DJIM 21, 2010

Last week woke a lot of people up!  People have realized that our market is once again no longer a safe place to be in as it’s reminiscent of  Bear/Lehman and Tarp days. How else would anyone explain a 7% rundown in as little as five trading days?   Of course, at the end of the week, we have all kinds of people saying "I told you so"!    These are the same people who have been thinking a double dip in recession is in the cards from last year.  We still don’t think that’s in the cards.  So, who’s going to be right and what is one to do?

When the market has pulled back over 10% in as little as 2 weeks, the action cannot be regarded as orderly.   Judging by the ferocious trading pace and volume during the last two weeks, we would go as far as saying there was some fear induced panic selling from time to time as confidence fell in the marketplace on more than a few fronts. ( Europe, FinReg, flash plunge day).  This can be a powerful thing even if it proved to be an unwarranted fear later on.    For now, as long as people have this fear on the back of their mind,  we can't rule out the possibility that the market can go lower over the summer.    How do we tell the market is no longer in fear mode?   The volatility and the volume of the trading will give a pretty good clue to what sort of frame of mind this market will be in going forward.

A lot of things that people have been reading about lately are mere speculation that may or may not happen.    Whether it has a low probability of happening is irrelevant at this point, as long as people hold on to that part of fear that things will get much worse than we expected, the pressure will be there to sell this market off.    On the other hand, if things do turn out much better than people have suggested, then this market can very much resume its previous course and move up very quickly.  De-risking as is happening now, will turn to risk back on again.

To DJIM, we feel this is an opportunity to accumulate some positions.   Even if this market has the potential to be in the low SPX 1000 this summer, we can’t sit around and get a tan.  We’ve traded throughout 2007-08 with a long bias in the middle of a situation that many parallel to know and we were successful.   How and why without shorting?   Even in 2008 crisis,  groups bottomed while market fell another 20-30% in late 08- early 09.   If you do some homework and look back to this time/charts, you will see this in many groups.   We should be able to it in 2010 until things stabilize.   There's simply no evidence that any of the fear that market's concerned about will materialize down the road.    In addition, with 10% discount of this market and potentially more downside in the works, this market basically has nothing to lose, but everything to gain at this point.    We will be accumulating some shares slowly and selectively given the nature of the volatility, some groups will be bottoming here and we just have recognize and find them. (w/ low Euro exposure to start/ high domestic sales).

Paring short covering gains..

Today was disappointing as the market gave no hints of follow through on Friday’s action or the fact this week is very light on eco’ data front.    It simply drifted down.   One, if not, the biggest worry is signs of slowing recovery following last week’s weak data outlined here, so this was/is the market’s oppy to bounce before potentially more weak (May) data next week.   It failed miserably today to take advantage of this week’s lull.   As far as follow through, today’s session was disappointing as it was too quiet (volume) showing buyers are not ready to step in.   So many individual stocks breakdowns are not being bought today, which is a major concern.   What potentially may add to selling is when tier1’s GS, JPM start to take down estimates due to slowing growth worries.   This may cause further exodus out of some sectors, individual stocks in those groups.  Fear is this may not be priced in yet by those still heavily invested.

All in all,  Friday points to nothing but short covering and our last chart on the journal’s pages may show the Nov-Feb trendline is ‘Glass'  with low SPX 1000’s in the cards this summer becoming a very likely scenario.   Next support will be Feb. low 1044.

A little promising...

Forget about the CC# that came in better than expected and forget about the nice EPS report by AZO   (on heels of AAP, one of strongest groups),  this market is totally emotionally driven with no concern about what the consumer thinks on the recovery front (CC# is labour vs. financial market weighted) or earnings at this point for a positive twist.    Honestly, the best case for anyone who's playing on the long side is a massive gap down morning like today.    Basically, when the market gaps down these many points on catalysts that are only emotional or none at all as the case was today (in addition to an already way oversold environment which equals Feb. Bounce low), what you end up having is the end result of today, a bounce off 1044 support.   A nice rally, but one that came with no conviction on the morning selling or real afternoon conviction buying.   We want to see follow through with not a lack of sellers, short covering,  but one that has buyers chasing!!.   That is conviction buying.   This day could be promising, but does not prove anything yet.

So,  does today mean the end of the slide and beginning of a huge rebound?   Probably not!  What it means is that unless the market's volatility eases, this is the kind of market action we'll continue to see on a daily basis.    So when is the volatility going to ease?   Well, nobody has the answer at the moment.    What we do know, at this point, is that most of us are immune to the wild swing and 300 pt+ reversal these days.    About a month ago, any day where the market drops over 100 pts on Dow, it kind of spooks people and a back to back drop of that many points was even unthinkable.    This month, it seemed the world turned upside down as far as volatility is concerned.    Believe it or not, the volume of SPY within the last two weeks is actually more than the two weeks of Feb. 2009 when the market went from SPX 800 to SPX 666.    This goes to show the kind of action we are going through right now.    Here's the good thing, the volatility will eventually die down and we are definitely closer now than a week ago.   Perhaps, the long weekend that officially kicks off the summer season for traders can get this market to move in a quieter and more manageable fashion ending the ‘Mayfest’ .

There are two things we want to point out though.   Market's advance and reversal today has been led by Financials and Commodities.     Why could this be important?    Financials represent the area where people were backing off due to the European concern in the last couple of weeks.   Commodities represent the area of Economic recovery for the world.    Both are key representation of investors' sentiment.    Well, it may not mean that much if we get another gap down next couple of days ,but we just wanted to point it out because some charts of the plays from above sectors look like they are ready to rebound. 

Bottom line,  regardless how the institutions play out their game,  right now is a time to dip some toes on the long side.    Whether we have more points on the downside from SPX is somewhat irrelevant at this point because looking at a lot of individual plays,  the upside just looks way more appealing than the downside.

Crazy and Crazier...

Yep, as in 'Dumb and Dumber'…'Crazy and Crazier' is this market’s motto!..  AMC, picked up a local Business paper, Globe & Mail (for once) and couldn’t believe the pages full of Europe, China and thus U.S destruction coming…page after page, article after article, left this trader in disbelieve of what is being spit from the mouth regarding this recovery.    Doom is seemingly the consensus!.   Look,  even if we think the market has a chance of low SPX1000’s (we already had 1040), it doesn’t mean there won’t be oppy’s discussed the other day of being very profitable in the worst of time,  even with a long bias!.    The summer has just started and that means we have June, July and August to go up and down and up and down and maybe hit those low 1000’s.   Even if it does, it won't necessarily mean the recovery is dead.     We can’t sit by and wait and do nothing!.    If we do, we’ll be with all the naysayer’s, the same ones we didn’t listen to from early 2009 and are not about to now.  Instead of reading another piece of financial ‘tabloids’ going forward,  we honestly will use our own Journals as way of not straying as we‘ve always do.    These daily musings keep us in check…inline, we go back and read what we had previously thought day after day..week after week.   When we thought a ‘sizable’ correction was coming in April, we followed the script heading into May as hard as it seemed at times not to jump knees deep in positions near 1200!.   The ducks were lining up if we go back and review beginning with the X  and such we noted.    Simply... point is days like this will make you go nuts and question even your fast intraday moves in the marketplace.   It’s crazy and will get crazier,  if all investors crater to the fears that are in the Financial tabloids day after day here in May.  

'Coulda, Woulda , Shoulda'  is something every trader lives with day after day with trading decisions, it is also the same words that might be muttered when SPX is >1230 by XMAS/ New year's.   At that point, we don’t want be saying,  we’ve been Dumb and Dumber!

Month End.."Top kill" it!

Even though it's only been FIVE trading days where we traded below SPX1100, already, people are talking about SPX 1095 followed by 1104/200ma, as if it's the biggest technical resistance of the year!.     It's true,  we made no less than three attempts at 1095 in last few days and every time we just get rolled over hard to the down side.     The downside,  it seems, can be so devastating once the momentum reverses.    We have witnessed a drop of 50+ SPX points in matter of hours when "machines" take over control of our trading activity.    However, today it feels like it's business as usual with the "month end" fund buying globally.

How can we even tell if it's fund buying and not short covering?   Well, we can't be for certain, but we are going with the month end fund buying anyway as it was a global climb that started at 3am and just continued as steady can be.!  Too many overnight points with no amazing catalyst had many scratching their heads.   Basically, trying to pinpoint any hourly move with a legitimate reason is futile as the market is running on emotion.   If media says this is the reason we are getting a selloff or rally, who are we to argue?    In any case, the volatility in this market last few days may have driven people's emotion into untested territory.    So, we'll just take today's 35 pt rally in SPX as is.    What can you do on a day like this?   Simply put, you'll have to participate even if most of the points (26 by 7am) are done with while we’re in bed.   We are not talking about chasing stuff throughout the day, we meant you have to stick your toe in the market when everything was getting sold left and right last few days as discussed.    If you were simply watching and cheering the fact you weren't hurt by the volatility by not be involved in the market, then we don't imagine you'd be too happy after seeing today's action.    Just to put it in perspective, we merely cleared SPX 1100 and we are still significantly down from the recent high.     What we are really hoping for is that we've seen the low for the time being so we know where to pick a point of reference to trade our favourite plays.  A few recent ones like SPRD, SXCI  were making new 52wk highs.

We have another trading before the long weekend kicks off and a new month starts.    In a way, we'd like to see this month over as soon as possible in a quiet whimper.    It's been a very tiring and emotionally draining month for all of us and a long weekend is definitely what everyone deserves.   In addition,  we are hoping that the month of May gets most of the volatility out of the way and we begin June with some quieter action.   After all, who really wants to keep an eye on market when the biggest event of the world (world cup soccer) is right around the corner?

Happy & Safe Holiday!

DJIM #22 2010

Just because we get to flip the calendar page from May to June come Tuesday,  it doesn’t mean much in and to the trading world.   It`s not a new dawn!.  One thing we’ve always alluded to is bad news is usually saved post - holidays, notably Thanksgiving and Xmas, but it’s just as possible this holiday as well to keep in mind.     Despite all the turmoil early last week with possible capitulation occurring,  it seems things have gotten a bit to quiet end of week. (especially on the European front).   Hopefully, the quietness is a sign of some kind of stability and sanity beginning,  but it’s not going to be a 360 turnaround immediately in June.    We must understand money is unwilling to step in so quickly,  so we maintain the same premise from last week as in putting in toes in the market, but not diving in to be soaked from head to toe with holdings.   Let’s give the market another week and than be the judge.   What we saw last week 5/26 lows and/or from flash crash,  if  capitulation,  it needs time to work through.   This is just a historical fact, that markets don’t go V shape after such corrections.

Another reason for the week wait is something we noted to start last week and it deals with the possible ‘slowing growth’ factor.   Last week,  we said the market would have an oppy’ to use the lull week in eco’data as an advantage and it clearly did not.   This week is the important data.. a few ISM’s (may data starting Tuesday), China PMI`s, auto sales, retail updates, NFP#!.  Weakness will likely mean a step back in all respects for the market.

Tough start to June..

Well, one thing we have confirmed today is that the trading sentiment from May has carried right into June.  Market was all over the place!.  Judging from the action, a bad overnight start, a rally attempt and than a failure of it as the market closed poorly back at those overnight bottom levels.  That’s not a whole lot of change from the volatile trading we are used to from last week(s).  Same issues that have been haunting the market before are still on traders' mind today despite a few days to recuperate.

Of course,  we didn't exactly expect traders to change their mindset over a short holiday, but we do find it amazing though that the type of trading stemming from fear has not eased a lick since last week.   Sure, China PMI  was short of expectations (result coals/steels stocks whacked ~8-10%),  but US ISM  was ‘bullish’  for production in months ahead and was firing on all cylinders in May.   This ISM # should have eased slowing growth concerns for more than a few hours!.   Maybe it will (it should if #'s like this) once the comatose investor switches focus from all the shenanigans encountered in May.    Is this a bit frustrating?    It's probably an understatement because the volatility doesn't seem to tire people out.    Simply, we didn't like how this market started the week/ month the way it did.    However,  what's done is done and there's nothing we can do about it.   From the look of it,  market's definitely capable of testing the recent low within a week given the fact we have a job report coming out.    However, seeing how we bounced nicely off 1040 recently, it's likely that it can happen again and we’ll prepared for it.

..It (eco'data) does matter!...

It’s not to so hard to understand where today’s ‘all day 2.5% rally' stemmed from…yep!..all day, as in a rally with a good open and a good close,  not one the gives up gains late into the close as Tuesday and last Friday.

We headed into the week bolding.…“This week is the important data.. a few ISM's May data starting Tuesday), China PMI`s, auto sales, retail updates, NFP#!.  Weakness will likely mean a step back in all respects for the market.”… Yesterday…after a miserable close…  "..but US ISM was “bullish”  for production in months ahead and was firing on all cylinders in May.   This ISM # should have eased slowing growth concerns for more than a few hours!.   Maybe it will (it should if #'s like this) once the comatose investor switches focus from all the shenanigans encountered in May.     Well, maybe today the comatose investor stared to wake up on the heels of the neglected strong ISM reading.   Follow through on eco’ data started with an upbeat pending home sales # and the afternoon,  SAAR auto #’s came in much stronger than anticipated as well.    The importance of this weeks data is it shows what was happening while the European shenanigans were going on in May, so far,  it shows US economy didn’t blink an eye to all the turmoil and possible effects across the pond.

So, a few down #‘s and a couple more to go this week starting with retail tomorrow.   In our view,  a weak retail and a very strong NFP# is the expectation now and may not be as important as what we already got this week.   It should be enough at this point to rally further into Friday post NFP#).  How far we get by post NFP# will depend how far we can push coming now to the critical 200ma (~1105) as the market does a re-test of a previous rally from 1040.  (Note..a catalyst not getting much noise today is very important and that is from an overseas overhang on markets.  Spanish regional banks were able to reach a deal on merger terms after talks for a few weeks and won’t have gov’t seizures as had already occurred earlier).  So, if Europe happy and U.S stay happy, together we can push through all the technical resistance up to and over 1120 eventually.

Positives are this was move was broad sector based and the close was pretty, not ‘ugly’ as Tues/last Fri,. broke thru 2 ’R’ levels at 1083  & 1095 and thus, we’re bullish thinking SPX, >1120 to 1150 in the making for this leg.    A good aspect to the broad rally is the majority of our listed high beta stocks didn’t get out of hand today.   The gains were subtle given the 2.5% broad jump and give an oppy’ to get some popular beta names tomorrow or set ups ie. DGIT, a stock we added to our list that is similar biz to VCI here………(or even better on pullbacks if given)  that are not extended due to one day’s action. 

...and the number is...????

Most of  DJIM discussion this week centred around home front/Economic data.  It‘s slowly making it‘s way back to the markets talking heads.   This is good because we are finally taking a break from Eurozone and switching some focus.   Well, we don't know how long this is going to last because once the NFP report comes out tomorrow, folks may just concentrate back onto the Euro worries now that the market has rallied from SPX1040 to 1105/200ma.   Many have not grasped that we've actually rallied since the 25th/1040.   Those in the rally play may want to sell over 1100,  but those sidelined may begin to feel some anxiety of this move going further.   Stay tuned...

However,  it's important to give some thoughts on the recent Econ. data.    People have been pointing out the fact that although the Economy is recovering, growth has slowed recently.   The fact China is down >20% is evidence of the ’growth’ investor has been slipping away this year.   Also, fear of Euro May problems derailing activity in US has been on the mind.  This weeks macro #`s show it hasn’t derailed things in May.   The eco` downshift may not be as great as feared due to Eurozone.  Unfortunately, a fresh twist in our waters now... the ramifications of the BP spill will begin to put June #'s into question sooner than later by the market.!    We feel all these fears are very natural because sooner or later this is what had to happen for the markets not get out of hand.    Basically we need to level off the growth curve for a bit before we can tick higher.    The biggest obstacle to the recovery remains the unemployment rate.   It seems no matter how many jobs we create, it just won't be enough to replace those millions of jobs that were lost during last couple of years.    It'll be a long way before the unemployment rate comes down to a reasonable level.    By then, the Economy will be at full steam and we bet many of the plays-sec`s we like will be trading at a much higher valuation.    This is always the case in an upward Economic cycle.

As far as market goes,  SPX stopped dead at 200 MA today.  Volume was relatively light and people are most likely waiting for the NFP report tomorrow to give them a reason to make their next move.  Today’s somewhat green to flat action gives the market some room to manoeuvre, if we broke out over 200ma today,  we’d probably have a better chance for a sell on the news(NFP#), no matter what the # would be.  As we all know,  selling on any NFP# is always a possibility and will be on this census skewed report as well.  Watch private sector jobs, whisper highs a tad over 200k.

Excluding the commodity linked stocks (Again, China housing clamp cooling property mkt big time), many plays behaved really well, especially in softie tech.  We had M&A activity (SNWL) once again in the group and DJIM listed softies, CRM VMW  and another VRSN  added hitting NCH`s. (will update Shadowlist this weekend).  Others like DGIT, DLB  also put in nice days.  

In all honesty, if we can close out the week in a relative quiet fashion, it'd be a nice confidence boost for the sidelined investors to slowly buy into the market again.    Right now, the most important issue for this market is to ease the volatility and stop the late day sell offs.   It stopped today and yesterday,  let this continue today and we`ll be happy heading into the weekend.

DJIM #23 2010

…and the number is …?…41k private sec jobs!.  To put that into perspective,  Canada pumped out 43K!.   If there was any anxious money to come off the sidelines for this rally to continue over 200ma,  it was crushed quite handily.   Hands back in pockets.  Time over time, it seems critical “R” or  “S” brings out either a big negative or positive catalysts to allow for a breakdown or breakout.   This time is no different as NFP # expectations boosted by Obama/Biden boosting mid-week were seemingly a high probability.    The idea of this type of hype by leaders not coming to fruition is unfathomable and just an outright lie at this sensitive time.     Too bad this lie part of the equation will be muted out and instead something like Hungary’s woes, SocGen’s derivative rumors get used as part of the breakdown equation.   The Hungary problem was noise on Thursday with CDS widened out big, the big money was in the know and it didn’t do much selling on Thursday or overnight, the SocGen is probably just noise.    Despite the disappointment in the NFP# headlines,  there were underlying positives in labour income growth and workweek earnings increased for wage growth for the first time in a long time.  Of course, these figures only matter to the economists, the investor/ trader was only looking at the anaemic caution shown by employers to hire in the headline #'s.

The scope of the selling from 6am ES at ~1108 to 4pm SPX to below flash crash 1066 was a slow painful snowball as every sector was hit hard.  No mercy.  Unfortunately, the important groups in the market led the fall….Transports, Industrial, Materials  and unless this trend in the core groups changes quickly it could be signalling we test 1000 sooner than later this summer.    Simply,  there were no survivors on this day for any long holders.   After some consideration of the catalysts and the pace of persistent selling happening into a weekend,  we think it’s overdone giving probability to some buying to begin the week.   The longer term picture is more complicated. 

ECB  meeting this Thursday.  Recall last time they didn’t address concerns and we sunk as badly as we did Friday.   Let’s hope for something different this time around for market’s sake or we’ll have to pray the new Iphone unveiling this week will literally save the world… create jobs, stop contagion, cap and contain oil spills, stop potential wars, make soft landings in China!.