be watched, even though there should be enough ‘bond’ money for everybody.

In all, all eyes on the high expectations of NFP#.  If this figure does bomb, importantly, we still have Santa Ben  to possibly stuff some stockings on 60 minutes.  He didn’t do too bad in March 09, did he??

..." I'm out of the office..."

An incremental move over the 1246/1248 SPX zone, but, hardly a rejuvenated move as signs of fatigue still preside from last week.  

Nonetheless,  the December year end momentum continues on the back of preserving gains, no broad conviction, no buyers or sellers as “I’m out of the office…” auro-email replies gather steam across trading desks.   It didn’t look too good early as the day’s first attempt at zone failed with notable weakness in this year’s winners coming again…eg. BIDU PCLN,  it was good to see another zone afternoon attempt and many of the outperformers come nicely off the low’s.   Still, as discussed days ago,  money flow is going into laggards.    The best midday action >5% off our Shadowlist were from a couple of late season call-ups in TFM, QLIK,  recently it was HOLI/LIFE  that broke out nicely before profit takers came in quickly.  This exemplifies the type of tape we’re dealing with.  If you’re not “I’m out of the office ..” type, you are dealing with a market with no rhyme as on any given day a different stock will make a move. You might as well throw darts at the Shadowlist to try to stuff the stockings (account balances) some more.