Message from INTC...

It's not so much a direct message from Intel to those who track the PC business, but to the investors/traders.  The message Intel sent to us tonight is that things are still rosy in the tech land.    The importance of the INTC  earning is far greater than that of AAPL.   Intel basically tells us of the demand of technology oriented products in both the consumer and corporate side.    This, in turn, tells us about consumer/ business confidence out there as far as this Economy is concerned. 

Things are definitely improving.  Seeing Intel do it again with a robust quarter and a great forecast leads us to believe that the pace of improvement isn't slowing down any time soon.     This is very important as to the justification of the recent gains.   Knowing that some of these key technology companies, or any bellwether companies that report great earnings is the reason why we have to stick to our current trading strategy.     No, it doesn't mean that we have to chase this market blindly on the back of of Intel's earning.   For all we know, this market can very well be set up for a sell on news reaction off great earning reports.    It’s not wrong to assume most of INTC upside is already in the stock, the question is if there is any carryover to rest of tech and market.    LLTC, provided the same type of Q as last,  it spiked AMC and gapped next day, only to never see those highs again.  We’ll watch it’s reaction closely. 

What does a great earning quarter mean to us then?   It means that we can safely buy into dips without worrying about the fundamental aspect of things. We saw this again into today’s trade, some early worry about Bernanke’s testimony on Wednesday, UBS’s negative call on regional banks rattled the market early, but the shallow pullback dip was bought once again.   Just eye the Bull channel on site from the other day, we bounce near the line at 1187.   One slight change in market flow today was morning upgrades didn’t help our Coals, Led’s, Casinos  as much as they usually do.   It could be nothing, but we’ll watch if this continues as a sign of these stocks getting overly tired.
  
JPM  is on deck for tomorrow and this is also one of those backbone kind of stocks for the financial sector as we all know.   In the past few sessions, we are seeing some back filling sort of action among some of the commodity linked stocks (steels) and China commodity smaller plays, we feel it's very reasonable.    In fact, trading many plays into their earning date may be a good way to capitalize the current rosy sentiment.    Right now, we simply have to see sectors other than technology that can deliver some good reports/guidance. (like CSX  tonight)

Too good to be true 'day'?...

Possibly...

If you were on the sidelines watching this market grind higher and higher..day after day,  this was the day you probably got sucked in some (w/ CNBC help) as today's action was seemingly proclaimed as a re-birth of a Bull market.   Okay , hold your horses,  we’ve had a Bull market for months and all today did was reaffirm the premise of a recovery trade we’ve been in as all the ‘right’ eggs were in the ‘market’ basket.
 

• All the stocks bolded yesterday, INTC, LLTC, CSX, JPM  all had frothy earnings/expectations met and didn’t sell off.  So, tech, financials, transports ..what more can you ask for as the majors give upbeat reports.

• Improving Eco’data!. Retail, subdued inflation via CPI

• Bernanke reaffirmed for the hundredth time about rates.

At the end of the day, this is nothing new to what we’ve saying for months and the idea of more money flow coming into riskier assets in 2010 is going to happen eventually,  but it’s not gonna come in piles tomorrow after potential investors read DOW 11,000+, SPX 1200+ tomorrow morning!.    So,  where’s/why our skepticism coming from today?.    Well, it’s what we’ve been noting last few Journals and that is to watch for money coming out of the high beta flyers that have pushed this market higher so far in 2010.    A part of this is…“we’re more concerned about the action in commods’ off highs,  notably select steels that is still continuing today” . This theme is continuing today notably with X /AKS  lagging again and could be the lead for a rollover coming in the group.    Also, yesterday….“ One slight change in market flow today was morning upgrades didn`t help our Coals, Led’s, Casinos  as much as they usually do.   It could be nothing, but we`ll watch if this continues as a sign of these stocks getting overly tired”.    Well, LED`s had no problems (RBCN, VECO   etc.) as they are Tech Semi`s which propelled the rally off INTC-LLTC, but we once again had muted action in the high beta Casino's, who also got weighted on AMC due to MGM`s pre -announcement.   This could all be part of rotation about to start that will be civil or it`s a lead we are coming to a correction very soon.   It is always a good idea to look at the underlying market and now we are doing just that by looking at these groups trading action more closely.

Expectation Game...

When a stock is expected to come out with good earnings, it better not disappoint.   Most earning seasons,  we have often seen that a stock trades up just prior to the earning announcement, but only to get a lousy reaction due to the "miss" of high expectation or what they call the "whisper #”.  For some stocks, such as GOOG, AAPL, AMZN.. they fall into the category of "need to beat the expectation" as they are the “Crème de la Crème’ of the stock market.

Maybe it has something to do with their fairly rich multiples and the fact these stocks always had wild moves post earnings in the past.    However, doesn't that game get a bit tiresome after these many years?   Come on, why can't people treat GOOG  just like any other tech stocks?.    Honestly, we don't really want to put much emphasis on GOOG's earning or reaction tonight because it can get into an endless debate.   Instead, we wanted to point out UPS, which guided much higher for the year as a barometer for health.   If anything, this gives us the impression that the increased business from UPS means Economic activity is more or less flourishing across the board.

Today's the second day market closed over SPX 1200,  little follow through, but same story in buying/ selling trends as on most days talked about here.  X  down >3% added more credence to what we’ve been alluding to regarding the commodity linked names & broad market.   

Since, many of our plays are getting close to the report time and according to our own trading rules, we'd let go most if not all of the position prior to the earning date.  This is hard to do in a recovery period as you’d expect most to do as well as previous Q, if not better.      When the play reports number/guidance that surpasses the most optimistic expectation, we can always get back in.  

So far we are only getting a small taste of what's to come for this earning period, but these are the best names reporting first and they ie.(INTC UPS JPM) set the stage or let’s call it a “high bar", so far to meet for names reporting later.   GOOG/ISRG  are proof tonight.   Already, we have broken through some major levels from this market.    We can't wait till next week as the bulk of EPS begins, even though we have some important names tomorrow for the broad market.

"Untouchables"

Obama's, new 'Elliot Ness' unit rummaging through archives to clean up.. This is a joke!..Those playing this were not Main street 'Ma & Pa' investors that didn't realize hedging or fire insurance would be on their bets.....anyways..Good article from December..

...and Fabrice Tourre, a French trader at Goldman, were aggressive from the start in trying to make the assets in Abacus deals look better than they were, according to notes taken by a Wall Street investor during a phone call with Mr. Tourre and another Goldman employee in May 2005......

Goldman’s bets against the performances of the Abacus C.D.O.’s were not worth much in 2005 and 2006, but they soared in value in 2007 and 2008 when the mortgage market collapsed. The trades gave Mr. Egol a higher profile at the bank, and he was among a group promoted to managing director on Oct. 24, 2007.

“Egol and Fabrice were way ahead of their time,” said one of the former Goldman workers. “They saw the writing on the wall in this market as early as 2005.” By creating the Abacus C.D.O.’s, they helped protect Goldman against losses that others would suffer.

As early as the summer of 2006, Goldman’s sales desk began marketing short bets using the ABX index to hedge funds like Paulson & Company, Magnetar and Soros Fund Management, which invests for the billionaire George Soros. John Paulson, the founder of Paulson & Company, also would later take some of the shorts from the Abacus deals, helping him profit when mortgage bonds collapsed. He declined to comment.

http://www.nytimes.com/2009/12/24/business/24trading.html?pagewanted=1&_r=2

DJIM #16 2010

Even before the gov’t blew the top off GS the Volcano and the market scampered,  signs the market in it’s recent overdrive, overbought status was potentially losing steam were prevalent.   We talked about looking at underlying market last week in asking, if things were too good to be true?.  The factors we touched on all week in looking at a potential stop were in full affect by the first hour of trading on Friday before the GS wire news.  

1. Once again, X  and a few other metal names were coming more off their highs.  We were looking at this as potential 1st sign of a rollover / threat to other commodity-linked names/ broad market and finally many of the names holding up ie. coals CLF WLT >-4% came down as did X another 4% intraday.

2. The ‘High Bar ’ set by the ‘best’ in class was put in by INTC, JPM, UPS and after reporting quality EPS, GE BAC ISRG GOOG were still in trouble before GS news hit.

Once the ensuing panic hit the financials, we were seemingly in the same situation as in January’s correction when Obama got his foot in Wall Street’s door.   If you go back you see X rolling over than,  selling off after INTC EPS and than bank regulation news carried the market to a correction just under 10%.    The question is this going to be identical or will this be just a blip of a correction about 2-3-4% correction?    Well,  it’s hard the judge the impact or tremors off this GS bit and we’re not going to worry about it.     Yes,  market doesn’t like uncertainty, but is this really crippling?.   We doubt it and think the bigger correction comes in May still.    Besides,  we’re only thinking of one thing coming into earnings and that is fresh plays  and that is the concentration here as corporate profits surge...one by one as they come in.  http://www.djimstocks.com/earnings-dates/

On the other hand, we are also going to get some cheaper shares of all our favorite plays from last Q's successful list that were overbought and extended, if we wish to go that route.   So, all in all…we’re not complaining,  we were already hesitant last week and days/weeks from now we'll look at this week as just another opp’ to buy this market most likely.

Watch 20ma  levels next intraday as next opp',  if ‘Bullish channel' fails intraday or at close.

Shifting Focus back to EPS'...

Since the GS news hit the wire, everyone is wondering about the ramifications and how this market will play it out.    If the news came out at the end of the earning season, we'd have no doubt that people would reduce a lot more exposure than what we've witnessed during last two trading session.  But, this is the earning season and we will be hit these next 2 weeks with the majority of SP/DOW reports for market participants to digest.   

With or without GS noise, we still want to know what kind of shape this Economy is in.    Therefore,  we feel the market focus will be shift back onto earnings and eventually think the ‘high bar‘  set will unwind and deserving stocks will trade better than those that have followed the ' best' on Friday and Monday.

AMC, we had an old name ATHR  release a not so bad report and very good guidance.   This once again is from the tech land and the trend seems to be pretty clear up to this point.    Big blue ‘IBM’ released a report/guidance that met the expectation, but not quite at the high bar tech INTC level and reaction is expected to be muted.   Interestingly enough, we know coming into this earning period that not every company can be a shining star when it comes to their earning reports.    Tomorrow, we have AAPL  and one of our favourite CREE  reporting and both will be a good tell for the respective sector.    Honestly, we have to believe that both will blow away the estimates.     STLD is one of the first steel makers to report earnings tonight and on surface it looks very good, but like ACI (which had excellent Guid’) it might not matter much as commodity linked names continued their X  snowball today with the big 3 here, X CLF WLT  all off -4% intraday.   We also have some good industrial names in PH, ETN  reporting BMO. 

As far as technically,. Yesterday..”..watch 20ma levels intraday as next opp’..”.   The market bounced twice here today for a buy opp’ as we closed 14 points higher from those levels.   If you’re playing SPY/ ETF indicies…great, as short covering prevailed.   If not, you probably didn’t see late buying hit individual stocks with authority.   Due to this, we don’t think we’re out of the woods yet,  most of the buying other than ETF’s was in defensive names with high beta names/secotrs still in some profit taking mode.  We may have to back fill some more near term, we would have liked to test support at 1075 and than make it back through 20ma.

Bottom line, at this point, we simply have to leave GS's issue to GS and rest of financials to sort out.   The collateral damage, if anything, should be contained and limited to those that are involved.    We personally don't believe GS will be the catalyst to start a nasty downtrend for this market as speculated yesterday.

'Reactions'

Heading into the busiest corporate reporting week, we said, ‘Goldman who’ and who cares as we’re only thinking of the reports on deck.   As of late afternoon the market showed this ‘Elliot Ness’ hunt reaction was overdone as the market recouped every SP point from 10am Friday as this correction looks like a blip of 2.6% off highs and nothing more as money came back into high beta stocks.    The real problem is the potential tremors and pressuring of financial regulations to pass, but, we can’t dwell on what may or may not happen and deal with what is given by the market and now it's EPS's.

Now, is clearly the oppy to trade ‘surging ‘ corporate profits on a selective individual stock basis.   The problem, if you want to call it that… is how will the stock react and if the initial spike is worth a chase or not????.   This pertains to most traders as we all like a good quick buck by being in early on a stock.  Whether, if it’s for a ‘hit and run’ intraday trade off an EPS or in a discovering a stock early and being one of the first on board and than leaving with nice profits when the herd comes in late.   Also, after an initial spike 7-8% like we saw in EDU, MICC, ATHR  today, we want to be in the first day because most times these spikes enter a phase of digestion, consolidation and so you may not get fast money again for awhile or we may even get a valuation downgrade the next day(s) after spikes of that size.

Unless some under followed stock blows the cover off the ball and is an easy trade,  we‘re in for a difficult beginning in analyzing what will be the ‘reaction’ after the bar was set high by the ‘ best ‘ of breed last week.    What we saw today, we can’t complain about as small caps outperformed any well known stock if you take them at equal weight on how good the reports were.   A few things we know is big familiar names are much more prone to sell on the news as they are widely followed, we know the bigger the market cap, institutional support the smaller the % gains probability.   We also know some sector names will react in respect to health of the sector at that time and of course float matters when we get into mico-mid caps later this season.  Oh yeah, the 'sexy' factor will matter many times, if you wanna get lucky.

A look through reports today and we’d have to say the best reports/guid were from 2 industrials (PH ETN  ) as far as the ‘headline’ reads, but they had the same reaction as the bigger names since Friday, which is an initial good open and then a sinking feeling within the first hour that lasts all day.  PH did exactly what last report day produced and the point here is keep these listed for later because you can see what PH did after.   We had a typical ATHR  reaction we should all know since we started to cover this stock last year, a gap and than dead silence which could go on for days or weeks considering how much it gapped.   We had a head scratcher in EDU , which a produced a gap and than another intraday run (which is the perfect trade..eh).  The EPS guidance was inline and you’d think this one was prone to sell off even off a great report because the run into the report was already mind-boggling.  MICC , a stock we added back last Q off report acted perfectly, a gap and run.   If you’re familiar as you should be with these last 3 names off our Shadowlist over the past years, all in all …they all acted as previously, even EDU from experience since it IPO’d and became a DJIM stock.  We also know tomorrow it can be brought down fast. lol.  So... the game ain’t that easy,  but in the broad market we are in a better position to profit off reports as we trade a lot of the under followed and not so widely followed. 

AMC,  ignoring the market anomaly of a stocks called AAPL,  the best 'headline' report was out of TUP, yes, we said Tupperware.   After today’s reaction,  we’ll follow this one as from previous reports we know it can really run the next day..on the other hand,  it can do nothing due it’s ‘not-so-sexy’ factor and fall into the PH ETN camp. 

reform sucks...

..more on the headline risk at bottom...

For the most part, we've had a pretty good start to earning season so far.    What is becoming apparent lately though, is that not everyone can produce the kind of report INTC, UPS or AAPL can.  The ’best’ of the whole lot comes out first.  We've had some high hopes for some of the plays on our shadowlist, but results are not 'exceeding', the already lofty expectations. 

Case in point, CREE,  one of our favourite LED play came out with number that beat the expectation slightly.   However, it didn't meet the street whisper number and stock got sold off AMC/today.    This is understandable given the kind of rise it's enjoyed over the past few months.    What it means though, is that hopefully we'll get a tradable bottom from CREE in the coming weeks and get back in at a more reasonable price.    This can be applied to any other growth plays that somehow did not meet the street's high end expectation, but still came out with a decent report.    So far, we haven't seen any plays with decent volume that came out with a blowout report.    Granted, we are still early in the EPS parade and a lot of surprises are ahead of us over the next few weeks as the small -mid caps always report later.   We just have to watch out for one and not to let any slip under our nose.  In the meantime,  we look for a first day trade as in the noted TUP  off excellent earnings, even with gap it still had a $51L-54H intraday spread to profit from.

As far as sectors go, commodity sector  is the most interesting one to watch right now. (How long will the sell off last?).    Other than OIH, which seemed to trade more off valuation than perception these days, most other commodity sector are currently enjoying a downturn which we alluded to possibly beginning many days ago.  Many names are catching up to X.   FCX came out with a number that missed revenue and it weighted on the metal sector.   Steels /Iron ore linked stocks off another 2/3%.  We already know from the steel reports, notably AKS, which has gone hand in hand with X really got in wrong as far execution.  We’re not really anticipating earnings plays here at this point.  Our hope is we eventually get some positive ‘economic’ feed from anyone that reports, but the focus has clearly turned to the ramifications of China growth 'curbs'.

Bottom line, day to day earning reports may not be that inspiring to trade and it gives time to look at market health.  Today, any corporate reports were overshadowed by events in Washington.  It will be hard (today showed ) to breakout to fresh rally highs with this ‘growing’ overhang.  Despite some bounce and a flat close, the financials were feeling stressed out from this overhang headline risk.  The fear is ‘reform’ on bank earnings.  Why?.  Look at Health Care stocks guidance and what reform is doing to the numbers. 

..it ain't rocket science

On a business trip?… grab a  room at MAR/HOT..get yourself a SBUX and order a flick at NFLX.   Okay, if you’re a DJIM..u ain’t getting SBUX , its not on the shadow list and it isn’t BF.A or STZ …. but the other 2 are moving in front of our eyes.   One is the hotel sec/consumer discretionary.. (MAR HOT), we’ve covered as part of recovery trade and the other (NFLX) is in the Earnings winner column since last q.  The importance of a good ‘tradeable’ list prevailed once again…

As traders,  we try to compile a list of approx. 50 stocks of the best of class to monitor daily.. adding and subtracting stocks as we go along.    EPS growth, sectors, sub groups that will show you the money flow that day(s)/ weeks.    The point is,  we are traders and we are here to trade and not spend market hours and non- market hours looking for the next big trade.   Just have the right list and the potential is endless…rotate and rotate the names/sectors.   We all want to have ’lives', we want time with family, friends and have hobbies outside of trading and not be consumed 24/7 by what is an already lonesome gig.   To be honest,  if there was a new edition of trading for dummies handbook, we’d nominate our methodology!. 

Anyway…that’s the market today simplified..NFLX MAR ..etc.  News pops next to a Shadowlist stock..read it and than watch if the money flow comes.   Trade.

Oh yeah..so… who was that masked man who has scared the market since Wednesday noon.   Well, today he put on a different face for once and had no new market damaging revelations.   Even JPM's Dimon agrees with 80% of the reform.     Simply,  this was short covering bounce as impressive as it was, it was short covering on 'relief'.    This is cool!.. it just keeps on showing shorts can’t keep their shorts on for too long as they scamper out the door on any sign of strength.    Oh yeah,  seems the bullet points of the speech were public before Obie’ moved his lips on the tube.   Once he shut them … the bounce really ensued.    The dip buying money was probably waiting a  few points above the 20ma for the move to kick into gear with the speech text in hand.   Yes,  the same 20ma  we’ve noted for the last 12 months as the single best market barometer and alerted again a couple days ago for a oppy’ buy was in play again today.   We would love SPX1175,  but it’s a bugger to get as the fight for 1200 is really the tape battle line it seems.

DJIM #17, 2010

Lets just have a vote this weekend...Who feels good about this market?    Exactly one week after the SEC filed charges against GS, we've made another fresh new high.    This is in thanks largely due to a strong earnings week.    Sure, not every play moved the way AAPL or NFLX did, but what mattered most  is how some of the big companies addressed the current Economic environment and consumer trends.   For the most part, things are looking good.

At DJIM, we also expect things to get better with the Economy and thus the market.    At this point, calling a hard target on SPX is a bit meaningless because frankly, SPX has already reached a lot of people's expectation for this year.    We still have lots of companies, including many commodity plays, that have yet to report.   Many of them on our list like X, CLF and ANR are set to report in the coming week and Friday may have been a turnaround day for the sector.    This can further put light on the remainder of the year as far as Economy is concerned.   For us, we'd really like to concentrate on individual EPS plays for the next few months regardless what happens to SPX.    In our opinion, the only way for this market to pullback significantly is if Uncle Sam decides to give this market some poisonous pills to chew on.    In other words, without any drastic policy change, we are pretty safe as far as Economy and market sentiment are concerned.

Because the market has reached a milestone at SPX 1200, and many of us believe it's a level that really reflects what's going on with the Economic recovery, we really have to rely on further evidence that this market can take us to a higher level.    We definitely don't need to make the mistakes we made in the past and chase this market ahead of the recovery pace.    For DJIM, going after individual plays that have demonstrated that sky is the limit is a strategy we'd focus more on. 

The coming week is filled with many EPS reports that we'll like keep our eyes on.   For now, we are just enjoying the unchartered territory this market's trading in