DJIM #46, 2007

Three sucky days, one so so day and a really awesome day.   This is pretty much the action from last week.    While this isn't for certain a bottoming action, we can see that this market is working pretty hard to fight off this extreme volatility.    There have been signs of the market rebounding from some excessive selling.    We are glad to see a somewhat different pace toward the end of the week and hopefully it carries into the coming holiday week.    This doesn't however ensure that we won't go down in the near future and break the previous low.   We have to be prepared for any possibility.    At the end of the week, we seemed to have some good action from the solar sector and some bottoming action from the big tech names AAPL, RIMM etc.  This might bode well for the up coming holiday trading week.     Traditionally, the Thanksgiving holiday week has been a strong week for the bulls.    Although we can't promise the same this time around, our fingers are crossed in hope for some good action.    Even just to show some good action, we can demonstrate to the public that this market isn't just a one way ticket, down.    Right now, the most important ingredient this market needs is the confidence.    The confidence level to see a market turning to the upside is comparable to that of August's level.    We as traders don't really know what to expect on a daily basis.    Do we have to deal with gap downs after gap downs or a strong rebound?   This is pretty much the same dilemma for everyone here.     If we put a big wager on one direction, we'd pretty much end up just hurting ourselves.    This is the period where our confidence level, our patience and our discipline level are being tested severely, and repeatedly.     If you took some losses, just leave it behind and do not let it get to you.    The last thing you want, is to go reckless and chase back the losses in an extremely difficult trading environment.

Our game plan here, is to go after the safest and most obvious kind of plays.    We are cutting our sizes down to absolute minimum so the volatility has little or no effect on our position.    Now it's easier to assume that you want to carry some hefty positions to enjoy a day like last Tuesday.   The fact is, for every huge day, there's probably four to five times as many really crappy days waiting to hammer you down at this time.    Since we are still facing a very uncertain market with extreme volatility, we have to use our disciplined judgement to carry ourselves through this downturn.    The bottom line, there will be a time, sooner or later,  where we can go big in the market, but now it's not the time.

Some potential plays for the coming week....

Solars, FSLR JASO STP SPWR etc., this group seems to go the same direction as oil price, and more so lately.    It might be too cute to think that this group can challenge the old high on its own while ignoring the overall market condition.    As long as you have both the oil and market in the green, this is the group you want to be in for some quick trades.    Also, since many of the plays in this group tend to move in a healthy percentage on a given day, we'd think smaller sizes is the prudent way to go.

QSC, it seems this little bugger refuses to pull back in any meaningful way.    Trust us, nothing goes up forever and we'd really like to see a good pullback sooner rather than later print on the daily chart.   If you missed the big run so far, there's no need to chase it aggressively knowing that a pullback may be just around the corner.    We've seen on Friday how quickly it drops from $5+ to $4.30 and that's just a quick 15% that nobody would enjoy.

PCLN MELI, MSTR, DLB are some of the recent earning plays that seem to trade much better compared to the rest of the market coming off earnings.

China plays, it is becoming obvious that it's absolutely essential NOT to play the earnings.   We've seen it from the likes of WX and now EJ STV so far that regardless the earning number and expectation, those stocks are getting sold hard.  It is also micro-small caps in general that are not getting a positive reaction off earnings at this time.   So don't expect too much out of these next little while since it's very much a sector problem rather than individual report.   Be careful with other China's reporting this week as well.  We'd look for the group/sector to see some sign of life before we are willing to really get back into some of these plays. 

Fruits of the consolidation...

We now know why the market wanted to consolidate for the past few days, the market was setting up for action like today.    Ok, we have pointed out in the past few days that consolidation can be frustrating and not fun.    Fortunately, consolidation comprises down and up action.  Hopefully, today's action would make us forget about the frustration we had to endure the last couple of days.    Now lets recap some action here...    First, some of our members would like to know what's the point of recapping everyday's action at the end?    For starter, recapping the action would give us an idea what events and action transpired during the day so we can better prepare for trading ahead.    We can look forward to the plays that were doing well today, assuming good action gets some kind of follow through.    Secondly, by recapping the action, we'd have an idea exactly where we are in this market.     Compare to yesterday, today's events are much more exciting and meaningful, in our opinion.     By not having to review the action at the end of the day, we would simply start the next trading day half blindly, in a way.  It all depends how one uses the Journal, for many its been a learning tool of our methodology, our frame of mind.  This morning the Journal might have reminded you of SIGM recently noted here as a buy the dip earnings play prospect.  It had a great day.   Our lead was the China's and that we are still trading the lot of them.  This has worked for a week and today it spread to the more speculative lot.  Makes sense doesn't it that this part might try to get into the act sooner than later.  We also said the Solars heading into today are getting harder to see as an easy trade, today that spilled further as most finished lower than their opening price in a fast market.  Bascially, it's all in your interpretation of how you take the Journal in.  To most the Journal is 'leading' them into the next trading day, this includes recapping.

So it this market more of the same?   Are we expecting some better action in the near term or what?    We think today's the proof that we CAN definitely get some good trading action in the next little while.    This time, Fed is on our side and recent oversold condition coupled with the seasonal factor can and should propel this market to gain some upside ground.

Many big technology stocks did well today!  It's always good to see companies like INTC MSFT AAPL to carry the index weight.    As long as the Indices are in the firm green territory, we as traders can pick off little ones to make our play.

SIGM/PCLN/VIP/MBT, these are few of the latest earning winners we are busy trading today.    We have mentioned all of these before on the site, (a few for over a year) and they all notched a nch today.    This goes to show that even in a crisis environment, we can still have earning plays that stand out from the crowd.   We like all of their action and we'd expect follow through from them if the market keeps up the good spirit.    We'd also wouldn't mind buying these on dips as long as the 9 ema isn't breached.  If you want firm coverage reports on MBT- Russian mobile and VIP following it's earnings, send an email for the PDF's.

WDC, we noted this one following earnings Sept 11 on a premarket Journal note.  The stock was $22-23, today it hit $31 after raising its profit forecast including December.  In our view this a huge revision and a good market will definitely take note.  On the other hand this stock has performed well in rocky times.

China Plays, from early last week, we'd pointed out that many Chinese plays seemed to be stabilizing and we'd be getting our foot back into some of these names.   Today, the entire sector lit the fire and all of the names on our watchlist have done heck of a job with some speculative leading the charge.     Our strategy here is that since it's the entire sector move, we can not afford NOT to play even the speculative ones.  Just to point a few out, we still like EDU LFT STV WX CMED... as the quality ones but the speculative ones like CHNR JRJC EFUT... are also on our playlist.   Now we believe the move we seen today may last a few days because the last time we recalled, China sector move doesn't just pop one day and die.  Keep you eyes open for a possibility of more.

Solars, this is the area which we were concerned about heading into the day as per Journal.   We are a little concerned over the somewhat overheated action from the speculative solar plays but as well as the looming energy bill.    There's a very likelihood that there's going to be a "sell on news" reaction.   We'd like to see how some plays react to the news first before venture our way back in.    Because of many other plays out there today, we all can afford to take a little cautious attitude toward this sector for now.