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MARKET WRAP UP 07/19/10
Nearly two months ago, on May 20th, the S&P 500 closed at 1071. Today, after chopping around this morning, the S&P rallied in the afternoon to close up 0.60% to 1071 as well. Since late May, although we have gone as a high as 1131, and as low as 1010, the overall market has been a complete waste of time for the vast majority of traders. This type of price action seems to be reflected in sentiment, as many traders are not so much bearish as they are apathetic and, perhaps more so, frustrated. As I noted last evening, several key sectors have been “dead money” for nearly a year now, and the broad market can be viewed as dead money as well, over the past two months.
The origin of the broad channel that I denoted on the updated and annotated daily chart of the S&P 500, seen below, should illustrate my point about the previous two months.
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The operative phrase is that we are still in no man’s land, with the bears getting the longer term edge. Despite the fact that the bulls closed us just above the 20 day moving average, we remain firmly below all of the other major moving averages–notably the declining 50 day. Taking some small positions within the broad channel is fine, so long as you are willing to accept the lack of a discernible trend since late May. For most traders, trending markets offer easier opportunities to make profits than do oscillating ones.
Turning to other indices and sectors, the Nasdaq, Russell 2000 (small caps), and Dow Jones Transportation Average all remain within their falling channels. As their respective daily charts illustrate below, only the most agile short term traders have an edge in this type of choppy market.
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As for my personal portfolio, I sold out of my remaining 1/2 position in $LULU today. As I noted earlier, I sold off my first 1/2 a few days ago, to lock in a nice profit. However, I sold the final 1/2 today at break even, because I did not like the way the chart was starting to look, and I wanted to avoid turning a winner into a loser.
I also currently have 1/2 position in $NR. I sold the first 1/2 off earlier this month for a nice profit, when the stock launched higher above $7.00. As I noted back then, I wanted to wait for the stock to retest the $6.50 area, on low volume. However, no such pullback has occurred. Instead, the stock has formed a nice, tight base above all major moving averages. So long as the broad market does not fall apart here, I am strongly considering going back to a full position in this name.
When a stock comes to terms with a price level in an orderly way after a sharp run up, I consider that a very bullish setup. The reason being is because the aggressive buyers who initially pushed the stock higher seem to have conviction in holding their positions, despite the move higher. This tells me that higher prices could still be in the cards.
Even if $NR is not for you, as a practice in pattern recognition, as well as combining strong volume to confirm price action, take a look at the daily and weekly charts, seen below.
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TOTAL PORTFOLIO:
EQUITIES: 32%
- LONG: 32% ($NR $NTAP $THOR $SAPE $SWSI)
CASH: 68%
$NR looks good to go, I am long myself.
Concerning the S&P chart…wouldn’t we be expecting a ‘lower low’ instead of just capping a 1040. We had a lower high
Just asking
Possibly, and thus the bears have the overall edge here. Alternatively, it can be viewed as a marginal breakdown of the broad trading range, which was quickly rejected at 1010 when buyers stepped in.
“Dead money”–excellent summary/concept that more traders need to think about.
Thanks.
Chess-
My take on the recent market is that it is an option seller’s market. I have made quite a bit the past several months essentially selling far out of the money strangles. Very few options on either leg have been exercised for 3-4 months now at this point. My key is to sell out of the money options, to allow some wiggle room to be wrong. This market has been fantastic for that lately. The problem is if we break out of this wedge in either direction, there could be pain. SO I am keeping one eye on the exit. until then, I am collecting premium every day that ticks away.
I enjoy your blog.
Brian
Good plan Brian. Thanks for reading.
I see your point on the base. I did not see the base as I was looking for a longer term more or less symmetrical triangle with a current pr. at resistance. I see the channel on week or so basis, where such channel can be seen in this st. breaking up in April, but braking down in June. I have a feeling you’ll see 6.25 before you’ll see 8. I have no position in this and therefore no emotional attachment. I’d be inclined to get long at 6.25 area.
This is the kind of market that will grind the mechanical trend following morons to dust.
Discretion is advisable.
chess,
i just noticed all the falling channels in the mentioned above! back to my charts to rethink the next move.
thanks for the “wrap”.
Bought more UWM today (50% cash).