'Club Med'

Judging by the flatline SP futures overnight >1090, the last thing on anyone’s mind was the possibility of chaos that ensued immediately after the opening bell.    It’s almost inexplicable to understand that in a wired world where trading is literally 24hrs a day,  you’d have no insight from the futures as to what’s ahead for the day, especially signals to a 3% down day.   Today’s was one of those days as seemingly all were caught off guard as no downward gap was in play.   Instead a straight trajectory down of >30SPX points, ~3% losses all around.   You’d only have to tune in on CNBC from 9:30am to tonight to see the sweat as all talk was about the damage being done to all indexes, gold etc by the “PIIGS”

It was spooky in the markets, to us, the spookiness was to see our bolded warning come to fruition immediately and to hear comparisons of Lehman /BSC prevail all day long.   So, now in less than a few hours, we are knee deep in the PIIGS mud pit, everything changes as this story takes center stage with every trader/investor.   You know what? ..we’ll use “Club Med”  instead of PIIGS, being bacon loving Canadians, eh.

Considering so many were caught off guard and so many more coming home tonight to these headlines, we would have to expect more selling ahead as this story is not a bad eco’ report or a bad ‘big name’ earnings report, this is completely different to an investors sensitive psyche’.   Basically, its time to sit back and wait to see how this unwinds.   Unless, a magic wand is used,  we have no intentions to re-position long with all the technical damage done.   Even, if this is backstopped by EU in short time from becoming a long standing problem hitting all over the place, we still have to accept we are closer to a 10% correction than anything else.   In our view,  let’s get this over with (10% correction), capitulation occuring, pessimism hitting fresh highs and hope this problem is backstopped at around the same time.   This will present excellent opportunities, many better than March to October’ 09, especially if US earnings, recovery begin to matter.  

Without looking, we probably broke down back below from the trendline going back to highs of October 07 when we got odour of a crisis.  Coincidence or not?.   Anyway, until the tide cleans up the beach’s at “Club Med” ..Greece, Port’ Spain,  call this a short vacation time.

DJIM #6, 2010

Five weeks into 2010,  it really makes us check our calendar again to see if it's really 2010, as opposed to early 2009.    When the market sells off like it did during the last three weeks, it's rarely the fault of a single catalyst or a fundamental change.    Rather, it's the result of a perception change and the ensuing emotional execution that handed us one of the roughest stretches in a long time.   Yes, you have to go back to March of 2009 to witness the kind of volume we've just witnessed last Friday.    In fact, there were only TWO trading days in the entire year of 2009 that eclipsed the trading volume of last Friday, as far as SPY is concerned. 

Can this be the capitulation volume we wanted to see?  Perhaps!   Based on the price action and the way it ended the week, there's a pretty good chance that it was the case.   Well, at least it seems every Bull & Bear is calling it a key reversal day this weekend due to "technicals" .    We won't be able to confirm this for another few days.    From the January peak to the intraday low of 1044, the recent pullback represents a correction of  >9%.   This is quite substantial if the reason for this selloff is not fundamentally related.    The reason we are saying fundamental is because there really hasn't been any significant change in either the Econ. front or corporate earning reports that suggest our Economy is going backwards.    The concern that it may go backwards is what we call the perception change.    Ok, so we admit that some people may be disappointed with the pace of economic recovery and decide to sell their stakes to protect their profit.   This is fine with us.    What we don't fully understand lately is the number of folks jumping on the bandwagon that are bringing out the old doomsday scenario to exaggerate the recent sell off.     We hope the volume on Friday was the indication of capitulation and not just short covering due to expectation comments out of Europe would be calming over weekend.  If this was just that, a hard ETF short cover,  we won't have a Monday follow through.

Again, SPY may have pulled back close to 10%, many of our widely followed plays have pulled back more than 25%.   This to us,  is a heck of a correction already.   Time to start to build some positions?   We think it's time to at least look at some commodity related ETF and stocks.  Still despite the short covering late Friday,  we have to wonder if potential buyers will remain ’tentative’ until many issues show signs of being resolved.

..handcuffed..

Today was nothing, but a disappointment as the market finished at a new closing low for 2010.  Maybe some would like to think it was just a Super Bowl hangover as volume was tepid following a big volume day on Friday.  But, in reality it just proved Friday’s reversal was just noise over expectation of calming waters in the Mediterranean with one of the Club Meds…“if this was just a hard ETF short cover, we won’t have a Monday follow through”.   If you use the shadow list as a guide, you’ll see,  excluding some banks - brokers on Friday,  most stocks followed hardly moved showing a SPY and other ETF ‘s can’t be trusted no matter how giant the volume in them.  Money needs to go into stocks, not just ETF’s for capitulation. Also, pessimism may need to worsen for capitulation to occur.   Today, the only group to move Friday (Banks- brokers) had the biggest hangover on the market. 

We got no follow- through and a big negative was we couldn’t push over or close above 1071 curtailing odds we bottomed out at the 200EMA.  The fade job in the last hour was disappointing, shorts are getting more confident pressing new positions on any decent upticks and buyers will remain tentative to chase and give needed momentum.   Simply,  >1071 close is needed for a positive tone to possibly emerge.  Of course, tomorrow, we could get fresh Greece bailout rumors and market once again may rally.  Handcuffed market.

Saving Athens

What was once a mighty empire really needed help this time!    Okay, this isn't a joking matter, but it goes to show the relevancy of a single country's credit worthiness to the rest of the world.    In fairness,  Greece isn't a big country and it probably doesn't need a lot of money to bail her out.   However, given how the investors have played this particular issue recently, we are witnessing that billions of dollars of stock market value is at the mercy of Greece's problem.    Isn't it interesting how we are so connected these days?    Of course, the Greece issue isn't that simple because it merely shows the investor's fear when it comes to any sort of insolvency concern, whether it's from a bank or a country.

Today's rally is the result of speculation that a European consortium is in the process of putting a plan together to aid Greece.    Nothing is concrete at this point,  but it's largely expected that some bailout will come out of this and limit contagion.    Market closed at 1070.50, which is right at the resistance point we’ve talked about this week.   The USD dropped significantly/ Euro ticked up and all of the commodity related names moved higher as a result.    We have been playing some commodity names off our list today and we do feel there's a good probability that the momentum lasts a bit longer in this sector given the current relevance to a bailout.    As far as the overall market,  it's just a bit hard to imagine that market can start a meaningful leg up any time soon.    It's definitely somewhat healthy for this market to settle down its emotion and repair its recent technical damage.   Ideally, we need to test the recent bottom at some point to call 1044 a bottom. 

In addition, even though the earnings reports have slowed, some names are still showing this market good stuff and overall market is reacting better on an individual stock basis.    In AH tonight, we had DIS BIDU NTGR  report better than expected#'s that appear to be pleasing investors in AMC trading.   Also, VECO, HAR  had excellent reactions and many so-so reports still had upside.   This could be the blessing we noted of getting past the peak of earnings in January as sentiment is changing towards reports.  The oversold conditions of many reporting stocks producing so-so called reports now have basically priced in all the possible bad stuff.

Bottom line, it's only 2 trading days down and already it feels like a long week.   We'll definitely have more Greece related headlines coming our way during the next few days.  Hopefully,  it's positive to keep USD to the downside and give equities a fighting chance.  If this is the case, we do like a trade in the commods here as the short covering alone can give it some nice upside at this point.  *A possible new/ big saga is brewing in US/China relations and will likely takeover the headlines very soon.

Today was simply what Monday was supposed to be after market reversed on Friday.  Today’s news of a probable resolution was the expectation this weekend.   After Friday’s close of 1066, today was the follow -through you can say as we hit H1079 with individual stocks getting better action than on late Friday’s ETF surge.   It is not overstating that now when the Greece bailout is finalized, we may get a sell on the news reaction.   The action from 1044 to 1079 may have priced in the majority of a resolution.   This does not mean commods can’t continue as the probable currency affect of a bailout should help commodity linked stocks.