Clouds rolled in….

Today’s eco’ developments leading to crazy market developments/ action was enough to leave any investor/trader with dizzy spells into the night.   You actually don’t know where to start in dissecting the ramifications of it all.    Do you pretend to be an economist in trying to figure out the rolling clouds of ugly data (add housing, ISM) and get on the double dip/recession longer out bandwagon (we won't, no matter the fear mongering out there) or do you pretend to a be a technical guru and try to predict if we hit short term support at 1008 (March 09- April ‘10 38.2 retrace) and continue today’s bounce and/or did we have a decisive H&S neckline break at 1040 and about to do the “death cross” 50/200ma’s... Hell  ...while we're at it,  why not try to understand the incredible move on the Euro and the flight from USD as a safe haven.  Isn’t a lower USD, higher Euro usually good for the stock market?… or is it just a greater sign of global alarm bells going off or just a consequence of ECB tightening this week?  Interpretations of all this are going to be off the wall!.  Before today, we were thinking the performance of the 10yrTSY ($TNX) vs. the S&P in the previous Q would lead to an eventual 'rotation'.  You can only bleed so much out of one or the other before the herd reverses the trade as it has in USD/EURO in big ways.  So, the $TNX is another indicator we're watching.

Believe it or not, we actually saw some interesting positives that may lead to the early July bounce we just talked about yesterday...but, you know what?…let’s get through the June NFP# tomorrow first, last bearish consensus we know is a forecast of -130/140K  with a rebound in private +110k, but that may have changed some.   If by miracle from the gods through the rolled in clouds,  the #'s are viewed positively and/or worse case scenario is somehow baked, than of course, we may bounce further.     But, unless a close of 1040 is achieved in order to avoid a bearish 'weekly' stick,  we doubt sentiment will change about the markets this quickly.

DJIM #27, 2010

The 2H-2010 officially kicked off with the celebration of National Holiday’s both sides of the border.   Other than the fact, we've actually finished 1H-2010, there's really nothing certain that can be drawn from the performance of the first half of the year or anything to celebrate (major indicies negative 7-8%,YTD )   Unfortunately for 2H, there's nothing but fresh uncertainty due to the past 2 weeks of ‘soft’ eco data.

Lets face it!   We have to accept the fact that the Economic recovery has slowed, if not outright stalled.   In our experience, this may just be a very natural and a healthy process.   However, because there's so much going on in the rest of the world that are beyond our control, it's entirely possible that this Economic recovery can be derailed.    This is not a scary thought!   We are basing this purely off the reaction of market participants over the past few weeks.    We know that market likes to anticipate things few months in advance with their action.    Given the fact that we are on a verge of breaking below 1000 SPX, market is currently writing off a lot of good potential for the rest of this year.    As it stands, market is discounting stock prices in anticipation that bad things will happen next couple of quarter.  

So, what may actually happen?   This market may settle anywhere between SPX 943 to 980 before a clearer trend emerges on where this Economy is going and how the rest of the world is faring.    In honesty,  if we do end up having a double dip recession, this market will fall a lot further than 950-(943,50% retrace of this Bull run). 

Therefore as of right now, we have to be mentally prepared for any potential movement in short term.    What if things don't come out as bad as this market fears?   What if this coming quarters profit reports are actually better than expected and company executives are actually upbeat in their guidance about the second half?    In the case, we can bet that this market can quickly move back into a bull mode as this would give the market it‘s much needed stability and this current SPX1000 level will be the support/ top of this correction range.    There's just so much sideline money out there that can warrant such a scenario.   This market feels like a fast machine that just doesn't stop.   Right now, the momentum is on the downside and we have to make sure everyone clearly understands that.

The coming week is a short week before AA kicks off EPS season a week from tomorrow.   This means that we won't have to wait much longer before witnessing any evidence of the state of this Economic recovery.  In the meantime, we simply have to take side notes to see which plays appear to be relatively the strongest when the seemingly inevitable breach of 1k SPX plays out.   Still...a chance of a bounce on this relatively quiet data week after a liquidation into month's end coming into earnings is a possibility.

Please add the below fresh Journal link and update email subscription on this page in the next couple of days:

http://www.djimstocks.com/djim-journal-2h-2010/

+5 SPX points...best day

..Believe it or not, that's the best % gain since June 15th!.

When you see the ES down to very low 1000’s early evening, the last thing you want see is a ramp later overnight and than a move to a cluster of resistance just over 1040-45 by 10am.   This is simply a set up for disappointment as this ramp job was on ' no ground breaking’ catalyst to get the market out of it’s misery.   This up move had all the reasons in the world to be rejected in the 1040+ range.   We recently said we’re watching the TSY’s ($TNX) for possible rotation , if you were playing CNBC in the background all the talk was TSY’s early action was not indicative of money going into riskier assets (equities). 

The best way possibly to look at the market is by it’s close of 1028.  The Bulls and Bears should not be over analyzing the moves up or down and neither side should be excited or depressed over it.  Why?.  The move up had no conviction, real buyers and the sell off had no real sellers, except fast traders and those profit takers who saw this as a gift!.  It was a pure lack of buying that just naturally would exhaust itself, the bulls ran out of buyers and downturn ensued.    We’d look at the close today, a 3rd over 1020 as a potential base forming and nothing more.   A stoppage to the recent carnage, a view to the daily index chart may be the only thing the brings out real buyers soon thinking the market has settled and bottomed for now.

The ‘doom and gloom’ speak is excessive now and most measures of market sentiment prove it as we are at March ‘09 lows or at 2010 low’s in other sentiment readings.  It can’t be more oversold seemingly at this point and barring any negative surprises, the next move upwards should fare much better.

Today's pre-market alert:..some light at the end of the doom and gloom tunnel, mkt has/may have stuff to work with Euro stress test criteria to be laid out today likely, if ' tough' enough might be a positive catalyst.

Some more positives possibly out of China..won't make new initiatives on property mkt. Yesterday was 100bln of infrastructure programs by gov't announced..

Samsung prelim #'s good, but no guidance as usual

2H-2010 Journals---Bull fiestas'

Quite fittingly on the day of the Running of the Bulls and a big World cup victory for Spain, the bruised Bulls of North America ran and ran surprising the markets with a relentless push higher throughout the day.   On the topic of surprise,  we have no doubt many were left flat-footed on the sidelines caught up in a holiday week or possibly in a bar watching the Semi-final game.   This could be beneficial as they come to play and hold up the market over the important 1040 neckline heading into the first week of earnings.   Today’s run through SPX1040, than to 1050 and than to 1060 was impressive (volume or not) as some major resistances were busted.    Yesterday’s note on the 3rd consecutive close over 1020 did bring out a change in sentiment and now seriously ‘buyers’ have to think the “market has settled and bottomed”.   We only need to 'think' it did for the time being to have a decent market,  we don't need some confirmation.  Anyways, there is really no such 'confirmation' thing in this game.

So, while many were surprised, we only have to go back to yesterday’s Journal and understand the changes from the prior days ramp and than surrender.   So, let's look at the differences…point of looking back is to learn the market and to be able to recognize future signals in your trading career.

Tuesday,  "No ground breaking catalyst" . Today, alerted 3 potential catalysts before open, each having something for every sector and thus a broad based rally ensued.   Some stress test criteria was published/ wires in the morning and it was enough (limited details so far) to push the market through 1040. ** (ECB-Trichet.press conference Thursday to monitor as a possible market mover) . 

'Big Boy' Samsung call was good for techs as anything better than feared is good in the markets mind these days.   Add STT  and a decent earnings picture possibility hit from 2 big names for 2 major sectors in the market.  The China speak has led to a 2 day move in the Shang' as sentiment improves because a winding down of programs is seemingly underway. (Materials rode China).

Tuesday, TSY action was not indicative of equities move, no sell off in it.   Watching the $TNX today , the weakness in 10’s was a signal this rally was not going to peter out like the previous days.

So, we had signals to believe the next upward move would fare better.   Now, the question is if this has legs??.  Well,  we'll just have to continue to watch the $TNX as it may be signalling rotation for more than a day.    Of course, we can derail as earnings begin to hit next week, but on the other hand we may continue a steady march if sentiment has bottomed.  Sidelined money will probably wait for 'dips', instead of an outright chase of equities from here.  There is room for such because eco`data will be sparse until August hits and we see how July was.   Starting next week, we will live by the guidance from the CEO/CFO`s.    A reprieve from 1000 SPX territory is all we can ask for at this stage. 

So long 1020...

It is pretty safe to say that we probably won't see SPX 1020 or below any time soon before key earning reports coming our way in the next couple of weeks.  The premise started into last Thursday's trade from our trading history and bottom sentiment, "an uplift into a new month"  has played out nicely and leads to eye balls to 1100 not <1000…(“…a chance of a bounce on this relatively quiet data week after a liquidation into month's end coming into earnings is a possibility“ and ..“The doom and gloom is excessive and most measures of market sentiment prove it as we are at March ’09 lows or at 2010’s in other sentiment readings”).

The Bears, once again are probably surprised by today's late day strength because pretty much everyone expected a quiet day to consolidate the strong gains from yesterday or even a snapback.  We simply got what we were hoping to see and that was the buying at days low (dippers came) ..,“Sidelined money will probably wait for 'dips', instead of an outright chase of equities from here“.  Some resiliency and shrugging off potential bad news flow is also evident.  Take Whitney’s D-grades today of MS/GS and still the financials managed a slight gain and this even after a 4% group move yesterday!.

This weeks gains have caught quite a few off guard, simply because of the magnitude of the size of gains.    Yesterday’s pop did not surprise us, but rather the way it managed to hurdle all the way to SPX 1060 surprised past important 'R" at 1040/1050.    This goes to show that market can and will always surprise you in unusual ways from time to time.    Right now, in light of the consecutive days of momentum, nobody is expecting anything further at this point.     We all need a reason to move this market higher now and this coming EPS season may just provide such a catalyst.   Of course, the "double dip" folks aren't going to let the bulls have their way so easily, but we can't be on our heels waiting for their new ammunition to come.   It's should  be an interesting battle in the coming weeks.   One thing we are happy to see at this point is that we have just seen a new trading range.

We know there's quite a few negative 'soft'  headlines coming into the market last little while and nobody is even daring to point out any positives.    Euro has been pretty steady during the last little while and this can be a sign the Euro zone is slowly healing.  Trichet-ECB did nothing wrong again today for 2nd consecutive after first debacle as you recall.  The closely followed TSY here since last week, $TNX (10yr over 300bps today)  has creeped just above the recent range and it's interesting to see if it can make it to next level of resistance to solidify the equity market's bullish stance.   In addition, Crude Oil has not been impacted much by the recent worry of Economic slowdown and that's another good sign.   Finally, we haven't seen any major downside pre-announcement from any major corporations and the warning period is about to end.

All of the points above suggest that things may not be that bad and this market may have not be on a straight ticket to SPX 950 like many were suggesting.    At today's current level, we won't be chasing anything as all of our trades now will be very limited to intraday setups.    However, if the market decides to drift down next few days off low volume, we'd be happy to enter some positions for a trade while waiting for new eps trades.  SPX 1075 next step to bust before too many 1100 thoughts.  Bottom line, we are all just preparing for what the coming earning season has in store.

DJIM #28 2010

Just over a week ago the market looked like it would begin earnings season at or near SPX1000, now we enter a week full of bellweathers type announcements (INTC, GOOG IBM JPM GE) thinking 1100 might be the possible scenario instead of SPX1K.   In reality,  within the markets surge last week were a couple earnings related stories that went pretty unnoticed,  but no doubt played a role.   These were the pre-announcements noted here from Samsung  and STT  for critical market sectors.   Hopefully, this is a sign of things to come where market downward revisions and growth outlooks won’t be as sombre as earlier predicted.    Another sign things might not be so gloomy and that the recent action was just a growth scare,  is the fact this Q has had the lowest negative pre-announcements since '06-07.   So, we ask if corporations were suffering already from Europe, China etc. and expecting a terrible 2H, why didn’t they pre-announce under the dark clouds overhang brought on by the double dip crowd.   They had the perfect time to do so under this ‘growth scare’ and might have been excused you may say, if they had a negative pre-announcement during this time.  Only time will tell if this turns out be the 'surprise'  indicator for what this season might turn out to be like.

So, we enter the week at the 20MA incredibly, this has been the benchmark for us since the rally started in March 09.  The last 2 times we fell beneath this mark, we corrected in Jan and April.  On the other side, we’ve have not had the 20ma provide much resistance as the market handily crept back over this MA in Feb for another rally and than in June, a short lived rally of about 50 more SPX points after it was broken to the upside.  This is another reason why 1100+ is very possible without market turbulence from earnings.    Even though,  AA is the earnings Parade Marshall to many,  we’d look at CSX  as the more crucial report Monday/AMC to watch.

Due to the most uncertainity, we can recall in a long time heading into EPS, we think this will greatly benefit any stock surprising.   By this we mean, the gains might be exagerrated as these companies will be rewarded at these depressed prices.

EPS 'Showtime'...

In a way, we’re glad the World Cups is over and we can finally get back to the other "beautiful" game called the stock market!   Ok, calling it beautiful may be too extreme, this market game just doesn’t follow a game plan and/or coached script.   This earnings season may just prove this to be another case, where what you expect is not what you get.

So, once again, we come upon the beginning of an earning season and so starts the expectation game.  AA,  officially kicked off earning season and reported #'s that beat downward revised expectations.  More importantly for AA/ sector, they are forecasting an increase in demand as well.   CSX , NVLS, helped spread a decent AMC mood with upside reports.    The AA stock price, before the announcement, is near the low of the year and this is GOOD for the market.    Here's the thing, despite the bounce of the last few trading days, many plays that are supposed to be the barometer of the Economy are still way down on the year.    What it means is that a lot of pessimism and caution are priced into this particular earning reports for those companies that represent the Economic progress.    To be more specific, many of the commodity and material stocks are the ones that are priced here to show some dismal numbers and outlooks.    Yup, that's right and that's the expectation of this market.   Basically, everything from AA to X are "supposed" to show some weakness in their end demand to further strengthen the belief that the Economy recovery is nearly over or stalled.    This is what we feel the market's expecting, based on their stock performance since April.   Now, question is, what will these companies really show?   What if the Economic recovery isn't as robust as people expect, but nonetheless on track?  A ha, that means some people who are hoping for a double dip scenario may be in very big trouble.   Still, despite the AA report, we're in no way thinking this cleared up the waters.   Just today, steel related equities got smacked (>4%) on China export #'s and possibility of domestic price cuts.   We need to see more 'individual reports' in the days to come to get a better read here on the commodity related names. (especially steels)
  
What about those stocks that instead already carry a high expectation coming into this eps season?   Plays like APKT, FFIV, SNDK etc. and essentially many of our favourite tech plays here are heading into this earning season with very high expectations.    We can draw this conclusion simply by looking at some of the price levels of these plays.    Yup, it's that obvious!   We just can’t be sure what type of reactions these plays will receive after their results.   The results that appear good may not be enough unless it's a total blowout.   What it means is that we are going to be very selective and patient with these tech plays and avoid chasing an initial spike if it comes off a report.

As always, Financial/ Material sectors can provide a spark for a rally if their reports are well received.  Favourite such as INTC, AAPL can also be ammunition for bulls to take a charge here.    Bottom line, bar has been set pretty low for this eps season in many respects, so the chance of 'better than expectaions' could just be enough for the Bulls as often the case with Economic data.

As far as today's trade,  the one thing to takeaway is the what we layed out the other day.  The Bulls won't chase,  but will gather and buy the dips once again.   We clearly saw this again as market filled to the technically watched 1068 level.

Trendline from April hit

Looking at this one (17) closely as possible "R" at 1097-98

..you snooze, you lose'

The old adage, ‘You snooze, You lose’,  definitely pertains to being a trade/ investor these days.   How else can you describe a missed ‘90 handle’ run on the SPX within days to anyone sidelined asking..” what’s the market run all about the past 5-6 trading days??".    Not only sidelined money, but shorts are asking the same question,  except for the past week all they do is make predictions about where “R” might be higher and saying this will be a great place to short more!.    The question to this methodology is why in the world are they making these predictions while letting their positions from 1020?- 1040 to 1075 disintegrate if they know “R” say at 1100 is the real formidable level?.    Basically,  what they are doing is giving in to the thought the market is running higher,  yet they don’t cover their existing shorts and their losses add up.  We see this in our perusing of other blogs during lulls in trading.   Basically, sidelined investors and many shorts are one of the same these days.   In the long run, okay in this case its only 5-6 trading days both loose in different ways.   Yes, a sidelined, unprepared investor does lose too even if they didn’t lose any money because 10% runs don’t come around that often and/ or in such a short period of time.   

As we’ve always discussed trading is about preparation and a game plan.   You always you have to ask yourself the questions about what might be relevant to the market at a certain moment in time and dissect ‘news flow’ as it happens afterwards.    So, if anyone asks you the question of what this run has been about it’s pretty simple in these eyes as they’ve been all pointed out to watch as part of being ‘prepared’ and in the game.

•  “Uplift into a month”  was the play, we outlined why in detail here with the sizable liquidation at Junes end a big reason for it and "History" of such happening from experience.   This coincided with “sentiment’ readings at March 09 and February 10 low levels.   Now, this was the idea, but we needed catalysts to put this to work.  Well, we got that shortly after as all eyes were coming upon earnings season.

• Very possible rotation from BONDS into EQUITIES.   After a huge victory, outperformance in the last Q there was only so much more lopsided action possible before the easy trade was going to flip in favor of equities.  

• It’s almost too late here at possible short term resistance (addressed in a post yesterday) to wait for INTC tonight,  JPM  earnings.  These two crucial sectors have already run and this stems from earnings last week.    We have not seen CNBC or Breifing, two tools investors and traders use touch on these two catalysts from last week that we highlighted here (StateStreet and Samsung).    Instead its all AA and INTC and JPM etc. on their minds .  For the short term this is almost useless to wait for as after these reports you get gaps and unless you’re were in the market you miss profits so far.    Today, following that gap we didn’t see conviction buying before noon as most snoozers just don’t want to chase a huge move already in the indexes with the lingering battle scars from previous bouts with market.

It’s almost like a 9th inning rally in baseball.   You come in with a game plan and it probably starts in the other half of the inning.    You might be losing, but still you bring in a pitcher who can curb the other team. (we had that in the market settling/bottoming).    Than the manager brings in a pinch hitter to lead off the inning.  (we had fresh catalysts in the market) and than you have the next hitter, bunt him over to 2nd.    Afterwards, you have a couple of more chances in getting him home for the win. (we’ve had that in the earning reports yesterday from AA, CSX NVLS).   That’s the rally and that's the ball game as they say.    So, right now it’s irrelevant to us what INTC or JPM does in the short term.   These are the on deck hitters left that are not needed at this point.    So, what we’re saying is it's time to regroup and anticipate ‘individual EPS linked plays'.  As you can see this Q, we may have some decent surprises (EXPD  types would be great!).   You throw out what got you here and patiently wait for reports (fresh meat).   In the meantime,  we’ll let the market figure out what it wants to do, either break this April to June trendline for good with conviction or go do some backfilling to 20ma or just below.    

Why leave good holds and look forward to new fresh plays?. Well,  we imagine most do not have hedge fund size accounts and if you’re in profitable holds, you’ll need money/margin for new plays and not have money that is tied up in stocks that already bloomed the past week or that will backfill with market if that happens.    You might want something premarket/ AMC in size and unable to dump a hold into an illiquid market to free up some cash.   Of course,  if you have sizable accounts or time on your hands (timeframe), you can do both.   All of us are different in our decisions to take profits.

Just the right kind of balance...

We have talked many times on this site about the potential Economic recovery that can last a long time.   It is the sort of recovery that can drive many people insane.    Why?   Most of us have never experienced an "agonizing" recovery like the one we are going through.    You can go as far back as the 30’s when the stock market actually mattered, and you won't find a similar example of an Economic cycle that we are going through now.    For most of us, we didn't begin to trade till the 90s, for some of us maybe the 80s or even the 70s.    Psychology in trading may still be the same, but the circumstance that dictates the psychology is way different.    We no longer can rely on one set of data to make a clear case of this market.   Due to the volatility of this market in recent months, you can say that this is both a bull and a bear market.    However, we have to look at things in a longer time frame to determine what will really come out of this.   Once again, we have to say that this is going to be a long and grinding bull market that will outlast even the most patient traders.  An example at the conclusion of this Journal shows how selective stock picks could have made you good money even in a long term investment portfolio throughout 2010’s turmoil

So, we got a taste of INTC  report last night that the Corporate America can make profit, and lots of it, without increasing their headcount.    What is that you ask?   That's called lean and mean efficiency!   Unemployment may be high, but it doesn't mean that every company out there needs to operate under a recession like scenario.    Of course, what INTC may be able to pull off does not mean others will do the same and most likely many others won't be able to.   What we do want to point out though is that given time and patience, many more companies and industries will be able to catch up to some degree.    It's just so hideous to write this market off and point its head into a double dip scenario.

JPM is also on deck to release its report tomorrow and we don't have to mention how important it is to the investment professional, especially since we are overbought short term and at important technical levels.   So far, it's a great start in earning season and lets hope things get even better from here.

As far as trade today, once again dip buyers prevailed and today it was twice, once at gap down open and after FOMC (see alert note) at 1088.  DJIM had numerous plays, mostly earnings/ tech related hit NCH's today.  They included APKT  (off ADTN eps/ ADCT M&A communication equipment stocks) , ROVI, VMW, FFIV.   Considering the market has gone nowhere in a wild up and down 2010, it’s pretty impressive these additions to our Shadowlist,  mostly 2 Q’s ago are still making new highs today.   We added freighter, EXPD  to shadow trading list today, CTV  yesterday.