..can’t teach an old “bull’ ..new tricks..eh!

Talk about the habits in yesterday’s Journal coming to fruition as the SP snapped back 15pts!. Not only did we take 20MA back, but closed above 1205, which is a signal the Bull will likely test Mondays’ highs. If we can close above here tomorrow, it will make this highly probable.

If Tuesday’s sell off seemed relentless to some and yesterday's action cautious,  today's action states the  plain and obvious (underlying ‘ bullish’ sentiment is still there).     With the kind of news flow and mood swing lately, this market is definitely worthy of making a soap opera out of it.   Where’s Greece or Portugal today?   Come on, those headlines from two days ago should have at least a couple of days of staying power, no?    Well, you tell that to those who are chasing the high beta BIDU AAPL as the broad market focus also came back into earnings power as we’ve been noting here as something that needs to come back to go higher.

Of course,  this market is not just about the high flying beta techs.   The way this market (SPX wise) carried itself in a 2.2% rebound,  the action had to be broad.    The strength from financials helped quite a bit as they are the most sensitive to soverign overhangs    The earning reports from various industries keeps suggesting the improvement in the Economy covers a wide spectrum of sectors.    Now, we don't need to point out a particular paper stock or a specialty chemical stock to make this argument because believe us,  the move today is pretty wide spread.    

The only weak spot(s) today seemed to come from some commodity area such as coal and steel, but we’ve been writing about the warning signs from X early in the month.  In fact, we view the weakness as opportunity soon to start in some positions in DJIM faves’ like CLF and WLT  X at much cheaper prices than we could have imagined a few weeks ago.   Maybe, even for a quick bounce trade for tommorow starting with CLF.   Still, it’s not a hurry because we are seeing commodities like copper, aluminum hovering at important technicals levels and have earning reports to trade instead.   Clearly, considering CLF had excellent earnings and sold off big (it follows in the footsteps of X’s excellent report), the problem is China curbs we noted recently that are reflecting upon the group and money is coming home ( this means into domestic stocks..paper, builders and the materials for them). 

The other spot was a weak LED group , despite a good tech print.  VECO  has been selling off since earnings and this strengthened with AIXG’s report that had something about not so strong of an order book.  Just like commods’, money is rotating out the best momentum stocks/ groups of late.  To be completely honest, we welcome our past year's best trades selling off as it had become hard to justify chasing on valuations recently.   This will only present an excellent oppy later to get back into the winner's on a cheaper share!.

Slowly but surely, we feel some of the companies are finally getting the kind of reward it deserves for delivering few awesome reports in a row.  Examples ..VCI, IRBT, HOT  and APKT, DLB (AMC) today in mid cap names.    Finally, after a long period of denial, we think the general public is accepting the fact that things can only get better from this point on.   The only thing that somewhat worries us is that bad news doesn’t come often these days.  That's because when a negative headline does come,  it blows up in a 1.5%-2% down day.    On the other hand it’s better to get these corrections over with quickly.   Still, overall for this market's sake,  we just hope the positive sentiment won't let stocks get ahead of themselves keeping in mind as we've said earlier in the month, if a correction comes it won't be like last Q right after INTC earnings, but instead a little later ...meaning May for this Q. 

..all over the place..

One thing we all have to be clear about is that whatever the Euro rescue package does, it doesn't mean that things are all of a sudden hunky dory for the Euroland or world markets.     The fact that they needed to prepare such a huge amount to cover the potential default of various countries is something that will be scrutinized to the hilts.  We (markets) are in a wait and see mode.

Technically,  this market needs some time to settle down from last week's shenanigans.  Just today, after a bad open, we posted a chance for some buying to come in an it did with a 200DJIA/60 NASD point reversal to highs of day.   Unfortunately, a late sell off finished the market basically flat.   We actually made it as high as SPX 1170, but lets be honest here, it’s mostly very short term traders participating.   If this was the conviction buying off lows we‘re looking for, we’d have closed nicely in the green.  No specific reason/catalyst for sell off,  which is possibly good news.   As we’ve said the last 2 days, profit taking will ensue as there are people trapped from last week that would like to exit this market (1175-1180 is seemingly the possible high short term).   We think this (profit taking) was the main culprit.    Right now, this market may simply trick you into thinking that all is well and than boom!.   The fact of the matter is, that we are still going through a May correction and there are a few weeks left in the month.    We are sensing most of the longs are doing the waiting game like DJIM.   Looking at the sectors out there, it was some of the consumer discretionary plays along with some retail/auto plays that led all sector gains by noon. (>8%), but sold off to flat.   The worst were metals excl. gold of course, as China curbs/ hot eco.numbers overnight hit the coals, steels.

Now is definitely not the time to be emotional when it comes to trading decision.   There was a lot of technical damage done to the market and we'll soon have an idea where it'll establish the support.   Recent DJIM addition, VCI  made a new high while MFB  from last Q’s winners came out with a nice report and made a new high.   For the next little while, we may just have to continue and avoid some of the heavily followed names, while trying to trade some of the lesser known names like VCI types that are good earnings and/or charts.

Bottom line, most are curious to see how much this market will give back of the 400 pt gain by the end of this week.   More importantly, knowing what this market is going through gives us an advantage of what to possibly expect.

CSCO AMC-EPS

..the right "stuff"

It’s only one day,  but the market got some of the ‘wait and see’  stuff that is needed for it to feel better about Europe and itself.   We alerted pre-market to the Portugal successful bond issue/ tax hikes, we also later heard about Spain’s austerity plans and Greece received a 5.5bln instalment to blow out the Ouzo.   All this leads to tightening of CDS spreads in these countries showcasing the bailout is becoming acceptable to the markets.   The biggest drops prior to last weeks plunge were the Euro banks and as we see clearly, they are acting just fine to this point.   These are signals the market was/ is looking for to rally today.  Simply, ‘it’s not the Euro ’ that is dictating the confidence and thus the market.   It’s CDS spreads, issuance of debt successfully, European banks action that is the wait and see stuff.   It's the collaborating evidence to ease systemic risk.   Those relying on the Euro for trading are behind the curve.  

Yesterday, ‘No specific reason for sell off, which is good news”.   Once again the market showed what we’ve pointed out numerous days…if there is a bunch of small catalysts that really seem insignificant, it usually means we see dip buyers arriving soon.

On the home front,  it was back to business!.  We had M&A activity and ‘back to earnings” related positive flow from IBM INTC analysts meetings.  

Technically-  yes, it is very technically minded market now!.   Before the plunge, May 5th close, we said…“Today’s breakdown to 1156 taking out the last support at 1170 and not closing above  it pretty well confirms we are in a May correction.    Mayday Mayday is the distress signal from Europe that has put the market in this unstable position.   Add, the China curbs creating a possible slowdown in many eyes and we're likely due for a rocky month.   Any push higher/bounce now and we are looking at "S"upport at 1180/1185 now being "R"esistance.".   We are sticking to this, so the market may have a little closet space, but we're not seeing 'conviction buying' enter to think we can push higher now.   Considering this was noted before the plunge, it is seemingly ‘double’ the resistance as we’ve come a long way back up in a very short period of time!.

Our trading methodology here has been keep trades 24/48 hours and be very selective and it’s best we keep to this as we come into market "R".   We’ve alerted 3 stocks in May,  all "safe harbors" and earnings related.  VCI  twice. first at $30 to $34 before plunge and a few days ago for a breakout in 33’s to a high of $36 today.  GEOY  $28-31 in two days and SXCI  to a hot $70 yesterday after oppy’s to pick up all the way down to $58 since alerted last week.   That’s a lot of points between them during market turmoil, a few thousand shares in those names is better than 500-1000 shares of even an AAPL momo' type in taking up trading dollars and it comes without the stress.

...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.

..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.