nice kick off

Beating the "bull drum" since March… we don’t expect anything as dramatic as ‘09 (shockwaves of 08-09 are gone!) in both directions.   Still, we expect a continuation of the rally into ‘10 as we‘ve been drumming in December to stay long.   We are seemingly on positive footing which is advantageous to our ‘growth’ oriented stock/ sector picking as fiscal initiatives (unwinding of policy stimulus) globally will be baby steps.   So, overweight equities is the strategy,  we hope this becomes universal (retail investors) as returns on capital will be in the equity markets and fund flows will occur.  High beta, small-mid caps, high beta regions, cyclical. 

This was the theme in December, R2K went from 590 to a breakout to 640/>2% today on the R2K...Into Dec 3rd trade..."Even though the rally seems to keep losing momo’ in this range up to 1120 ,  we’re not listening!.  Yesterday, we said it will be a selective stock/ sub groups pickers market going into year end and we’ll stick to that!  R2K  big outperformance up >1% of the market maybe a clue of things to come". 

We left off before holidays with DJIM #51 and some selective names..."Only 2 ½ trading days ahead this week,  some window dressing Q end may begin with some recent beat up mega  stocks AAPL AMZN  getting a bid .  We think it’s a stock pickers market now and will be in 2010 as lower volatility and the search away from zero returns brings money into risk assets (equities).... Also trading some (GMCR OVTI ) off recent low possible turns)".   One glance at charts off these stocks for the R2K period above and you can easily see the great outperformance to the SPX while it flirted with a breakout, yet finished the year below 1120. 

Today, we had the only underperforming group in December of high betas taking center stage with the Casino's led by WYNN, LVS +10%.  We`ve discussed previously how fast these move due to squeezes and today was no exception after consolidating most of December.  An upgrade and good Macau December numbers attributed to the pop.

Coals,  WLT, ANR  another high beta group also participated due to China weather again as supplies are disrupted. 

Chems' Ferts,  back near top of trading list after bullish GS call.  More firms will likely follow.  POT, MOS, CMP

This the bullish road we’re taking in early '10, a swerve would only be from tightening too soon, an error of policy here or abroad will cause us to change our stance likely.   Heading into this earnings season, 3 strong Q’s have already been seen in the recovery and a 4th should be ahead.   But, before earnings kick off, we have Global PMI December readings to chew on and U.S unemployment # to signal more broad recovery strength.   Today's PMI globally/ ISM in US were solid, if not robust!.

We are curious too...

 After witnessing some steady selling for nearly two weeks long, we finally got some broad buying today off "weak" volume.    Well, it's weak volume according to many market analysts because the average declining volume during the last few days is much higher than today's volume.    However, today's volume is above average if you take into account the three months average.    In another word, volume isn't bad out there.   What most people are concerned, at this point, is whether this is nothing but a temporary bounce which may leads to further decline sooner or later.  A positive is strength was not sold as in any uptick last week and finally Oil/ Gold gave overall upward direction.   We need some follow through, today we had no bad headline news flow and a few positive catalysts in Volker rules possibly not passing, ISM and the budget details were not as feared for foreign corporate profits.

It's true, after some relentless selling during the last few days, any bounce is not trustworthy.    Since many of us have accepted the notion that this market can drop another 5% or more, today's action seems like just an inconvenient step stone to the inevitable outcome.   Or is it?     Over the past few months, we have witnessed market's move that is anything but rational.    Even though the possibility of market going much lower is pretty high, it doesn't mean that it will..     How do we play this then?   Right now, many plays on our listed plays are due for a bounce and this is the way we are calling it.    Whether this moves translates into something else few days down the road, then,  we'll give it a new assessment.   For now, we are treating today's action as simply an oversold  ‘short covering’ bounce with the hedgies stopping end of month selling as discussed late last week.     If some plays happen to establish some strong support at the recent low after a few days, then we'll likely enter a more meaningful position for a trade.      As far as this bounce goes, if trading, sticking with ETFs and some sector beta stocks for as long as majority of stocks below 9ema.  Friday, we alerted the ‘Casino’ Macau space and today LVS WYNN  were the big beta winners.

Remember, if we are treating this move as nothing but a short term bounce, we ought to stick our trading strategy as fast trade only.   If this somehow establishes a support for SPX and the market sentiment picks up, we'll likely add back some longer term position.     In any case, there's no rush to go big into some smaller plays on first sign of positive action.  

What worked... still works...

Is this the "everything is going fine" melt up we’re witnessing on the back of solid NFP# / global PMI‘s from last week and today‘s ISM non-manuf‘ & Pending home sales?   Is this the same stock market we've been playing day in and day out since early last year?   The more we ask ourselves, the more uncertain of an answer we'd come up with.    Cast aside any personal opinions and too much analyzing, this is what it is…the market is still very resilient,  investors are favouring risky assets, especially on any shallow pullbacks and that is all that matters.    We are at SPX 1187, up over 500 points from the low we hit early last year.    If memory serves correct, the pace of this bull market will slow down dramatically,  just like in the other bull markets of the past.    Of course, knowing that the pace will slow down and knowing when it will slow down are two different things.

Our speculation is that sometime during the coming earning season, the pace will slow down.  Possibly a May sizable correction coinciding with the “Sell and go away in May” almanac trading mentality returning as things have gotten back to normal.    Right now, market has risen to a point that a lot of positive things are expected for this quarter and beyond.    You can also say that some of the price movement from some of the plays on our list may reflect all of the potential good things in them.     Does this mean the end of the bull run is near?    Hardly!    First, we have merely gone from being really undervalued to somewhat fully valued.    This is also a big if because we can't generalize everything in this market as being fully valued.   Some companies, given the current environment and their prospect, may still be "cheap" if they can capture the growth opportunities.    Here's the thing, not all of the companies out there are in the same phase of this Economic recovery.   Some companies have indeed been recovering, like many commodity plays, from the slump in demand over the last couple of years.    Other companies, such as those in technology sector, are having the kind of growth they've never seen in their history.   In other words,  recovery or not, some companies are seeing their business at the best level despite the fact we are still sitting at a "cough" 9.7% unemployment rate.

Here's the thing though, it looks like we are playing both the recovery and growth theme at the same time.    In our opinion, it can probably only get better from here.    Today's action is simply broad based and led by familiar DJIM shadowlisted plays hitting new highs, outperformed with R2K the other major indicies.    The semi LED group ( RBCN CREE VECO AIXG ) being the strongest, as well as gaming stocks ( WYNN  LVS ) and our favorite X CLF WLT  commodity linked plays all taking on some nice gains throughout the day.    We are talking about mostly EPS winners that have made it to our list in the past,  econ. sensitive material stocks and as well as consumer discretionary gaming stocks going up all at once.    It truly is a bullish feeling out there.    

However, although we broke out of the recent high of SPX 1180 and closed at a new fresh rally high, the volume is somewhat disappointing, but the majority of world markets were still on holidays.    We can only conclude that many longs are just holding that much tighter to their holdings, in spite of recent gains.      Again, sometime this earning season, we may able to see if people are willing to lock in some profit before the lazy summer hits.

Bottom line, we definitely started the week with a bang.   The question is, can we keep this going...

Shadowlist update

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

..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.

..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. 

Subdued is just fine..

It’s going to take more than some short term USD momentum and European peripheries fragility back on the table to swing this market downwards.  It might’ve been good for ~5-6 SPX points to the downside early, but it was hardly selling pressure before the dip buying began.   Even with continued strength in USD, the commodity linked groups performed well.   Also, the Super-Fins’ discussed late last week as a possible catalyst for higher prices into year end did nothing to dispel this idea.

Market moving catalysts will continue to be sparse this week with US earnings wound down (but, European EPS starting, which may provide more strength for markets),  little eco data, so pullbacks should remain shallow with buyers showing up on the weakness.   

In this subdued trading environment, you’re going to see different groups leading for the day and on any given day different  names off Shadowlisted plays hitting new intraday highs..today eg. SOHU MOTR ILMN HLF WYNN SPRD.