DJIM #43 2007

RIMM, GOOG, AAPL...... then there's MSFT!    The pattern seemed to be fitting until last Thursday.    Microsoft, a company which isn't known for delivering stellar reports and forecasting strong growth in the longest time, basically dropped a bomb that would surprise even the most optimistic bulls.    Of course, we are talking about an upside surprise.    Regardless how we interpret Microsoft's reports and how much we believe in its rosy forecast, it is what it is.    In the world of trading, this is the kind of news that can simply completely change our trading strategy.    In our opinion, Microsft's news is that powerful and we better be prepared for the kind of market that might follow.

Oh yeah, there's still that housing bubble and credit crunch worries and potential huge losses from the financial sector.   By the way, Country Wide Financial just forecasted a return to profitability for next quarter and there's shakeup in one of the biggest Wall street firms, Merrill Lynch.    Problem solved!    No, it doesn't mean that the actual problems are all being resolved right now.    It just means that there's drastic measures that are being put in place to get the things going, an improvement!    It's a process that we are going to be witnessing for months to come.    As long as smart people in those places are doing things to help recover the losses, that's the kind of confidence market will be looking for.

By the way, did we just mention things are still kicking in the growth sector?   Now you can add Microsoft, an unlikely candidate, into the mix.   It's a company who does close to $60 billion of revenue in the technology sector annually and it's forecasting some wicked growth number.   Enough said!

What does this mean to DJIM kind of stocks?    In case you haven't noticed lately, DJIM selection of stocks have moved away from the ultra small caps to some relatively big small caps and mid caps.    Why?   That's where the action is and we are simply adapting to the trend.    Having a flexible mind and approach to trading is one of the must required element to survive in this competitive business.    We don't want to categorize ourselves as small cap specialists, we want to be trend specialists, and so should you!

The bottom line, market is moving higher and there's simply no reason not to keep biting.    Fed is likely to lower the rate again in the coming week and that would give some more conviction to move the asset away from the interest bearing instrument into the equity market.    Dollar is at a all time low and that's an incentive to attract foreign investment.

Now onto some notable plays....

LFT, to simply put, we really really like this IPO!   We think it has the potential to be the next VMW.   We think there's several factors that have a lot going for it.     First, it's the number one IT solution provider within the domestic Chinese financial sector.    You can verify it with its prospectus which is available on its website.    Secondly, we can't recall any legit Chinese IPOs within the past couple of years that have done badly, at least not the ones we picked up early on like the EDU, MR (also NYSE listed).  Thirdly, this one is very unique in its place among the Chinese IPOs where we think it's a huge institutional attraction.    If you want a piece of the Chinese growth, in one of the most profitable sectors(financial sector), where a company that does things to help the expansion and integration of their services, this LFT is the one to get.    Again, the actual financial reports is within the prospectus and you can see it for yourself.      So our game plan?    We are treating this one as a good long term holdings in our account.   We'd try to establish a sizable position as a core holdings and trade some small sizes around the fluctuations.

EJ, believe it or not, one of the DJIM traders actually visited one of their brokerage office in Shanghai recently.    Yes, these guys are one of the biggest player in the real estate market over there.   If you think Shanghai's stock market is making many locals rich, think again.   The biggest market is still the real estate market.     Technically, this is a fresh breakout!   We do notice that this one has tendency to have erratic pullbacks and therefore you will always have opportunity to buy more.     HMIN continues to trend higher after breaking out recently.     EDU, was making new highs as well Friday.  BIDU flew off another $400 price target.   We do not understand the breakouts have no meaning, set ups not to be trusted, money pit comments in our Forum on Friday and we'll leave it at that.   These DJIM closely followedstocks do not fit these comments and the China's IPO's we cover were not setting up or on verge of a breakout as they are sitting off highs. 

GLDN, besides the late Thursday afternoon move following an alert it also exploded the next day to almost $115.   In some circles that could be a 20% lift overnight.   We have alerted this numerous times over the year and will continue to.   Pullbacks are a natural here and we will go back in size again.  This is similiar to the SPWR as well last week.  If you get these 15% or so moves in hours, you slice the pie up and wait to get in on another pullback.  SPWR proved what a strong quality stock can do late last week.  Just look at the last 3 days finishing up with a NCH.

GHM, remember to glance at the earnings play page so you are prepared for these oldtimers off DJIM at this time of the year.  Another stellar report and a gap up winning day.

...same old stuff

well that's what it feels like...when you have no patience like us, especially after the early week snapback rally.  Now, it seems its the same old as late day fades rule, yesterdays a bit earlier than the previous and then a battle at around 1450 on the SPX with buyers stepping up to close it above this line.  Indecision is running on both sides (but the shorts may be more nervous), maybe it is plain exhaustion and we all just need the weekend to get here quick and some headlines to give this market a course for the short term.  Still, yesterday was not without what's important to all of us and that is there were a few names off DJIM Journal that were making some noise...

MELI, seems a few agreed with us and came to play as MELI got pushed 5.5pts from lows to highs of day.  Earnings reaction are not always a first day thing as MELI showed yesterday.   Now with it showing up on a very THIN new highs list across the market, especially those tracking NCH's, we'd hope the idle money comes here to spend some time.

QSC, the other day this had a big buyer eating up shares at $4 even, millions of dollars worth, sooner than later this was pushed to the high 4's as such action seemingly always does.  Yesterday's pullback might be sufficient, a plus is it was on fairly light volume. 7mln to 10 to 11 to 3mln volume.   If this was a quick flash in the pan, you'd think we'd have more selling yesterday.  Anyways, this regained the $4+ level and closed at the highs of the day.   A quick volume move might be in store in the short term, watch for that as a possible entry if not holding already.

STV, EJ.... the concentration here the past week was to use STV as a possible pre earnings mover on the heels of WX and EJ.  STV had climbed about 25% since the week started and to many that is good enough!.    So, it is not surprising profit taking was part of the equation after STV released earnings.   All stocks are different and in the case of EJ the pre earnings move translated into profit taking the day of earnings giving it some leg room to move forward on a good report as we saw last night to recent highs.   As we've noted recently regarding WX...expectations are over the top on these Chinese IPO's.   You are not going to get a surprise reaction and a fast move up like with other nice earning reports that come out of the blue and immediately push a stock higher.    These Chinese IPOS' would not be trading on the NYSE now if tremendous earnings growth YOY didn't put them there in the first place.   Great YOY numbers are expected and you could say priced in.    What these stocks need to get a big push higher right after earnings is something almost impossible unless you are a GOOG!.     What we look at instead of YOY growth is how a company performs sequentially to get a better read of how business is progressing the past few Q's.    STV's revenue came in at 14mln after 20mln for the past 2 Q's, so there is nice growth that is ongoing.    Also, things like operating margins,  in the case of STV are just not to be found in many other stocks.   What these stocks now need is the firms to possibly set a good tone in their reports, initiations in the case of STV.   As we said, we like both reports and STV might have been a bargain last night after hours at $32,33,  but it is the market the will dictate the stocks path and a firm or two the day(s) after...a good market would help too!.

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. 

Pre Fed

Many are lead to believe that last couple of day's action is due to the anticipation of a Fed rate cut tomorrow.     We think it's a combination of many factors that are setting us up for some really good action in this month.    However, Fed is still Fed and anything they say tomorrow can have a dramatic impact on the course of this rally.      As far as we are concerned, as long as the Fed addresses the current financial environment we are in and it's willing to adjust its policy to help the market, we basically get a green light for the next few weeks.    If for some reason the market sells off the Fed news, and especially if it's some good news, we wouldn't be hesitate to buy into the dip. 

Now the playlist...

Over 90% of the stocks on our watchlist are green and we just have to be very encouraged by the market action today, but FOMC on deck!!.  We'll get into detail of some of the action here,

Solars,  this group has been on fire since the Energy bill.   If you miss the low of the group on Thursday, then Friday would've been just fine getting into some of the popular names.    Today we are getting some really good follow through on top of the good action from last Friday.   Our top favourites are now STP LDK JASO FSLR...  we are also trading SOLF CSIQ as well to throw in the mix.     

China Plays, we are actually surprised that some of the more speculative names are still holding up and showing signs of perkiness.   This leads us to believe that there's definitely more pop to come with the whole sector.    The quality ones we like had some mixed action today with STV WX outshining EJ LFT by a wide margin.     STV has a particularly nice breakout out of the recent consolidation off very good volume and we think it has potential to return to its former glory.    We are definitely trading more aggressively toward STV after today's action.   With LFT, the consolidation is still between $23.50 and $25 and it may require some more time to really break out of it clean.

EPS winners, MELI had a very nice breakout today on very healthy volume.  It notched a nch and sits well above the recent range.    We were really hoping for an intraday dip to buy some more but it just never came.   It looks like we may just have to chase it if we want to get some more of this.  SIGM MA VIP MBT continue to trade with this market.   One thing we have to remind people that the eps winners do trade in a rational manner so the further away they move from 9 ema, the more likely that they'd stall and pullback.    We simply have to be a little patient with the eps winners and have a bit longer term perspective.     

The bottom line, this market still feels unconvinced for a rally and many people are still underinvested.   Alot of negative news are being absorbed by this market recently and all these are all considered bullish sign.    We have LEH releasing earning this Thursday and that may give us a clue of how the financial world will react, which is very important to gauge the market sentiment.