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MARKET WRAP UP 07/14/10
Despite the impressive earnings out of $INTC last evening and the accompanying spike in the futures, the market had already curbed its enthusiasm by the time the opening bell rang this morning. After a powerful move higher since hitting 1010 nearly two weeks ago, the S&P 500 put in an indecisive doji today, to close off 0.02% at 1095. Clearly, after six consecutive closes higher, the market took a much needed pause as it comes to terms with the 50 day moving average, as well as the psychologically important 1100 level. Both breadth and volume were consistent with a flatliner of a trading session.
Although bulls and bears alike will claim victory with the market pausing today, and possibly for a few more days, I am not so sure this price action is necessarily bullish or bearish quite yet. Bulls will claim that today’s rest and even a slight pullback in the coming days will be indicative of a bullish consolidation period, where the market digests the recents gains in a healthy manner before we make our next big move higher. On the other hand, bears will argue that we are merely stalling out at tough resistance levels, before we inevitably roll over and resume the steep downtrend that began in late April of this year.
As the updated and annotated daily chart of the S&P 500 illustrates below, the competing forces of the short term advantage that the bulls have is butting heads with the longer term resistance in favor of the bears.
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In addition to the S&P, many other indices and sectors are churning at the upper end of their respective trend lines, as I noted in an earlier post today. Looking ahead, it would not surprise me to see a few more days like today. Despite the fact that the bulls have made significant progress in the past two weeks, to presume a major change in trend from bear to bull would be too risky, at this point in time. Similarly, it is too risky to assume that we will automatically roll over and go to new lows in a resumption of the bear trend, by way of aggressively short selling here.
Hence, I took some more profits today, selling out of my $CRM position, increasing my cash position to 80%. While I am a big fan of $CRM and its stock, the fact remains that it was up ten consecutive days. For me not to take profits on a stock up ten days in a row–especially in this type of oscillating market–would have been foolish. While I certainly see some other charts setting up, which is bullish, I am still going to wait for the market to reveal more evidence about whether we are truly starting a new healthy uptrend before I make aggressive bets.
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TOTAL PORTFOLIO:
EQUITIES: 20%
- LONG: 20% ($NR $NTAP $LULU $THOR)
CASH: 80%
Chess, I agree. The price action today was not decisively bullish or bearish. What I did notice is that although the aggressive short based ETFs are still not being accumulated, the bond based funds and more defensive names have started getting accumulated again, outside of Tech. Either this signifies a rotation or a place to hide during the earnings uncertainty. Like you, I registered some significant gains and further offloaded my longs. Question for you – Do you have any special read into the divergence between nasdaq and s&p? What according to you will that portend about the general market direction, if anything?
thanks sr–which divergence are you referring to b/w those indices? I am looking for a higher low, in general to hold.
Chess, I was referring to the fact that nasdaq up/down vol was 57/40 and NYSE up/down vol was 37/61 percentage wise. Almost mirror images. I read a study where nasdaq outperformance statistically favored higher market prices in the next three days. However what I don’t know for sure is how wide that range needs to be for such a trigger to go into effect. Since this is not a daily phenomenon, I thought it was interesting to see the divergence. Of course it seemed to have caused by disparity between tech earnings and negative news on non-tech economic data, but still this phenomenon doesn’t happen often. Maybe if someone had archived data to play with, they can come up with a list of past results?
Very interesting–I would raise that point with Danny & Woodshedder b/c they are the masters of that kind of stuff.
Chess,
Very nice chart analysis. Congrats on your trading! Excellent entry and exit points. Your exit strategy to 80% cash makes perfect sense. You are teaching newbies a lot about trading. Keep up the good work!
Thanks, Ryan. Really appreciate you being a loyal reader.
Sent your “20” average multiyear chart on to my family and friends– what a great chart
That chart was really an eye-opener. It’s nice to look at the bigger picture every once in a while.
hi Linds!
Great timing with your sells — congrats!