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Weekly Homework: The Bond Market Holds The Truth (w/ Economic Calendar & Stock Radar) by | This entry was posted on Sunday, January 8th, 2012 and filed under Stock Market   Comments Off


For the first week of 2012, it was not a bad week at all.  The action wasn’t overly impressive for the bulls, but considering most were expecting a pullback, the bulls held strong. The question everyone is pondering is whether we will have some sort of pullback or are we going to continue to rise.  Friday may have hinted at more upside in the short-term, but we may need bonds to sell-off faster for this to happen.

To the surprise of few, data came in strong on Friday, not great, but definitely one of the best ones we’ve had in years.  However, this was expected by many due to seasonal hirings and improving weekly claims. The real test that market players are looking for is if next months job’s data will be strong or will it show we lost what the seasonality recently provided us.  This time next month will be a crucial point to better understand if the economic recovery is going to continue on the pace of the slowest recovery in history or will it start to pick up steam into another the next gear. For the meantime, we have potentially a month of positive sentiment going into the next report and we can not ignore that key point as we navigate these trading waters. Any and all positive sentiment must be used to its fullest as we will regret this when the markets turn bearish again, which will happen at some point since the market always cycles back and forth.

ProShares UltraShort 20+ Year Treasury (TBT) – Annotated Chart

Bonds have shown some signs of unraveling this past week, which could fuel a strong surge higher in the equity markets.  I continue to use TBT as my shadow chart for the purpose of determining the bulls strength as quickly as possible.  We will need to answer whether this move up in TBT was simply a relief bounce or is it the start of an unraveling in bonds that will fuel a surge in equities.  I’m staying flexible and not betting aggressive until I see better odds of determining that answer, but I’m definitely biased to the long-side.  A pullback makes sense, but a sell-off in bonds would quickly overrule that logic.

Tuesday starts the International CES event.  This event has already started to bring some optimism towards technology stocks and I expect this will continue as exciting news of technological advancements and new products hitting the shelves circulate among the masses giving them the urge to buy.  This will keep my bias towards technology stocks for the week with recent hot money also flowing into biotechnology as another sector to watch closely.

Economic Calendar

We’ve ignored Europe for a bit, so economic data could be a bigger driving force until the handcuff to Europe shows once again. Numerous bond auctions take place this week that could at any time give negative sentiment for our markets. I’m optimistic only seriously negative news would hurt us from Europe over the short-term and most we can shake off in half of a market session (morning/afternoon).

This week has numerous Fed speakers throughout the week, but the main focus will be Retail Sales on Thursday. This will help give clarity on just how strong December was and a better idea of how on strong the consumer is which could ultimately give insight into how long these seasonal jobs may stay. See the calendar below for more details.

Week of January 09 – January 13
Date ET Release For Actual Briefing.com Forecast Briefing.com Consensus Prior Revised From
Jan 09 15:00 Consumer Credit Nov $7.0B $7.0B $7.6B
Jan 10 10:00 Wholesale Inventories Nov 0.6% 0.5% 1.6%
Jan 11 07:00 MBA Mortgage Purchase Index 01/07 NA NA -3.7%
Jan 11 10:30 Crude Inventories 01/07 NA NA 2.209M
Jan 11 14:00 Fed’s Beige Book Jan
Jan 12 08:30 Initial Claims 01/07 375K 375K 372K
Jan 12 08:30 Continuing Claims 12/31 3600K 3588K 3595K
Jan 12 08:30 Retail Sales Dec 0.5% 0.4% 0.2%
Jan 12 08:30 Retail Sales ex-auto Dec 0.6% 0.4% 0.2%
Jan 12 10:00 Business Inventories Nov 0.6% 0.5% 0.8%
Jan 12 14:00 Treasury Budget Dec NA NA -$78.1B
Jan 13 08:30 Trade Balance Nov -$44.5B -$44.3B -$43.5B
Jan 13 08:30 Export Prices ex-ag. Dec NA NA -0.1%
Jan 13 08:30 Import Prices ex-oil Dec NA NA -0.2%
Jan 13 09:55 Mich Sentiment Jan 73.0 71.0 69.9

 

Game-Plan

As stated in the introduction (and last week), the CES event will keep technology on my radar for the time being.  Look for increased volume to trade with.

The sector took a brief pause late last week and I took my profits very fast to take advantage of pullbacks.  I will look for continued weakness to accumulate, I don’t expect this sector to fall apart overnight, but again I don’t make predictions, I simply react fast when I receive clarity.

Biotechnology stocks have been seeing more money flowing into them and I will continue to monitor this sector as well for however long energy takes a breather.

Per my StockTalks, I trimmed all my positions and started adding back to Northern Oil and Gas (NOG) on the pullback.  I have a reduced position in Caribou Coffee (CBOU) that I am looking to add back to shortly, but it has held up very well.  I finally started taking profits in , but will look to start adding back.  I trimmed Applied Micro Circuits (AMCC), but quickly and aggressively added back as it received positive analyst coverage and started to show signs of a bullish move up, which it surely did.  Lastly, I initiated positions in  and  Nanometrics (NANO) with plenty of room to add to both.

For my long-term positions, I trimmed some Gastar Exploration (GST) only to protect some profits, but it seems like it may make a slow grind higher.  I’m still riding a reduced profit position in speculative Dejour Energy (DEJ), but very anxious to incrementally add back in the 40′s.  A new 52-week high may change my mind though as I would consider adding fast and quickly trading a breakout for quick profits.  The risk of one seller knocking the price down very fast is very high in a small-cap stock like this.  I view that as a great opportunity to accumulate shares at favorable prices for the long-term and already have my bids in place waiting on it.

If you can’t make it to the live-chat where all the magic begins, you can view my trade updates throughout the day by following me on SeekingAlpha StockTalks.

I am sticking to stocks showing relative strength over the past weeks preferably with more cash than debt and valuations showing reason to believe it is undervalued. I look for these stocks to pullback towards support levels where I start to buy incrementally. I am cautious of buying on breakouts unless I am in a very aggressive mode.  This aggressive mode may be just for a day-trade rather than risking the large position overnight where my stop-loss won’t protect me from a large gap-down.  Market players have been reluctant to buy stocks on breakouts over the past year and I have adjusted my strategy to be more selective and patient.  If we can gain some very positive sentiment or a QE-based environment, I’d expect that will change.

The second radar is the short squeeze radar which is compiled of stocks showing relative strength, but having high short interest (you will notice duplicates among both radars because of this). Any bullish spark may set them off in a short squeeze run netting significant profits if you trade correctly. Always trade these short squeeze candidates carefully as stocks with high short interest will have negative rumors swirling around them trying to shakeout investors who have not done their homework. However, some of those rumors may indeed be true, hence the importance of doing homework and being very selective. The risk is higher for these types, so make sure you know what you are getting into before you buy, not after you buy.  The key is to be selective and find those stocks which the shorts are wrong about, not to blindly believe every large short position is wrong.

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Axcelis Technologies (ACLS)
Akorn (AKRX)
Atlas Energy (ATLS)
ATMI (ATMI)
Brocade Communications Systems (BRCD)
Caribou Coffee (CBOU)
Cambrex (CBM)
CONMED (CNMD)
Ebix (EBIX)
Entegris (ENTG)
Energy Partners (EPL)
FSI International (FSII)

Hologic (HOLX)
International Game Technology (IGT)
iGATE (IGTE)
Integrated Silicon Solution (ISSI)
ISTA Pharma (ISTA)
Key Energy Services (KEG)
Kulicke & Soffa Industries (KLIC)
Mentor Graphics (MENT)
Marvell Technology (MRVL)
Nanometrics (NANO)
Newport (NEWP)
Northern Oil and Gas (NOG)

Prestige Brands (PBH)
Parker Drilling (PKD)
Perficient (PRFT)
Rudolph Technologies (RTEC)
Super Micro Computer (SMCI)
Semtech (SMTC)

Smith & Wesson (SWHC)
Teradyne (TER)
TGC Industries (TGE)
Take-Two Interactive Software (TTWO)
VirnetX Holding Corp (VHC)
ViroPharma (VPHM)
Web.com Group (WWWW)

Short Squeeze Radar

Ebix (EBIX)
Fushi Copperweld (FSIN)
Flotek Industries (FTK)

Mindray Medical (MR)
Northern Oil and Gas (NOG)
Pacer International (PACR)

 

You can follow my trades alongside the 36,000 plus market players who follow me on SeekingAlpha (Shameless promotion). As always, do your own homework to see if you agree. Good luck out there.

Mike

At the time of publication, Kudrna was long CBOU, DEJ, MHR, GST, AMCC, RTEC, NOG and NANO, but positions may change at any time.

 

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