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MARKET WRAP UP 07/12/10
In front of the initial earnings of the season being reported this evening, the market put in a rather tedious, uneventful trading session. With the S&P 500 closing up 0.07% to finish at 1078, we have now seen five consecutive closes in the green. While the advance has been on declining volume, low volume is not an excuse–in and of itself–to sit out the rallies, as evidenced by the low volume during most of the run up since March of 2009.
What is of more concern to the bulls is the overhead resistance stemming from the breakdown during the past few weeks. Many longs trapped themselves at these levels, thinking we had bottomed in late June, when the reality is that we had another vicious leg down to 1010. Given the chance to cash out their chips close to even, they will gladly do so. Further, the 20 day moving average, now sloping down slightly, is acting as resistance even though we did close slightly above it today. In sum, as the updated and annotated daily chart of the S&P 500 indicates below, the overall technical picture is still clearly in favor of the bears.
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After hours, I see that $AA beat earnings and is up in post market action. It is crucial to not be presumptuous in situations like this. Remember, it is not the earnings report that matters so much as it is the reaction to it by the market. Moreover, the after hours action can easily fade by the time tomorrow morning rolls around. I believe it is important to resist the urge to extrapolate that the broad market will automatically rally based on $AA‘s beat, although that could easily happen.
My overall market thesis has not wavered. I will play with some longs here, and respect the rally. Should we fail to make a higher low, and instead roll over hard at resistance levels, I will have no problem going back to all cash or even putting on some shorts. Should we have a rip roaring rally tomorrow and Wednesday, I will further reduce my long exposure.
I recognize that my style of trading can often seem boring in these kinds of markets. All I can say is that my style has served me well over the years. To think of trading as being a glamorous profession can be a very dangerous thing. Above all else, I want to be heavily involved during trending markets, where price is gliding parallel and fairly smoothly either above or below all of the major moving averages. When the market is oscillating like this, however, my cash position will remain high until the we fly out of turbulence, and the captain takes off the fasten seatbelt sign.
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TOTAL PORTFOLIO:
EQUITIES: 36%
- LONG: 36% ($NR $NTAP $LULU $CRM $THOR $APKT)
CASH: 64%
Breath was also pretty negative (http://www.barchart.com/stocks/momentum.php) and small caps (IWM) were weak.
thanks, always appreciate your level headed thoughts..
Thanks for the great update. Your “boring style” is more of a capital-preservative than the wall street herd. I personally am not buying Alcoa’s earnings beat because the earnings were just revised downward last week. Keep up the great work, chessnwine.
…. of course, still buying CLF if it dips too much