Friday, February 12, 2010

Markets Headlines Desk Color 02.12.10

Markets Headlines/Desk Color

· SP500 technicals – from JPMorgan’s M Krauss - Rally from the 1044.50 Feb 5 upside reversal day low breaks above the 1071 Jan 20 downtrendline. Seeks next resistance at the 1082 Feb 2 62% retrace. Near term tone has improved, after last week held the 1043 July 38% retr/4th-wave obj. Note bullish divergences on the daily momentum and some internal measures. Significant resistance remains at 1105, 1115 Jan 22 break, and 1130 Jan range break. Jan 19 saw a 1150.45 peak. Keep a 2010 range view: 1000-950 low, 1150-1200 high. Short term bulls would fumble below 1059-1056, for MT support: 1035 10% drop, 1029 Nov low, 1026 Jan-Feb c=a, 1023 200 day MA, and 1019 Oct trough. M Krauss.

· PT desk color - 1.57 to 1 better to buy - Strong Flow; Large Cap 80% and Mid Cap 16% of total Market Cap; Materials better to sell; Consumer Discretionary, Financials, and Information Technology better to buy; ETF's 5% of sector flow

· Our futures desk on Thurs said that for the second session in a row, US equity index futures traded 70 to 80% of 5 day avgs... a little light considering the wide ranges and bullish sentiment taking hold of equity markets. Conventional managers stayed away but faster hands and macro driven mgrs got involved early, often and were well skewed to the buy side. Tactical asset allocation mgrs were buying equities and strangely, buying fixed income at the same time.

· US Equity Strategy update from JPMorgan’s T Lee - Since 1/20, global asset markets have been in broad retracement, with US equity markets seeing their deepest sell-off since March 2009 (down 8%) and 2/3 of global markets in official 10% “correction” territory. We take encouragement that CDS widening has not moved beyond sovereign Europe suggesting Greece is less episodic than sub. Buy deeply oversold pro-Cyclicals. In 2003-2007, the biggest bounces off deeply oversold levels were seen in Sectors whose % of stocks above 50-day fell below 25%, the “buy zone.” This milestone was crossed in Energy (9.5% six-month gain) and Materials (4.8% gain), and Technology. 24 Post-correction stock ideas: We have identified 24 stocks to leverage the end of the sell-off. We looked for stocks that already corrected (limiting downside): (i) down >15% from their recent high; (ii) implied target price upside > 35%; and (iii) rated OW by J.P. Morgan Equity Analysts. The tickers are: X, MWW, AA, OI, QCOM, MWV, AKS, PWR, GT, FCX, ODP, IVZ, IGT, DF, SWN, CSX, SLM, CHK, PXD, TAP, CBG, IPG, BAC, and AMZN.

· Credit derivative commentary - Preview to the new “bullet” LCDS - A revised LCDS contract is scheduled to be launched in 1H10, likely in conjunction with the Series 14 LCDX launch scheduled for April. The major change is that the new contract will have a fixed maturity and cannot be cancelled. Beinstein.

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