A Higher Lowjob

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MARKET WRAP UP 07/20/10

Early last evening, several anchors on the financial news networks were trying to ascertain how many points the Dow Jones Industrial Average would fall today, given the poor earnings out of $IBM, as well as a few other large firms. Unfortunately, the market is not quite that easy to game. After a sharp gap down this morning to 1056 within the first ten minutes of trading, the bulls lifted stocks up with their horns for the rest of the day, and never looked back.

With the S&P 500 closing up 1.14% to 1083, the possibility that today marked an elusive higher low remains of the utmost importance. As the updated and annotated daily chart of the S&P 500 illustrates, despite the bulls’ progress today, the declining 50 day moving average that looms above continues to be an obstacle for a sustained move higher (see below).

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All kidding aside, the issue of whether or not today marked a higher low will need to be resolved in the coming days. To automatically presume that we started a new trend higher based on today’s action is likely premature. Similarly, the bears are going to have to think twice about aggressively shorting another meeting with the 50 day moving average, after the myriad of false breakdowns that we saw today.

Turning to other indices and sectors, the Nasdaq, Russell 2000 (small caps), and Dow Jones Transportation Average all had impressive days as well, but remain within their falling channels (see charts below).

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As for the portfolio, my top performer today was $NR. The updated daily chart illustrates below that the stock began to resolve the friction associated with an ascending triangle with a powerful move higher on strong volume today. Follow through is now key, as the presumption is that this pattern will resolve up and out.

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I sold out of the rest of my $THOR position for a small loss, after selling the first 1/2 a few weeks ago for a gain. The stock simply did not rise to the occasion today, despite the broad market reversal, so I am content with my decision to cut my ties as the stock has done nothing of late.

Finally, I added a full position of $ARUN. The stock has been an outperformer throughout this whole correction, and has formed an ascending triangle as a well as a cup and handle bullish pattern. The chart below should illustrate both.

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TOTAL PORTFOLIO:

EQUITIES: 36%

• LONG: 36% ($ARUN $NR $NTAP $SAPE $SWSI)

CASH: 64%

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