Shadowlist update

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

So where is money flowing to / will flow to?

As much as we'd like to talk about the action of this market,  we can't help but wonder about one thing.   As the Journal title suggests, we just want to know where people are putting their money into or will in days/ months to come?    The selling has been pretty relentless in the past two trading session,  today we had another ugly close into the bell (3rd/4th maybe in 1.5 week) after an already 3% decline Friday.   This is in addition to the weeks of selling pressure present.   The market barometer,  SPX index, is literally at the brink of testing recent and perhaps 8 months low.    FWIW,  the recent low is around 1040,  while the 8 months low is around 1020.   We thought we'd get there as previously noted or lower,  but this is a little sooner than thought as we've hardly touched summer yet.    Forget about the actual Economy or Corporate outlook,  the sentiment out there is pretty shaky.    With a recent disappointing NFP# and constant reminder of Euro debt trouble,  many folks are definitely having doubts of staying in this market, regardless the level.   Oh yeah, 2 aspects to Friday's decline noted this weekend other than NFP were not even mentioned today.    This should have calmed the markets some,  but the market in Europe didn't care and either did U.S as the damage was done as of Friday!. 

• Hungary - "Now the Hungarian economy is on the way to recovery and has shown the first signs of strength in the first quarter of this year.  Therefore, any talk of a fiscal or debt default in Hungary is widely exaggerated."..hit the G20 newsflow. 

• SOGEN- the co was apparently telling analysts that it didn’t suffer losses on derivatives  –Bloomberg

Let's throw in BP  finally making progress in a long time and the market still acts like crap.   Yes, you can blame the NFP# than,  but, even there is a possible positive there as in Census years, the private sec number jumps big in the next report after one like this.    It's all interwined and we're not going into it,  but this number may not tell the whole story.   So, what is it? .

Irrational pessimism?   We think that's a little understatement at this point.   Right now the only near term catalyst for this market is fear and more fear.     Even though many of the potential hazards and concerns that are on people's mind may or may not materialize, but action speaks louder than words.    People are voting to stay on the sideline and not to participate.

We have been pointing out for a long time that this is grinder sort of Economy and market.   The recovery road is going to be a long process which underscores how severe the mortgage and financial crisis have hit us a year and half ago.    Being skeptical of the recovery is definitely a natural behaviour when you are faced China markets correcting over 20% (slowing growth questions), a disappointing NFP# report or negative headlines out of Europe.    However,  we feel it's prudent to give this market and Economy a little time before jumping into any extreme conclusion.     We may be in the minority camp when it comes to this market today, we also feel the market has discounted most, if not all of the concerns out there. 

Bottom line,  with 0% interest rate for many many months to come,  we just wanted to know if people are seriously content about putting their money under their pillow.  

Still,  as of Friday, we're seeing flow out beta small caps...is it rotation?... liquidation/ even margin calls etc. as we've seen in commodities already.  We'll see soon enough.

Yes,  the Iphone 4  couldn't save the world today ... but...

• There's a Euro finance meeting tonight, another tomorrow of all EU and possibly some things will be cleared up.   ECB later this week.  Something will give here in Europe this week and will be a positive catalyst for the markets or else...

..now just waiting on ECB

Most days we’d be thrilled with a 20pt SPX intraday bounce, today it’s sort of a ho-hum event as nothing has changed in regards to the spooked marketplace sentiment.   Technically, we bounced a few times near an important technical level and rallied some into the close,  but it wasn’t as sharp and decisive move as we’d have liked to see under such circumstances.   Still,  we’ll take any positives the market may give after the beatings of the past few days, especially for the Nasdaq which had been slaughtered until some relief came late in the day.

To gain some control back for the Bulls, we need to get over “R” at 1071 and than 1076.  We doubt investors will make too many bets ahead of the ECB meeting June 10th after their last fumble.

What did you expect?

Wishing for a "relatively" non volatile trading day is like asking for a snowfall in the month of June.    At this point, nobody knows how long the volatile action will last.    All we’re wishing for is that for the next 30 days or so,  traders who travel to South Africa or take time off to watch one of the greatest sports events in the world 'DO NOT' bring their portable trading machines with them.   We’ve never blamed the machines here before, but today's action just got under our skin.

Stocks move up and down off pure thoughts these days.    Yup, it's not even about the headline trading.    Too many speculative accounts have access to fast program trading where a large % of moves can be achieved in mere minutes.     As small guys who don't have hundreds of millions and who don't rely on computerized basket trading,  we can only hope that the market returns to a more normalized environment sooner or later.    We are referring to a market environment where most trades are based on longer term strategy but not off hourly instinct.    What's happening is that the current kind of volatility has been driving away potential buyers/investors.    People just cannot stomach the concept of 5%+ volatility of big cap stocks on a daily basis.    This eventually will change, guess we all just have to be patient for it.

Yesterday, in the afternoon we alerted that a potential move would be ‘sharp and exaggerated’.  The first leg came yesterday and than today concluded the sharp and exaggerated all the way to high 1070’s.   The rational was after a testing 1042 twice, any move was prone to momentum carrying it higher and higher due to short covering and yes…those machines going at short term gains.   This would cause the ‘exaggerated’,  which means the last leg would be ‘unfounded’ into “R” territory.   Machines or no machines,  an exaggerated move had no sustainability as investors really had no incentive to make ‘bets’ before the ECB on Thursday.    So, if the slide catalyst was Euro selling off, GOMexico stocks falling apart or just not wanting to be in ahead of the ECB,  it’s irrelevant.   Unfortunately, the positive catalysts today are as well….China export # leak, Bernanke upbeat, positive corporate news or the Beige book release!.   The market is a ‘basket’ case,  it’s impossible to gauge what’s a relative (headline, catalyst) factor or not.

..... GO-aaaaaal!

In case anyone wondered why we ended the past 4 Journals with the ‘relative’ ECB meeting, the answer was clear as the 8:30 Trichet conference began!.  Chart of ES is below of the move commencing on the dot……

Just as we concluded our frustration sound-off last night wondering what a "relative" catalyst for this market is.  We had an answer.   By the opening bell, we had as many as 3 with a change of heart saying risk should come back and these will matter ("relative").  …Here they are again…

Risk should come back...these catalysts should matter

*China export includes a whopping US#
*China Pension...$114 billion National Social Security Fund, said euro will be able to weather the sovereign debt crisis; "I do believe the euro will gradually stabilize and survive the crisis."
*Trichet every word pushing euro higher/ SPX, calming mkts

Firstly,  we`ve been discussing the 'fumbling' of  Trichet recently as a cause for much of the heartache recently.   We concentrated on the ECB this week because in the back of our minds, he couldn't fumble again as he must have had some PR training by now or more like big money guidance this time around...."ECB  later this week… Something will give here in Europe this week and will be a positive catalyst for the markets or else"….. Just like Geithner had you may recall when he started at the helm.  It wasn`t the fact some wild solution, intervention of sorts would come, all he needed was touch on all the points (as he did) to de-stress the market and give it some calmness.

Secondly,  Even though the China export# was leaked yesterday,  it’s relevance all of a sudden became a catalyst and all the talk.    One thing not being mentioned about the number, including the fact it beat consensus by something like 16% was that US shipments rose 23.5% m/m and even Europe rose 19%m/m.    Importantly,   these are May numbers when supposedly the world was falling apart.   Clearly, it was not and China growth is not accelerating downward as feared.  Importance is this relieves an "overhang" on the market sickening it for 2-4 weeks.

Since the opening bell and right into the close,  the talking head guests were adamantly disputing this move.   Yes, recent volatility has the seasoned traders flustered, but the fact is they missed this move through many technical resistance areas.   It's probably unfathomable that we even closed at SPX 1087 for today's naysayers.  

As we said this week,  .."   To gain some control back for the Bulls, we need to get over “R” at 1071 and than 1076."    Well, we did this and beyond on a closing basis!.   So, besides being technically relevant, we think 2 major overhangs got a lift today (Europe/ China).   Not lifted completely, but a lift and that's a start for investors to begin starting to get off the sidelines.   Good thing is still today's move was largely ETF based, individual stocks have catching up to do.   Many are still you can say trading at 1040 levels.  This day and the catalysts involved will only last so long,  but we definitely think it will get investors thinking as risk is to the upside with many not positioned for it into June Q end!. 

All in all, today was a Goal for the Bulls and we can enjoy some World Cup footy action in some peace!.

DJIM #24 2010

Reading some articles around the web,  there's one article citing that the market has not made any progress in last decade.   It also give an impression that investing in the stock market has proven to be an unwise decision for many.    We feel this is the kind of ignorant message that most people just need to avoid.   Unfortunately, the investor has had this forced on him lately as they’ve unwound positions because of ‘supposed’  risk going forward.   Being an affluent investor, one has to have some good idea when to go full cash and when to go full invested.    People do not have to be crazy program traders that live for hourly moves, and there's tons of money that can be made on timely investments.

Last week's action proves that the market was a very good buy when it traded near SPX 1040.    We have been saying all along,  market needs hard data to prove that we belong in the 1000-900s and we need even stronger data that a double dip is coming along.    The news that China's export # came in much stronger than expected has made some people believe that the Euro debt may not impact that much to the global Economic recovery.    As far as China is concerned, this is the case according to their official.   To us, this is big news (US part notably) even though it's still premature to claim that all is well.     It's all about sentiment.    A shift in trading sentiment can be a big catalyst to lift this market above the recent trading range.    Right now, the 200 ma will be looked at closely, but if we get some encouraging Eco' news in the coming week, there's no doubt that we can trade above 1100 again.  In our view, the all important 20ma might be more important than 200ma if sentiment is changing.  A few closes over 20ma and 200ma may not be a factor as the market may just climb right past with improving sentiment being the tailwind.  This sentiment reading we didn't have last try at 200ma, now we may begin to.

For now, we just like to hope that most traders keep their emotion toward the TV screen as oppose to the ticker screen.   The World Cup may actually just be the break many people and this market need to restore some confidence back.    In the coming week, we'd have a couple of Eco' reports, as well as a couple of EPS reports from the likes of BBY and FDX.    Oh yes, it's the early birds for EPS season again.

Bottom line,  we'd like to see last week's positive momentum carried into the coming week.  Friday’s follow through action probably surprised a few Bears.  Now, market needs to show people that it's capable of going up for more than two days and sidelined money should come in for June Q end.

A technical matter..

The Bears will cite today’s action as another failure at around 200ma levels.  In our view, we have to consider as to how fast we got here since Thursday’s ECB conference.

For one thing not many expected a follow through day on Friday as to 2 consecutive days of gains had become a rare occurrence.   Today’s early gap/ action strength and a high of 1106 was even a bigger surprise most likely.   A little too fast and therefore definitely an oppy’ to take some profits knowing full well 200ma breakout would not be so easy and more importantly....so quickly accomplished!.   We should just be happy we closed above the 20ma for a second day and the fact we are basing in the 1040-1110 day now for 4 weeks (21 trading days),  which will make any breakout to the upside that more important and credible.   So, basically we`re in technical purgatory!.   The way the things are shaping up, this range is coming right in to the hands of earnings announcements to decide its summer fate.

Lovely Close...

Above 200 ma, enough said to the Bears!   As we pointed out yesterday following late day slide, there was nothing to fret about as the Bears had you to believe.   Notably today, we moved through a bunch of technical’s between 1106-1114, not just 1108(200ma).   Today's action reminds us of those rosy days in March, potentially with a lot of positive action to look forward to.   Also, we are imagining people are asking themselves why they weren’t buying when the market on the most recent dip to 1040’s, especially after the ECB calmed the markets and China export figures.

For the most part, today's action is more on the ETF side than the individual plays.   Most of the plays on our list are tracking Index performance with a few percent gains.    This is a sign of sidelined money not yet chasing stocks.    Thus, we feel the individual stocks will play a wait and see mode to see if the index can go stay over 200 ma.    It's possible that we can force a short covering leg right through 1125 and all the way to 1150 soon.    Of course, it's possible any bad news can derail the recent bullishness, but you can’t sit around and not trade asking what if we get bad news.   Again, we also have to point out that market was able to shrug off BBY's missed EPS report with tech(semi>5%) leading the charge.  Also importantly, all integral sectors to the market were in the leaders pact.

In the coming days,  we have some Eco data and a report from FDX.   Even though they aren't the game breaking reports that markets are waiting for,  it will still be interesting to see how market reacts to them.    More EPS reports this month can potentially set the stage for a lazy drive to the 1150 area.    Maybe it's just us, but the action from the World Cup celebration seems to shift the market participants' emotional behaviour away from the market.    To us, this is awesome.    Maybe, three more weeks of footy action and we'd eventually forget about the recent correction, for good!

...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.

Nice last 30 min close..

We definitely had some help from strengthening Euro today, plus the market was able to shrug off  disappointing U.S. Econ. data to end the day slightly higher.    The fact that there was a successful closely followed bond offering by Spain and the subsequent move of Euro, really set the tone for this market.    Right now, anything that gives a positive indication that things aren't as bad as people feared in Euro land, people gives our market a shot of calmness.  Also, importantly the premise of buyers coming on dips was present again.

The so called disappointing Eco. data isn't a big issue to us.  Despite the recent mixed signals, (+ consumer confidence still showing resilency) trend still indicates expansion and recovery for the U.S. Economy.    In addition, we came off a very strong April where most of the Econ. reports we remember beat estimates and it's just difficult to repeat the process month after month.    Unless people are anticipating a 10% GDP growth and 5% employment by the end of year, it's just unrealistic to expect a huge increase in key Econ. data month after month.    So, let's just give this Economy some more time and see where it's going.     The earning season is soon upon us and we'd like to give the CEO/CFO's more credibility on their outlook as oppose to some of the raw Econ. data.    Can companies grow profit and revenue while unemployment rate stayed at a relatively high level?   Of course,  it can happen and this is the scenario we are actually banking on.    Of course, picking the right sector that are taking advantage of the recovery is the key to our trading strategy.

As far as plays go, technology plays are outperforming.  Again listed plays like VMW CRM NTAP  were inching to NCH's.   Also, CLH  off list as a play on the oil clean up hit a NCH.  Basically, we have a choice of either chasing/playing the strong techs that are at or near the recent high, or playing the beat up plays that are no where near high and have tons of resistance on the way up.    Well, it's pretty clear choice, isn't it?   Also, we feel commodity, material and industrial stocks are more sensitive to "disappointing" Econ. data as oppose to tech stocks.

Bottom line, market as a whole just wants to churn higher.    The only thing we aren't sure at this point is the pace of the churn.   In either case, we feel with the end of q coming up, some of the fund managers would love to have some of the high beta plays (the ones hitting new highs) in their portfolio.