DJIM #30, 2007

If there's one thing the market has taught us in the past, it's that you have to always be prepared to face the surprises.    Out of all the companies that have reported last week, nobody expected an earnings miss from the growth behemoth Google.    Sure, some of you can argue that you saw it coming, and that sooner or later it'll happen to Google.    However, lets really be honest here, there was just no indication or any warning from the company or analysts that suggest a short fall was in order for Google's current quarter.     Well, it just made this situation very tricky for this market.   Of course, one company cannot bring down the whole market.  So, CAT helped.  A few of the well respected and cheered companies can certainly derail the market's bull pace, that's for sure.    So what we are going to be keeping an eye on the next little while, is to see if there's going to be a fundamental change in market participant's trading behaviour.    Usually a market participants sentiment would directly translate into his/her trading action.    Action, is what most of us are concerned about.     Well, we do this sort of mental checks often to keep us disciplined.    Before we commit lots of our capital and energy into this market, we have to make sure market's in a favourable environment where mistakes can turn out to be forgiving, not disastrous.   Now lets review some of the plays from last week....

DRYS/TBSI, this duo along with the rest of the shipping sector, has enjoyed one of the most profitable weeks in their lifetime.   It seems analysts are just jumping bandwagon with one upgrade after another.   Nobody wants to be left behind when the whole sector is hot and in play.   Of course, it does make them smart to act the "correct" way.     The difference between us and those analysts is that although we also jump on the bandwagon, but we only jump on because of the trading opportunities.    We can jump off just as quick too.    When dealing with a hot sector, we'd definitely separate the stock action from the companies' business.    Basically, even though one's business may be the excuse to explain the stock behaviour, but ultimately, we trade stock action, we don't trade a company's business.

Solars, this sector has seen some intensive selling for the first time in a while.   Sure, you can say it's just healthy consolidation and it's just a matter of time before they break up again.    For us, until they break do break out, we'd remain very cautious on any bounce attempt.    The only exception from the sector is LDK, which had some company specific news.   We'd keep an eye on that one to see if it warrants further trading opportunities.

AP/TXT, these are two new plays we've added to our watchlist/portfolio.   We are feeling very positive about their earnings and the way traders reacted to their earning.   It's definitely more important to get the right kind of reaction than number.   Again, you only profit from a good reaction, not an actual eps report.

Bottom line, we still have a large portion of stocks that have yet to report and we continue to look for that unlikely hero.    To us, the big companies provide the headline but the little ones provide our bottom line.    As long as the big companies stay in line for the most part, we should still go aggressively after those small ones with a favourable reaction to their earnings report.