DJIM #41 2010

Another week, another solid % gain tacked onto the SPX!. The QE train kept rolling with the last hurdle taken out Friday morning with the NFP# report.   If there was any teeter-totters in the FED or in the marketplace, this report surely solidified an unleashing of liquidity to come in their minds.   Add strong earnings from the first Dow component (AA) with the prospect of loose money and the SPX breached the July channel top.  
 

Last weekends Journal with market seemingly fatigued around ~1150,  we talked of rotation into financials (BKX +3% on week)  and commodities  away from tech  …"US Macro data this week should re-inforce a weaker USD/ higher Euro ahead....A rotation should provide enough stimuli for the market to break the Oct '07 trendline eventually....despite the precious metals taking off,  the concern here has been that many commodity linked stocks/ groups were not participating in this ramp off the Euro and decline of USD.    But, late last week, we had some developments that it`s probably time to become 'bullish' and shortly look to get long some commodity-linked stocks" 

Finally,  the widely followed DJIM base metals  got going outperforming the precious metal stocks ….WLT CLF FCX X  all up ~5% on the week.   On Friday,  Ag’ commdities  got into the picture ramping big after USDA reduced it’s supply estimates.  As noted a few months ago, the Ag trade/ picture will last a long time once in motion, therefore there would be a trade after the Russian fires.   Since those days the space has really done nothing,  even with POT offer on the table.    As far as linked plays,  Machinery stocks benefit ACGO CNH DE, but the fast trade will come to the fert' stocks (DJIM’s past included (CF MOS TNH IPI ).  The outperformance of base vs. precious is likely indicating some rotation as well.

Drag…

The tech rotation from last week continued and took on a new phase as this years momo-M&A tech alarmed of a blow off top.   The big caps are providing ‘safety’ now.  If there is overhang on the market, it is this right now as it‘s ‘spooked‘  quite a few.    The markets need to see this cloud picture clear up and earnings / M&A activity will decide this most likely.

It should start to get interesting as attention turns to earnings this week, partially away from the QE. At least for a week or two, we'll see if the Micro can be the driver to higher prices.

DJIM #42 2010

A look at the majors weekly closes,  SPX +1%, Dow -.5%, NASDAQ +2.8%, the mixed results exemplifies the ‘funky’ market tape noted mid week continued on.  Money flow circulated from one leader group. There were as many as 3 ‘group’, 1 day moves this week that kept the market a float.

• 1-’Clouds-Virts’ on Tuesday-  5-7% gains in momo names like FFIV, VMW, CRM after alerted here for a possible catalyst this day. (VMW  EPS on Monday will be important for group, many names reporting later in week)

• 2- Transports./Industrials/ Base metals  rallied huge on Wednesday.   Money flow was discussed previous day and this was the outstanding group coming off CSX earnings, FCX, WLT rallied in the base sec’ …“…Monday, it was the casinos, today the clouds.   Tomorrow, who knows...Commodities?..Banks?..or some EPS stuff.”.   The commodity base material trade bullish call from 2 weeks ago is working, but with USD biggest day in weeks on Friday, this trade may rollover some in the next few days until this minor corrective USD/Euro phase ends.

• 3- Mega caps- it was noted  before Thursday trade…“.the answer is money is also flowing into the ‘safe havens mega caps  like MSFT, CSCO etc".  This premise was only solidified 48 hours later, post GOOG  earnings as it and AAPL AMZN  all ran large on Friday.   So, yes the broad market may have ‘blinkers’ on for GOOG as seen by a flat SPX on Friday, but the ‘groups’ associated  with the catalyst still get the liquidity/mo’ flow.   At least 50% of the small gains in SP this week can be attributed to 4-5 mega cap stocks.

In the middle of all this were some timely words on Fins’  as 2 days of intraday losses of 4-5% followed hitting the money center banks and JPM etc, that also helped the ’rotation’ picture as money flowed out of this group.     A wild underlying market week on the micro side and the macro side was just as wild.  

Since the FOMC minutes a shift to selling TSY’s is probably underway,  which would signal that QE2 is selling on the news.. (USD just doesn't go up any more right?)…The fact it did Friday after Ben's address and inflation data, this is probably the case, but still equities did not sell off on the higher USD.    This could be because rotation/liquidity into stocks from Treasuries is the natural course, even if it signals QE2 is selling on the news.   How’s that for confusing?.   It actually might not be as the market remains steady because individual groups get enough liquidity to sustain it.    Only thing to do is go with the ‘premise’ discussed into Wednesday…“As the last few days point out, it’s very possible to trade from a defensive posture (as in not being heavily exposed overnight mostly) to avoid any surprise sell off and to have money available to jump on new company specific earnings.   It also allows you to use that money to play groups moving on a particular day , if no earnings plays show up".   It may not be perfect the action for broad market follow through, but it gets you through day to day.  Like every other trade that gets crowded and fatigues, QE2 is also such a trade is something to keep in mind!.

So, just sticking to this trading methodology as it’s "sell the news"  in TSY, which interwines to QEII, but it’s "buy the news" in particular sectors/stocks off earnings.  How long can this daily rotation keep up until the 2 major groups (Fins’/Semi’s) struggle wear down the market?