Not to get too complacent..

Early on today,  the market felt like nothing can go wrong and we can slow grind to SPX 1500 in about 9 months.    Well, as sarcastic as it sounds,  I'm sure some of us have felt that way even just for a second or two, lately.    Truth is, we'll have lots of bumps and obstacles along the way to whatever the eventual top this market will reach.

Although the market ended in green, many plays actually ended in red as fatigue set in and money flowed out of stocks. As always the bigger changes in price movement are more evident in high beta names (Casinos/China's).   Still, recent alerts here of earnings plays keep grinding higher PLT, ROVI, MFB.    Such is the nature of this market, one minute we can be all relaxing under the sun and next thing you know a storm comes which ruins the day.   No real late catalyst today, so maybe just a drizzle as the market finished off the highs and has yet to join NASD/ R2K in making new highs.  If there is any concern,  it is this failure to join the party on part of the SPX and maybe why some money came off the table.  Still, so far it’s only one day late, BKX  hanging at multi month highs is probably a big signal as to what's next.

In all honesty, as long as we bring our "umbrella", we should be prepared for any storm that comes our way.    What does it mean then?   It means that we can expect for this market to pullback as soon as people start to get complacent.   In a way, this is healthy behaviour.   Some of us would love to get back into some plays at a much attractive price.    We believe we'll get our chance, sooner than later.    This is the kind of market that does not go up in a straight fashion.   It may have a mini stretch of a bull run, but it will always stop at some point.  The ground this market gained will be tested and we have important level at SPX 1150 to retest.

Over the next couple of days, we have some important Econ. data coming from China.   Those data points can very well be the tipping point we need to move this market higher or not.   In the meantime, we aren't expecting much news from our home front this week as noted earlier this week.     Bottom line, we are begging for some more sideway action before we can give 1150 a real attempt.

Shadowlist update

Shadowlist by sector money flow/ rotation to follow. (visit site). 

Last S/L (7 weeks ago):

Shadowlist update

Shadowlist by sector money flow/ rotation to follow. (visit site).

SPX ~60 in 5

It’s been nearly two weeks since noted..”Earnings, if they keep at this pace 'will trump' any Eco data-FOMC statements..”..   

Immediately, following this statement we ran into a few days of roadblocks where earnings were missing the revenue top line and most proclaimed Macro victorious over Micro (corporate) as the SPX dropped to 1055.    Now 5 trading days later, yes only 5, the SP hovers near 1115, some 60 handles  higher on the heels of Micro winning out.    Of course, this stands till August …“….because eco`data will be sparse until August hits and we see how July was.  Starting next week, we will live by the guidance from the CEO/CFO`s."    In other words we have some time to climb higher if we get through a boatload of technical ‘R” numbers around today’s close, but once August hits it will be eyes on US eco data’ starting with ISM’s to verify what the corporations and global markets are saying. 

The good part is we have good things on the Bulls back coming into August data...Micro (earning) fundamentals,  Western Europe accelerating into 2H and China ‘bottoming’, plus FINREG/ Stress tests over with.   We didn’t have any of this when the market was toying with a potential summer under 1K SPX in June.

Today, market had FDX  add some validility to the global picture,  but we’ve had this already here at DJIM 2 weeks ago as part of an improving global snapshot.. “EXPD , bot some, 30% upside is a great pre-announcement, should help FDX -transports”.    

A few other earning highlights noted VMW , CRUS, also making NCH (New highs).  Past DJIM Q's/2010 plays, AZO, RBCN, OVTI, NTAP, ROVI, CRM  continue to grind away at new highs.   We also have APKT, DLB  on 5-6 trading day moves that we suggested as potential run ups into their earnings this Thursday flirting at NCH‘s..“Look at tech reporting soon on sell off..APKT DLB etc.on this 20 day hit. Apr 16.     Also AMC,  VECO  report shows DJIM LED stocks (CREE AIXG RBCN ) still have momentum in ‘10.

In conclusion, if the breadth of the market stays on par and/or performance chasers come, a try at the 50% retrace would be in the cards.  This is also where we have June peak to contend with.  Still, don’t think these levels should cloud our thinking with new earning plays emerging and getting some recent ones back on pullbacks remaining the premise.   Starting tomorrow, looking for a close over June high close of 1118 for ~1130 sooner than later,  otherwise a dip is probably in order.

..stalling too long

The expectation of a dip since early Tuesday morning is getting a bit tiresome due to the action today.  It’s getting a bit too long in the tooth and there is no solace in today’s mid-day rally or the fact the market managed to close above what should be a short term ‘floor’ at ~1098.   The ‘floor’ seems a little squeaky and you can start seeing downstairs (1080’s) through some cracks.    A close above today’s close is a necessity now for Friday (need to see some conviction dip buying show up), otherwise any disappointment over China’s weeeknd PMI’s and/or US ISM on Monday will cause a roll down the stairs to test the 1080's levels quickly.   Market's resiliency will probably be tested tomorrow, if buyer's don't show up before the macro data next week. 

Being underinvested after Tuesday’s 1118 alert avoids any real worrying of the above happening, yet trading goes on slowly and it includes being ‘selective’ in picking out some current earnings and sticking with them and/or buying them on dips.   These stocks have ‘underlying’ earnings that should avoid any ‘hits’ a high beta stock or sector such as commodities may experience in a further pullback.  

A couple more of these earnings in the last 24hrs, include DJIM stocks past and present. BMO, we had VCI, CLW.   AMC, we have DLB  with excellent #’s and ROVI  again not disappointing.   These companies keep producing Q after Q.    Tonight’s EPS#’s in high beta closely followed names like APKT, WYNN, CSTR, even FSLR  are very ‘noisy’ and hard to gauge immediately off the headline revenue and/or EPS beat.   The reactions are more of the profit taking unfolding we alluded to after VECO that is still presiding over the momentum ‘popular’ stocks.

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.