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.

..firmer

Despite what at times felt like a volatile day, it came on the expected diminishing holiday volume and therefore some intraday expected yo-yo swings occurred on the indices.  At the end, the action is firmer for the last 2 days and unless the down swings are on a bad headline with volume, it is best to stick it out with some positions and look forward to the XMAS shortened week and a possible rally of sorts.  A few things occuring the past few days are indicative of a whacked out market, this is best shown in the different reactions to GS strong earnings and MS's blow up.  But this could be good news.  Possibly the best thing is bad news from the financials may be getting priced in on some stocks and confidence is climbing that the firms are finally throwing everything out including the kitchen sink and coming clean.   Now only..if the market can shake the ugly numbers from BSC due out and we'll have a clearer picture as to where we are going.   It's confession time for all these boys.    We've attached the importance of earnings this week to possibly set or at least curtail the latest slide, last night Oracle reported a big quarter on all fronts. This includes getting it finally right on what is usually their very so-so Q year after year.  Is this a forward to what we may expect from more tech firms ahead or is it just a anomaly of sorts?.  It does bring a potential boost today to techs, but this might be short lived as RIMM reports AH.  Let's hope RIMM makes it back to back, other wise this Oracle number will be forgotten quickly.  In the meantime today,  FDX , BSC, ORCL can lead the way in 3 essential  areas to a very big day....let's wait and see.

LRN,  if you took your eye off K12 yesterday, you found a surprise on your next look as it probably jumped another $1 or more.  We said this might see high 20's if it just got some volume.  Guess what....it didn't need it as hit $30 and up almost 50% since we alerted the buy in the first hour of it's debut last week.  Only regret and you could blame the weak market last week is we didnt go crazy into it.             Ah..the great trader/investor motto...could've..should've..would've!.  lol..    A pullback would be great as its up 50% from its opening price, but it just might be getting discovered so its best to watch the volume as a pullback might not be so swift for your first entry or a re-entry.   We've taken most off the table and will look for the re-entry, in the meantime we dipped into APEI after it passed it's initiation day with a few nice buy targets.  You can only dip as this is trading lightly and has only a 4.5 mln float.   With all the messes out there lately, we think these educational online plays are under radar.   Actually, they are the perfect stocks for a holiday buying frenzy if the manipulators want to drive a stock or two higher next week as in years past.

WBD, another recent buy in alert after earnings. This followed what we outlined here the past week quite well, it did look right the day before at 121 in a market where nothing was looking right and it hurled $124 for another entry before ticking up to 130.  A nice run and it did hold up well, but as we've repeated over and over lately....take what a stock gives you and walk away. In this case it was more than enough.  We'll look for re-entry here as well.  The volume has not come in yet as it has in the past on runs and so we'll look for it with a break over yesterdays high levels.

MBT,  we've been spreading out our risk lately and this means using foreign ADR plays (VIP,WBD as well), in specific regions like Russia. MBT, looked very strong yesterday and it held its break of the recent channel top.  This one can move fast and we are eyeing it back to recent highs.

MA, really beaten up the last few days on the Euro ruling for months and months to come.  In the near term this should affect MA's profits as it does not cover the majority (over 90%)  of MA's volume. Ma should get back on track after all this noise is digested.

Solars,  LDK guided EPS in-line, a downgrade and what you might have is some pressure on solars.  We'd use any negative reaction spreading to take advantage of the dips in the usual suspects.  These plays are not going away by a longshot in the short term.

....no rush

The erratic trading continued most of the day as the market chewed on anything and everything.  Included was the expected Bear Stearns debacle, the FDX earnings and the ORCL strong report and a few Eco numbers.  Stir'em up and you get more of the same as far as the trading environment is concerned this week on lighter volume.  This means early firm action, a loss of momentum mid day and then a modest rally late in the day.  What you simply have is the financials finding a way to put a drag on the market and the half ass end of year rally the market wants.  You can see this loud and clear as the NASD/RUT were making new highs for the week while the DJIA/SPX lagged behind...but this should change as the natural thing to do is play catch up and close the gap, especially since RIMM will lead the NASD pack early on.  This could provide a better technical picture for the lagging indices come next week, even if the financials don't want to help out.  The premise here the past week was the importance of earnings coming out and being a catalyst.  This round of reports won't take us out of the cold in respect to the 'big picture' of where the market is going, but what it does is... give us all hope that is we will have something to look forward to in January as the official earnings season kicks off.  The reason is RIMM showed something we haven't seen in ages and that is a post earnings run, herd reaction and not the usual sell off.   Unfortunately, the report falls on quad witching Friday to cloud the picture.  Throw in the holiday trading aspect this Friday and we won't get a true feel for where RIMM is going just yet...up or down from today's action.   If you didn't flip it around AH's yesterday or are looking to sell early today, we'd then take a cautious stance today at this $120+ price.   This also holds true for other stocks as well, we are unlikely to chase new plays today unless a whole sector,  such as the Solars want to take the lead.  No Rush today, let's see how it all materializes later in the day.    In the meantime, we'll continue to trade and watch for further setups from what we have concentrated this week on and that is the WBD LRN VIP MBT etc. 

Let's hope the ORCL/RIMM reports start to get the talking heads in pre-earnings mode and have some attention turn away from the subprime mess and on to earnings.   This mess ain't going away for years and we need to move on. 

..why we here today

...with FTSE, DAX, HANG, TSX all on holidays??... Guess we're here tracking Santa's historical path of possibly bringing that overblown post Xmas-to New year rally!.   Fortunately, if you've 'not' been sitting on your hands, you shouldn't care too much about the next few days or need to be foolish in and get ( buy) something else you don't need for Xmas.  We've already had a rally in the stocks closely followed here the past week or so.   Monday was no exception.  Wouldn't it be great if all trading days would be 3.5 hrs long, major indices doing a +99/+21/+12 and your stocks running on all cylinders!.  Guess if that was the case, we'd all still believe in Santa Claus!.   Let's get on to the 'Stocking Stuffers' that might've made that hideous Cosby sweater you got Christmas morning look not so bad after all!

Solars..SPWR FSLR STP JASO....SOLF CSIQ  LDK...This is not 6 geese a laying, this is 9 ladies a dancing!.  Following LDK margin shrinking report it was noted we'd be looking for a dip if it happened in this sector to do some possible buying.  Hardly any dipped and instead just coattailed first out the door on RIMM's big day .   This group did not disappoint Friday or Monday as set ups, NCH were abundant.  Clearly this is where we want to stay and ignore the suffering in the groups like shippers, china stocks.  Now..if the hedgies want to pump their book for this end of the year Q, we just might see another sector wake up..so keep eyes a movin'.

Russian stocks...VIP MBT WBD, this group has followed our blueprint here for the past week and more.  The GLDN deal has been a definite positive for VIP's share price (37's-45) as we thought, not often you see the acquirer get such a reaction and we think this can go further. Low 50's, but not after a pullback of small sorts as the last 3 days have left it a bit extended.   MBT, we were 'eyeing it back to recent highs' and we got that as it hit $100 Monday.  Again, we'd use any pullback as a possible buy in.   If the volume comes in this, we'd saddle up as the chart looks very good.  WBD has been in a tight narrow range and with a little volume could spark again with another move upwards.  The float, spreads are ideal for a low volume move in Xmas trading week.

APEI, LRN, N... last week we said these may be ideal for light trading days ahead.  A sign of it was present in APEI as about 60K pushed it to a NCH with 4 pts in tow.   We will continue to keep focused on these IPO's.  

Due to these IPOs stellar opening days, a sentiment change in the markets make for a perfect combo and so we have our eyes set on "N" , Netsuite.   If the market tone continues to stay this way, it makes the possibility of N performing well greater.  This new issue has some color!.   It did a Dutch auction for pricing the stock which might have kept the flippers of a quick buck away.   It also has color because of the money behind it in ORCL's Larry Ellison and a management team of former ORCL heads.  This brings in interest from more traders or just investors with a fondness for ORCL or tech.  If you're a Baseball junkie, you'll like or actually maybe not like that Oakland A's Billy Beane is there on the BOD to crunch the numbers and use their software..lol.  The market cap might be big, but with the available float as it stands now make it interesting in the short term.  It just seems sexy, especially following VMW success. We'll see...

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Thanks and hope to see you back for the start of another year together..