2011 Market Insights

http://www.djimstocks.com/2011-market-calls/

Mid Dec. week, SP 1200-1220- following Draghi/ECB,.... ("A bazooka result to keep calmness in peripheral Euro bonds may not be needed with all that has been done recently. The ECB liquidity measures were overlooked last week, they will be a big help here.".)  This became known as LTRO as the market rallies into 2012

BMO/Nov.17th, SP at 1237.. noted USD funding stresses coming..."...Here, still looking at 1230 to 1220 as last support before drop below 1200...".    Market falls to SP1160 within days.

Nov 6th- SP at 1275/ Noted Yield going over 7% for Italian debt...."...A fresh and likely biggest wary to look at is Italian bonds/yields. ECB is intervening holding it below critical 6.5%, if it gets above it may trigger ..."  Nov. 6

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• Sept 21st-  SP at 1200, call for new low at 1090 for Q4(Oct- Dec) substantial run-up with trigger to be  'recap of Euro banks'. (click link above)

• July 28th-  SP exit at 1300+ (link above)  “. ….It’s probably best to take August off and get refreshed for what may turn out to be a very meaningful last Q run-up.”.

• March 16th- SP Bottom at 1250 (link above), Highs of SP1370 hit in May, 1250SP not seen again till summer.

Ahead of the open, (30-12)

Not surprisingly, no concrete explanations for previous days EURO led downside emerged giving market another opportunity to climb back into the black for year.

This was achieved despite not so strong demand (yields first spiked to 7.13%) for the closely watched Italian 3/10yr.bond sale.  ECB came in afterwards to buy and knock yields down and keep them in check around 7%.  Interestingly, a few days ago on the topic of auctions.. . “ If a negative outcome and market sells-off any, it will be bought on the dip.”. Well, it seems the market had this sale somewhat priced in as the market didn’t go any lower. Instead dip buyers started to take the market up the ladder premarket. Another round of solid U.S eco’ (led by housing) provided more lift and a steady correlated (all major indices up ~1%) march into the close.  The highest correlation of stocks since ’87 continued right to the end, even in higher beta small caps as ie, today with majority of stocks between .-5 to +1.5%  on the day. Hopefully, corporate earnings will begin to break this deadlock and stock picking can come back.

The market will make a smooth transition into the first week of ’12 with a slew of events, notably global PMI’s (china flash PMI this overnight).

A Happy & Prosperous New Years’ to all…

Ahead of the open, (29-12)

A quiet overnight session, a steady premarket with ES up a few points and you’d think we’d be in for another treacherously boring, tight range trading day.  But, oh no, Santa seemed to have 'onlined' the Bears one more gift as the market tripped out of the gate and continued to roll to a 20 SP handle loss from (ES high to low).  Maybe, this Bear gift wasn’t from Santa, the melt down had no explanations as to whom/ what was responsible.  The only excuse to account for the downdraft was the EURO falling out of bed (~1%), but even Euro needs a ‘catalyst” firstly and there wasn’t one.  The Italian short term bill auction was a mild success with the anticipated longer term bonds sale on Thursday to gauge foreign buying, so this wasn’t the culprit.  Nobody at the end knows what caused the EURO plunge at the U.S market open, not even the plotters at Zerohedge, it seems.  One excuse, the stashed EURO's at ECB climbing to EU452 billion is really old news considering market already knew EU347 billion (new record) was parked post LTRO last Thursday night.

Preference here to trade –off is when you have a lot of excuses to account for a decent size downside day like recently, ... (A slew of wire bits were floating around trading desks explaining the weakness, but in this view, just excuses. Recall what has been said on these pages for a long time, if the market can’t pinpoint one real deserving catalyst on a downside day, more often than not, majority of the losses are reversed the next trading day. (MARKET RALLIES 3% day after),  not one where you can’t even generate 1 or 2 decent excuses.

All in, maybe it was just the thin liquidity at work where one oversized buy or sell can lead the exaggerated moves, especially true in FX markets leading to a domino effect in the equity markets.

Or maybe, it was the just the logjam of resistance points in the 1260’s and the faltering underlying currents catching up to the broad market covered here last few trading days.  R2K underperformed the SP once again this time by almost a full 100bp to the downside and the Euro’zone sensitive, Financials lagged with another 1.5%(BKX) drop.  The inability for the small caps to follow through on previous days slight breakout is a disappointment.

Ahead of the open, (28-12)

If we go back to the trading Journals (last week of 2010), we find that the market finds itself in the same predicaments 1 year later.  This does not mean the same thin liquidity due to investors, corporations and policymakers hibernating into year end, but the fact after all the turmoil this year, the market finds itself dealing with the same internal market plight.. ”All in, the broader market once again failed to breakout 1260SPX, even though breaking out on holiday volume means little, it still shows conviction buying is far from coming back..”December 30, 2010.  In fact, same underlying characteristics of the marketplace are evident in this slow grind up as unfinished business/closing off books and window dressing has not included ‘growth stocks/higher beta’ buying as witnessed by R2K underperformance late last week.  

However, around noon the R2K for whatever reason finally snapped up and hurdled the major indices and outperformed into the close by 50bps. Unfortunately, the positive tape action was offset by the other potential trigger as Financials lagged by 50bps and SP finished flat at 1265…”Judging by the financials here and overseas…the sector could provide an added spark and trigger a move higher”.(pre-xmas).

All in, a decent day giving some hope with a small cap pick up, growth retailers and beaten up software linked stocks acting best and the place to look for follow through, if any. (Names were listed last week in both sectors).

As the market has little to go on (little on calendar of significance), it tries to hang itself onto anything just to make noise, such as the 'implied' importance of Italian debt auctions coming up (Wed/Thurs). The yields are already pushing 7% for days and market has been shrugging it off.  If a negative outcome and market sells-off any, it will be bought on the dip.  The reason the yields have been going in opposite directions to Spain’s since recent push of liquidity is because Italy has a heavy redemption calendar of EU~65bln in January.  The caution is really pointing at January, not this week’s selling of Italian paper.

Into the trading week, (Dec 27- )

Even the ES futures have an “I’m out of the office”, note up before Tuesday’s trade (not open until 6AM). That pretty well sums up the thin trading environment going into the last week of ‘11, so will keep it short as everything written last week extends over to this week. 

After 35 SP handle rally last Tuesday, “In all, a perfect gift for longs to sell and/or to believe in Santa "ECB' Claus for a little longer”. The little longer carried on to the last 3 trading days as earmarks of window dressing became apparent Thursday and continued for another 100+pts DJIA day with SP moving into the logjam of resistance in 1260’s on Friday.  

Helping the cause is S&P seemingly delayingAAA resolution into ’12 and Washington politics cutting a deal of sorts delaying any potential negative market catalyst until 2012.

The only hurdle for even more upside remains the underperforming R2K (again on Friday). Clearly, the underlying group to watch for market direction.

AHEAD OF the open, (23-12)

Today’s action had all the earmarks of window dressing/ Santa mode on thin liquidity (lowest vol.in Dec.) into mth/year end and it wasn’t really surprising coming on the heels of yesterday’s positives..a)”…the euphoria of LTRO died off…but the market didn’t sell off…b) closed above 20ma/50ma, c)..even as Euro Sov’ yields went up”.

The logjam of resistance points is in the 1260-1267.

If the small caps/R2K outperformed today or outperform shortly, those levels should be revisited, if not broken to the upside from a symmetrical triangle pattern.  Judging by the financials here and overseas, ( LTRO sentiment was better than yesterday), the sector could provide an added spark and trigger a move higher. *S&P resolution seems to be holding off due to thin year end market liquidity.

Most notable news today was the Initial claims number continuing to improve for a second straight week. It’s a leading indicator, signalling economic improvement in December on top of what was already solid data in the previous month.

As far as tech action post ORCL disappointment, softies still showed signs of dusting themselves off(despite TIBX up 9%), but the early week networking trade off AT&T picked up again (ie. JNPR).

Merry Christmas to all!

Ahead of the open, (22-12)

Leading into the trading week,

” Earnings come from the softies’, ORCL RHT, TIBX. After all the negative announcements from the ‘hard’ware types, software is usually the ‘safe’ haven in tech, so these companies will be closely watched for tech contagion. If (ADBE) is any indication from last week, this group will provide relief”. 

Coming off a 3% melt up with all focus on ECB’s LTRO, holiday cheer was dampened as noted heading into today’s trade.. ...”Unfortunately, this last positive (LTRO) is out of the way now and euphoria should subside….. A rare miss from ORCL will be defended, but will have an impact as some factors mentioned by management will definitely effect other co's”. RHT, reported after ADBE earlier in the week and didn’t meet expectations setting up the table.

Considering ORCL has been a can’t miss earnings stock for years and with money loaded into the software space for anyone wanting tech in their books (especially post all negative guidance in hardware types recently), a volume tick up slaughter ensued in the sector with many linked stocks down ~10% in the first couple of hours with many of our favorite names over the past year(s)included.  (CVLT N FTNT VMW QLIK TLEO FFIV CRM CTXS BSFT even IBM ). Investors caught on by the opening bell and headed for the exits realizing ORCL’s call “will definitely effect other co’s”. Despite NASD shaving off ~25 pts by close as selling subsided by noon, this caught many of guard and the bounce is likely more of a function of selling stopping and quick traders going in than longs only stepping up.  Doubtful these kind of market revelations last for only 3 hours. AH’s, TIBX report was somewhat a relief, but isn’t a Goliath market cap like ORCL to change view overnight. Worry dust needs to settle here.

In all, the broad market was lopsided. As speculated, the euphoria of LTRO died off despite coming in at higher end of whispers numbers, but the market didn’t sell off (positive) and closed above 20ma/50ma, even as Euro sov’ yields went up (see ‘watch’ note yesterday). The debates on the LTRO started premarket and will linger on.

 In this view, just add it to the Eurozone band aid alphabet for now, EFSF,ESM,SMP and go on.

Ahead of the open, (21-12)

So, was today’s market melt up of 35 SP handles because today’s news was ~2X better than yesterday’s 15 handle loss?. Hardly, today the market was a victim of no sellers vs. no buyers early on (opposite of what we've seen the last few trading days) and the speculation the market may reverse yesterday's losses came to fruition and more. If you add the illiquidity factor, you always have a chance for a seasonality melt up!. The gradual build up in ES pts. premarket (only 1205 at 7am) and open internals indicated the market would not be prone to day #4 of an early morning market sell- off. The rally was larger in points and very broad based with Financials, Tech (networking led with big gains as speculated in trade idea for morning, (NWX), APKT, JNPR >8% and more linked stocks to AT&T), Industrials, Materials, Energy all 2-3% higher early. Oil rose ~$3 early and Gold was up ~20, the risk- on commodity bounce suggested late last week took off.

As far as the news helping sentiment was hardly fresh news, unless majority of what is left of market players has been asleep at the wheel recently or not understanding ECB's LTRO announcement 2 weeks ago.(more below)

• Spain successful notes auction was cited, bond yields have been falling for days to 5% levels and it was the ‘second consecutive successful weekly’ auction. This shouldn’t be a surprise given last week’s and recent liquidity push. This directly relates to ECB’s 36mth LTRO program demand results on Wednesday, which is getting attention (finally) for being an unprecedented and generous liquidity move.QE, game changer like to some.  Yes, the same ECB liquidity push alluded to here at least 3 times (below) recently as something the market has been overlooking following Draghi’s ‘cold water’ pour recently. Two weeks late,r it's all the melt up rage and the boost to get over 50MA.

(In all, there is enough liquidity provided by ECB that should contain yields from re- widening to recent alarming levels for the last 3 weeks of ’11 trading”…” It’s not from pure Eurozone fear/panic ......(sov’bond yields ok, ECB measure from Thurs a help as noted). "...."A bazooka result to keep calmness in peripheral Euro bonds may not be needed with all that has been done recently. The ECB liquidity measures were overlooked last week, they will be a big help here.")

Once the results are in, watch sov’ yields to see if they keep going down to gauge LTRO’s success rate, not how high demand was (expectations grew today to ~500bln), which is buoying markets today. (Banks borrow from ECBfor up to 36mth at ~1% and buy sov’ bonds then pledge that paper to ECB (Arbtrade/carry trade for banks) is the program hope. The debate will be how much of the amount will be used to purchase sov' bonds/carry positions vs. banks use with funding problems.

Also in Europe, Germany’s IFO was acknowledged as an ingredient to the rally, but folks, Germany’s PMI came in 2pts higher last week to 51+ signalling this number today. As far as U.S, we’ve been getting solid data for weeks, is a solid housing start report all that surprising news?.  Also, it was bracketed here (another RRR coming) in response to China news yesterday, today this same angle was picked up as ‘easing’ positive for the markets.

In all, a perfect gift for longs to sell and/or to believe in Santa "ECB' Claus for a little longer....Unfortunately, this last positive (LTRO) is out of the way now and euphoria should subside. Focus will turn to (ie). SP AAA resolution will now come with more risk due to higher market prices.(1250 resistance). A rare miss from ORCL will be defended, but will have an impact as some factors mentioned by management will definitely effect other co'.

Ahead of the open (20-13)

Once again, ES led overnight +7pts, market rallied at open but early gains reversed suddenly and steeply. Volatility intra-day again unrelated to any real news. A slew of wire bits were floating around trading desks explaining the weakness, but in this view, just excuses.  Recall what has been said on these pages for a long time, if the market can’t pinpoint one real deserving catalyst on a downside day, more often than not, majority of the losses are reversed the next trading day.

Today’s marginal burdens included:

*China reported another month of money flight out of country (another RRR likely coming) and real estate concerns, US politicians not passing extensions (yet), no S&P resolution, ECB’s(Draghi) reiterating no QE, Numerous articles on financial politics(ie. Basel) weighing on group. (3-4pm slide due to BAC falling below $5 exacerbated the day’s downside and/or EU finance minister’s failure to agree on topping up ESM levels), Geopolitical risks.

All in, just excuses for what is just a bid-less market with volume drying up at/ near resistance (20ma today) for a 3rd consecutive day. Without a catalytic boost, market can’t make it over “R” .  Equities may feel easier to sell-off than to rally, but only because it’s a victim of no buyer demand vs. aggressive selling.

AH’s- AT&T news of ending bid should give a trade to towers (SBAC, AMT), networking (NWX) stocks ie. APKT as spending has been pretty well halted ahead of deal with T-MO.

Into the trading week (Dec 19- )

Coming off a -3% SP loss on the week, the US markets revert back into the red alongside all Global markets with 2 weeks remaining. Fortunately, it is only the US markets that have a chance to finish in the green for 2011.

Although, last week starting off with quite negatively with a commodity linked sell-off, the last 2 days give hope as things ‘settled” down. Still, the losses may have settled, but each day the early over shot gains were all reverted back as 50/20 MA convergence acted as resistance. On Friday, as suggested Gold and Oil bouncing may bring market back to those levels. It did, unfortunately it wasn’t enough for that day. Overall, the underlying tape looked better as high beta also performed better. These tape factors should allow the market to sooner than later break the resistance, if only because of a lack of liquidity and a lesser chance of negative catalysts. Any crippling news is likely to be held back for early 2012 in the holiday spirit. Of course, nobody is sending“Happy Holiday’s” cards to the rating agencies, so the market is still on the edge of its seat to see what S&P has up its chimney.(see notes on France and S&P impact from last week). Looking ahead to the week, this is the only visible impact to market direction. Otherwise, all sides of the market seem to be happy to pack it in for the year.

Earnings come from the softies’, ORCL RHT, TIBX. After all the negative announcements from the ‘hard’ware types, software is usually the ‘safe’ haven in tech, so these companies will be closely watched for tech contagion. If (ADBE) is any indication from last week, this group will provide relief.