Stocks moved sharply higher today, on the back of the news out of Europe yesterday. With the $SPX rising 4.40% to finish at 1159, the market is clearly searching for a direction in light of the heavy selling we saw last week. Despite the positive action across the board today, the daily chart of the S&P does not offer as bullish a view.
While it is a positive for the bulls that we closed above the key 1150-1152 level today, that area needs to hold over the next few days. As usual, when fighting for a reversal, follow through is key. Beyond that 1150 zone, however, the bulls face tough overhead supply above 1160, including the 50 day moving average. Basically, the concept of overhead supply dictates that many of the longs who bought above the 1160 level and held throughout this recent selloff are highly likely to lighten up if they are made whole, given all of the pain that they endured on the way down. It is that shift in psychology, from buying the dips successfully since March 2009, to selling the rallies that has me concerned about initiating long swing positions at this point.
If you have not read many of my posts up until the past week or two, I would not blame you for thinking that I have been overly cautious for being heavily in cash. In fact, I missed out almost entirely on the big move up today. However, I would urge you to please take a look at my earlier postings here and here, when the market was healthier and I consistently offered many actionable setups.
I am primarily a swing trader, holding for at least a few days or weeks. My philosophy is to be extremely selective yet also very aggressive when I believe I have an edge. However, when my analysis shows that I do not have much of an edge, I have no problem backing off from the action until charts reset and offer better opportunities.
Two examples of stocks that were once excellent, high momentum long stocks are $GMCR and $CREE. Let me go on record as saying that I think both firms are fantastic in their respective sectors, and deserved to be in the spotlight for many quarters since March 2009. However, the price action in both names as of late should be a blinking red light as far as initiating long swing trades in general. These stocks were the leaders on the way up, and when they start to break down, you had better take notice.
Folks, believe me when I say that I trust the aggregate price discovery mechanism of the marketplace in the leading stocks over what any economist or lagging economic data tells me. If you want to wear a pocket protector and have your 49th birthday party at Chuck E. Cheese, then by all means go make your investment decisions based on the Calculated Bulging Disk, The Big Liberal Picture, and Zero Friends blogs.
However, if you are serious about making money in the market, then you will focus solely on what the price action in the market is currently telling you. Right now, we are seeing wild price swings and an elevated level of news driven volatility. Those facts are not constructive to swing trading with an edge. By all means, go ahead and trade if you are an expert day trader who is confident that you will not get chopped up.
With that said, there are two possible setups that I am considering in the coming days–$GLD and $SLV. Given the unique nature of the underlying metals to those two ETFs, I am not surprised to see their charts looking constructive.
Above all else, do not be afraid to move to a larger than usual cash position as long as we continue to see these wild price swings. As exuberant as the bounces may seem, many charts are broken and need time to heal before we should consider making bold bets. If anything, some excellent short selling opportunities may present themselves soon.
Thanks to everyone who voted yesterday as well as those of you who have read my work, and I am looking forward to us banking some coin together!
If you enjoy the content at iBankCoin, please follow us on Twitter
Welcome Chess!
Thanks, J. You’re the best in the business.
Nice work Chess.
Thanks RC, great to be working with you.
seconded!
Indeud!
Congrats C&W …. no drinking while castling will ensure a long reign.
Indeed, only after the checkmate, thanks!
Excellent post.
congrats chess!
Thanks Ross!
Love the rip on the other blogs. Also the megaphone/diamond top, I call it the car crash formation.
As for GLD, I think the head and shoulders idea is a bit of a stretch. Looks more like a double top to me.
As for SLW, you say pennant, I say slightly rising wedge. We know how the latter resolve.
Thanks for reading. I definitely see what you’re saying re $GLD and $SLV, which is why I have been reticent to get involved with them right now. I will be watching them closely to see how they develop.
Congratulations and welcome. Looking forward to your daily wrap ups and other posts/ideas. I’m very jealous tthat your office is now so close to R.W.s.
R.W. may have an office near me, but his person (pelican) is back at Vatican.
I am worried about R.W. he has been quiet since the oil spill, I hope he is ok.
Shots of R.W.’s family: http://www.nola.com/news/gulf-oil-spill/index.ssf/2010/05/first_birds_rescued_from_gulf.html
TC’s been quiet too … maybe he’s protesting the use of golf balls to stem the oil leak (???)
LoL Wassuuuupp http://www.youtube.com/watch?v=Qq8Uc5BFogE
Chess,
Congratulations on your well deserved win.
Glad to see your quiet followers came through when it mattered. Looking forward to Banking Coin with you.
Thanks, Stevo. Haven’t heard from you in a while. Don’t be a stranger.
Chess,
I went 100% cash on 4/27/SP-1205 and spent the next week fishing on the beach in Naples.
Have not done anything since except stare at the charts and remind myself that I am glad I have nothing at risk. Should have bought some puts but after taking a week off I wasnt ready. Once it started down I wasnt going to chase. Getting itchy. I’ll be around, ready to support and defend IBC’s newest asset.
Well played, sir. I did some shorting via inverse ETFs but sold Tues/Wed of last week before the crash. Oh well. At some point there will be great setups.
chessNwine … hadn’t read your stuff before now.
I like it !!!
Congrats on the new tab !
.
Thanks for reading. If you get the chance, you should browse around this site. Great stuff here, entertaining and informative.
ohhh … I am aware and very familiar with the site. fwiw
Just was not familiar with your posts … had seen the “handle” … just never took the time to read !
Now … I will !
Again … congrats on the new gig !
.
Ah, gotcha. Thanks.
Congrats on the new tab!
I’d be wary of GLD too. We all remember what happened last time when everyone thought it was a straight shot to $2000.
Yes, I agree. I am naturally skeptical. I will see how the chart develops.
Great job Chess!
Thanks Steeler.
Awesome post man, your market wrap ups have been consistently great and you fully deserve the tab
Too kind, thanks. Let’s bank some coin when the setups improve.
Great read, congrats and looking forward to more.
Thanks, Dubz. Awesome blog, by the way. i follow it.
thoughtful stuff – thanks and congratulations on the tab!
thanks franky–great stuff in the PPT!
Very insightful as always. Congrats on your new post. Keep ’em coming!
Thanks Hawaii, good to see you here.
You know I still love to mix fundies with technicals still…..does that mean I have to go to Chucky Cheese for Birthday Parties??………..total congrats on the Tab…….well, my fundies are sort of strange and what normal people don’t see as fundies….but still love them.
You can go to Dave & Buster’s for your birthdays then.
So… do you want my whole stock list, or like what?
Cause you missed one or two…
_______
Nah, I didn’t touch the miners.
Gold may be getting stretched but if we pull back and consolidate in the right way in this region this will form a nice cup and handle setting us up for a good run later in the year I think.
Yeah, I am watching it closely. I do like Silver too.
good to see you on your own tab you deserve it, read some of your previous stuff, good take!
Thanks, nice to see you here.
Congrats on the tab. Today’s action not what I expected. Your thoughts? Are we just pushing up into overhead supply?
Thanks Yogi. Well, the reason why I think cash is preferable over shorts is because after last week, we could easily run up to around 1170 and still have a bearish SPX chart. I hate being in this spot, but it is what it is. I would rather sit out and just watch than make foolish trades. I am trying to have an open mind, but I am leaning bearish here despite stepping out of the way for now.
Thanks. I’m net short, but not by much. Tough market either way.
I agree. I am itching to put on shorts here, and you know I’m not a perma bear. But I’m holding off for now.