Post Fed Day

Normally, or many times in the past, the "Post Fed Day" has not always been kind to the market.   This time the market definitely had a change of heart.    When it comes to DJIM stocks, we actually had a much better afternoon than in the morning.   Many of the stocks we are familiar with just simply strengthened up toward the end and some of them had pretty good closing actually.   We'll pick out a few and highlight them...

CCF, perhaps this one is the most surprising one out of the bunch.   It was very ironic that only a couple of days ago that we were worried about its above volume sell off.   Again, we pointed out that we'd give it a couple of days to let it show us which way it wants to lean.   Volume today isn't spectacular but we think it has potential.   We added back some shrs today and no doubt also contributed to some of the rise today.   Nonetheless a new closing high is a new closing high.    What this does is that it actually puts this one back to our top watchlist and we'll again be adding aggressively.   The conclusion is, let the stock show you how strong it is before making up your mind of adding/chasing.   There's no need to be overly optimistic on "the best play" if the action seems uncertain.   If uncertainty occurs, reduce position and sit on the sideline with a little exposure.   Once the danger is over and the trend is clear, then jump back in.    Actually, this is more like the strategy for surviving in the jungle. lol   But in all honesty, trading the market is like surviving in the jungle.  There's really nobody else to look after you other than yourself.   Making kills (plays) just don't come easy when you got so much competition out there.

MFW, it's been up three days in a row now since our alerts on it Monday and of course the little alarm might tick off for a possible pause in this latest runup.    It doesn't mean that we have to go all out and sell it out.   Just be prepared for reversal and when it happens, don't be hesitant to reduce.  Recently after our initial buy in, MFW provided one quick trip down and that has turned out to be one of the best trades recently for us adding in the $26's.

SILC, ok so this one sat there for a couple of days and today broke out on pretty good volume.  There's not much to say other than the fact we added some toward the end.   Why at the end you ask?    If a breakout does not hold till the end, then it may be a fake one and we simply hate any kind of fake break outs.

HRBN, what to expect tomorrow?   Ummm, there's a chance it may follow through and start some momentum.   We are keeping our fingers crossed and if there's any sign of momentum picking up, we'd be adding aggressively.   We are watching it very closely.

TGX, time to let some go today.   We all had a chance after alert at $4, 20+% in 2 days is just too good to ignore.    We reduced most and looking to add on pullbacks.  BT noted in forum some technical analysis on it today.

A note on tech earnings on the Nasdaq, a definite theme has developed that started with AAPL, a few names early this week and then GOOG today.  You can put SWIR in this bunch of sell offs off excellent results.  Last night, we talked of the slows action in AH in the 15's and up only 10% on SWIR..."Maybe we should listen to the CC to find out why this didn't trade higher, but instead we'll let the action in the morning dictate what we do".  The action early showed SWIR had no chance and why.  Simply these techs are selling off the stellar earning news.   As we always say and said last night, wait for the market to dictate what you should do on a earning reaction.  If you do take a position early make sure its a starter, something you can rid of without much of a loss quickly.   At this point, we are carrying between 10-15 positions on any given day and blowing out a small starter position as in SWIR from AH is nothing when you have positive action in so many DJIM stocks.  Cut the laggards and those behaving badly.  If you are one to carry 2-3 positions at a time, you definitely should not be going large into earnings plays until the market shows you what it thinks.   It tells you pretty fast as with GOOG and SWIR last night and today.  We are looking at DLB's earning with all this in mind tomorrow despite how attractive it looked on paper first.

Other stocks showing strength, some more than others.. include ENR ABM GLDN VARI CNS OEH NWK FSYS ALB CENX TRCR ... so most of them are eps plays and all of them you've seen at DJIM over the past 5 months.

A Good Test...

When a market participant looks for a catalyst that can potentially change the general direction of the market, he/she usually looks at the homefront, where it matters.    Sure, last few days the oh so powerful Shanghai market seemed to have derailed badly but there isn't any talk of catastrophic consequence in their economy as a result.   Hence, the action did not spill over to America and whatever happens there, stays there.   Today we had a little something different and the worry stemmed from within America and the never ending talk of "interest/inflation worry" came up again and many talking heads feel this is the cause for today's slide.    For us, we literally had to check our quotes more than a few times just to realize that we are indeed in a "selloff".    Oh yeah, GOOG just made a new high and closed well over $500.    Maybe, people are just spooked by the fact we haven't had a good ole "whack the bid" kind of day in a long time.   So there, we got the selloff today and it's time to move on.

Aside from the Index action(which is total BS in our opinion), we are seeing some very good and healthy action among few individual stocks and certain sectors.     Ok folks, whenever you see more than 90% of holdings on your watchlist are having a bad day, then you may get a bit worrisome and think about some quick exit strategy.    Good breadth gives us the courage to stay and chase while bad breadth simply chases us away.   In our opinion, breadth is the key telling of whether we should be hanging in this market or not.

TNH, +5%, this one did not disappoint a bit and came out smoking off yesterdays buy in and finished just as strong.    This is in fact a new closing high and it'd be interesting to see if it can challenge the triple digit area.    The whole group seems to be up today and we wouldn't be surprised if this one goes even higher given the sustained movement in the entire sector.

CROX, whenever the other two DJIM big guns are taking a rest, this one takes over the baton and charges higher.    This is almost 20 pts higher since our initial buy about a month ago.    This goes to show that whenever we see a highly liquid stock with a very favorable probability of pulling multi point runup, we just have to go in big and patient.    By the way, during the runup thus far, this one has never closed below 9 ema.   It kissed 9 ema a couple of times but that's about it.   This is a sign of a very strong stock, historically speaking.   As a matter of fact, exact same deal with both FWLT and MA, neither of those closed below 9 ema ever since their EPS breakout.

GHM, this is an old name that came out with an excellent Q.  We admired the effort premkt as some(one) was working hard to prop up the price. buying lots of 50 shares, including one order at 23+ plus.  Unfortunately, they don't seem to know these odd lots don't appear on many trading platforms. Oh well. The action picked up a bit premkt and it traded to $22 in the first 10minutes and $23 in 10 more after the bell.  ,With the market sliding, a CCall coming and we just preferred to play some later on a probable dip later.

A few a stocks off yesterdays buy list hung in tough considering the early market action, but especially since they were up big yesterday. This includes KMGB LPHI  AHD and ATLS which was given a tgt bump up to $67 by FBR

CUB, up over 25% since we alerted May 3rd closed with another NCH, this is probably finally being recognized as a defense name!. Another DJIM defense stock hovering near highs, SPAR also had a nice day up 7%

MFLO LXU,  we are keeping a close eye on these two as both are in our opinion setting up for a potential b/o into new highs.

Shaky Start and a Steady Finish

Although it's still a little too early to write off last week's action, we are definitely off to a pretty good start this week.    Monday always sets the tone for the week, doesn't it?    Ok, superstition aside, we are glad to see that there was no follow through to last Friday's sell off today.  Another big fat red candle would not have been a pretty sight.    Even though some of the names on our watchlist felt a little shaky in the early going, many of them all ended in a very rosy way.    This is somewhat reassuring because we didn't want to see last Friday's ugliness get carried over into this week.   Momentum can get built up on the downside just as easily as on the upside.    Honestly, we still couldn't see the reason why the market was sold off that hard last week.    Many of the issues the market pundits were calling for were known for a while and there is really no quick fix to them.    Still, we have been managing to live with some of those issues(credit crunch, high oil, low dollar) for a while now and most importantly, fed has been willing to pump liquidity into the system and adjust the monetary policy when any unfavourable situation does arrive.   What's the big worry?    If you believe the entire stock market and corporate profit are centred around the housing market and high oil price, then you may have already parked your money in t-bills and shouldn't even care about this market.    For those of us who trade names like AAPL or RIMM GOOG BIDU , things don't get any better than now.

The point is, this market is not just about the 3M or CAT or BAC.   There's a bull market in quite a few other sectors and that's what's keeping the game alive.    You can also argue that there's just so much liquidity out there that there's always institutions looking for some hot (growth) area to invest.   We just have to be on the same page as those money managers.

AAPL delivered a nice report and should benefit quite a few momentum names.

CRNT, this plays has been on our watchlist for quite sometimes now.   Today the company reported earnings which beat the estimate and it also raised guidance for next quarter.   Stock saw a flurry of buying and ended near the high of the day.   We really like this kind of earning reaction and we are playing it fairly aggressively.

LULU JASO ISRG HMIN, these three have traded to their recent highs today and we particularly like their action compare to some of the other names on our list.    For the sake of momentum, we think as long as the market shows some favourable action, you'd want be trading these names aggressively.

Momentum stocks

"For those of us who trade names like AAPL or RIMM GOOG BIDU , things don't get any better ...AAPL delivered a nice report and should benefit quite a few momentum names".  Nothing could've have been closer to the truth as momentum stocks ruled yesterdays action.  It all started with a gap up open and then after some shake and bakes midday,  the momo carried into the close.   What we wanted to see yesterday was the follow through that occurred late, the reason being we somewhat feared a repeat of the GOOG earnings.  Seemingly, we were not the only ones as the NASD gave a few shakes before exploding in the afternoon after it took out the morning highs.   Unfortunately, as we all know this market is a jittery one and could turn on a dime with new headlines and this will likely be the case early today as Merrill Lynch will put the credit crunch back in the headlines early on.   It also won't help a few familiar names couldn't keep up to the AAPL's and disappointed after the close.   If you were trading the momo names yesterday,  the action we got was a weeks worth and there would have been some profit taking either way this morning after the big 2 day reversal.  The action yesterday was reaffirmation of why we trade the stocks we do, momentum stocks rule and it is not only the big familiar names that grab the headlines.  The action in the BIDU, FSLR, DRYS's was incredible the past 2 days and the rebounds in the EDU's CETV WBD have not been that bad either.  The melt up to a high of $110 from SPWR was pretty good as well.

Today...we will get a clear indication if the market wants to play the credit crunch game or move on and feed off the many good reports yesterday and maybe give us a rally of sorts during earning season.  No doubt the yo-yo day to day action will continue, but that is something we all should be prepared for after the last few months.   A wait and see this morning... we won't be looking to add positions, but we also won't be selling the ranch at the open.

A trading note,  no matter how well a small cap acts one day as in the case of CRNT...a downgrade the next morning by a small firm should be taken seriously as it can burst a bubble quickly.   It doesn't have to be a tier1 firm, it could be a firm you've never heard of.    It is always better to exit such things early before the news spreads and the selling hits harder.  You can always get back in the game after the dust settles.

DJIM 50, 2007

As the year winds down with this upcoming last full week of trading, we find ourselves at the crossroads here.    We are here because there's definitely two distinct possibility in front of us.    One possibility is that we roll over from the recent gain and try to test the November low and who knows what happens after that.   The other possibility is that we stop going down right about here and churn our way upwards, in an apparent and somewhat violent manner.

Lets talk about what happened in the past week first.    The action from past week is purely centered around Fed decision and we can understand how market participants feel after the decision.  They have a hangover.  In our opinion, unless Fed surprised us in the optimistic way, this market would get sold off regardless because  as we had come off such a good 2 week rally from the November low.     In terms of Fed's decision, in our opinion, they are doing the right thing even though it may not be "instant market friendly" kind of decision.     The bottom line with the Fed is that we have the Fed on our side still.    They aren't being ignorant contrary to many people's thought and they are simply being patient to help out the financial crisis.   This of course isn't being bought by everyone because many wanted that "magical potion" from Fed that can solve all of the problems once and for all.    Believe it or not, many if not most of the problems associated within the financial sector still need to be addressed and resolved by the companies involved themselves.   In other words, market needs to do the most to bail themselves out.    This is only healthy in the long run.

Too many people are too negative toward this market and too many shorts have piled onto the recent upward momentum in our opinion.    Basically, we believe that when you want to trade this market down, you definitely want to do it with good timing.   First of all, you want to go negative really hard at the beginning of the crisis and in a seasonally slow environment.    Right now, there's definitely no saying that we are at the end of the crisis but we are definitely far from the beginning of it.     People are fully aware what the problem is and measures are being put in place to correct the problem.   It does take time.    However, you don't want to go really short when things are being fixed, slowly but surely.  

So against all odds, we think the second possibility is that this market churns upwards has much better probability.    In order for this market to dive and take out the November low, you'd need some really disastrous news or the proof that we'd go into a real recession to do that.    Somehow we just don't think any of those two things is in the cards at this moment.    At least, not during the Christmas shopping season, we might add.

Earnings Earnings and Earnings!    What more confident catalyst you need other than earnings?    We have them coming up and the way this market has been setup, anything better than the lowest expectation can cause a good rally upside.   Of course, that also depends from company to company and sector to sector.     Last week we had LEH reporting and we have to say markets reaction has been very positive, despite the drop of all major indices.     In the coming week, we have GS reporting and this is considered best financial house there is.    Again, the way it sets up is that the shorts wanted to push it below $203, which is the recent low and knock it down for good.     If this stock is at $240, we say the odds of getting sold off is pretty high regardless the earning number.    In our opinion, the trade definitely calls for the upside when the number is released.     The next important report in the coming week is RIMM.    In our opinion, the recent 20% drop from the $122 area took away any bearish surprise.    It feels that shorts have pressed a bit too early going into this report on the heels of a couple of firms analysis of RIMM.    It is "unlikely" that RIMM would report a slowdown in its business and we can almost ensure a massive squeeze if it doesn't play out the way bearish camp wanted.     There are quite few other reports in the coming week which include  NKE FDX MS BSC BBY ACN JOYG GIS... quite a few different and important sectors.   This should provide us a good picture whether our economy is heading into a recession or not.     Again, we believe in our thesis that market rarely goes into a crash into an earning season.     Basically, we'd be much more nervous being short than long at this point.

Now some plays....

Solars, is it us or does it feel that most if not all solar stocks are being setup conspicuously on Friday?   Just look at some the chart setup from some of the popular names and we swear they are all setting up for a good run-up in the coming week.     By the way, they are being setup(in a very positive way) on a day that all indices dropped well over 1%.    This is simply amazing which tells us that people want to own these things at year end.   Basically we still have a bit over a week to window dress these names and it isn't a myth that the best stocks get owned at the end of the year to show them on your book.

STP/FSLR/JASO/LDK,  these are what we considered the favourite solar names to trade last week.    With the exception of LDK EPS Dec.19th, which we are still waiting for the audit report to cast away the cloud, a start today as (independent Audit out according to LDK concluded allegations incorrect), the other three are being setup superbly going into next week.  YGE, IBD #92 is also enjoying a nice trend change.

SOLF/CSIQ, these secondary solar plays are also setting up nicely, especially with SOLF.  The 9 ema has just caught up with SOLF and the next move might be big and will likely get this thing out of the recent trend.   With the entire solar sector heating up, we feel the move is very likely to be up than down.  ESLR had 2 nice days after Thursday premkt upgrade and follow up news.

Asian stocks, as seen in charts this weekend they took the week off after a 2 week recovery, following overnight numbers from HANG/SHANG they will most likely continue to be out of favor to start the week. 

LRN, 300k volume and a higher finish on day 2 of trading. If this thing had any volume Friday, it might be already looking at the high $20's.

MELI, this is the play you only can wish we'd all bought more of before Cramers mention.   On the other hand, this is no longer a strange name to traders and with its tighter float and story, anything is possible.    Basically, this one is better now with Cramers exposure than before which is largely an unknown stock to many.    The trading in this one is rather volatile so we'd continue to be inclined to buy on intraday dip and sell into strength.   It has worked beautifully in the past so there's no reason to change the strategy with this stock.  The trend is firmly to the upside since the break at $45.

RIMM, we've been buying some late in the week looking to hold up to the earning report and then play after its EPS is digested.    Again, in either case, if this company reports a good number or the market rallies, we'd be all over this beta name along with other heavy favourites like BIDU AAPL GOOG etc.

VIP, MBT..also seemingly against all odds these were green on Friday, closing around highs of day.  Another Russian stock, WBD pulled off another impressive Q with what looks like their best EPS number yet. Again as we 've seen too many times lately, nobody was interested in earnngs, this time because of CPI data headline.   Simply, you had pockets of strength to buy...the solars, the biotech, the russian stocks late in the week despite the volatility to the downside in the overall market.

Bottom line, this is the time where you have to be playing the most popular stocks.   We have seen it that the small caps aren't exactly working so you might as well join the crowd.   The more crowded it gets with a good mover, the better.    We can even see it with some of the recent story stocks from the biotech sector like RIGL SVNT BMRN etc.   You trade what others trade, when a stock is showing upside momentum that is.   Only then, you'd have a chance to outperform others.