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MARKET WRAP UP 08/04/10
Stocks survived another morning gap down to finish near the highs of the day, as the S&P 500 closed up 0.61% to 1127. With the buyers picking up steam in the final hour of trading, one cannot help but conjure up the old Wall Street axiom that bull tapes finish strongly, while bearish tapes feature weak closes into the bell. Seeing that many traders are either skeptical or flat-out bearish on this market, the fact that the bulls refuse to relinquish the initiative needs to be respected. Despite the ongoing light summer volume, breadth was impressive today, given that the S&P hit eleven week highs, on a closing basis.
Perhaps what is most impressive about the price action during the last few days is how quickly each intraday gap down has been bought. After Monday’s 2% rally higher, I discussed the concept of overhead supply, which dictates that longs who were previously trapped at a given price level are now likely to sell once they are made whole, as opposed to buying more or holding. The closer we have come to 1131 on the S&P, which is precisely where we touched and reversed hard to 1010 on June 21st, the more chop we have understandably seen. However, as the updated and annotated daily chart of the S&P 500 illustrates below, there has been an underlying demand to meet this supply, helping the market to digest the recent gains in an orderly way.
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Turning to other key indices and sectors, it is becoming clear that the transportation stocks and the emerging markets are leading us higher. However, as their daily charts indicate below, the technology led Nasdaq Composite, as well as the small caps, are slightly underperforming here.
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With more and more stocks forming lateral bases and subsequently moving higher, the market has all the makings of a continued summer rally. I am looking for a move over–and hold above–that 1131 level on the S&P before I think we see a new wave of buyers emerge. However, I will wait for confirmation before jumping the gun with overly aggressive portfolio allocations. Beyond that, I am not interested in holding individual issues through their earnings reports, so I have been shuffling around my portfolio a bit as well.
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TOTAL PORTFOLIO:
EQUITIES: 42%
- LONG: 42% ($COCO $GNK $LSCC $RDWR $BX $CMI $SWSI)
CASH: 58%
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[youtube:http://www.youtube.com/watch?v=oNgSeJzLJFc 450 300]
fab work as always.
i really like the way that “tranny” chart is looking! anything can happen, but i will repeat this statement again: ” i think we run into the fall elections”
ty, good sir
Everybody seems bullish all of a sudden, yet we were falling off a cliff a few weeks ago. Odd, no? Looking forward to a trending market again (crossing fingers).
Traders bias between doom and gloom swings as much as recent market price. Gotta love the volatility!
As always, I appreciate your contributions. I’ve found that Tony Caldero’s OEW approach has been very sound as well. Here’s today’s byte:
After monday’s new uptrend high at SPX 1127 the market pulled back on tuesday to 1117. This is the typical kind of pullbacks we get during good advances. This morning the market made a marginal new high closing out that 10 point pullback, and then worked its way higher after a smaller pullback. Short term OEW charts remain positive, and the count remains as posted. All four major US indices are in confirmed uptrends, along with all nine of the SPX sectors, and twelve of the thirteen foreign indices we track. The next market objective appears to be the June high at SPX 1131. Best to your trading!
His wave counts seem spot on although I do have a problem with his characterization that we’re in a bull market. Short term, he’c accurate for sure.
Chess
I was in POWR a little before you and
followed you out today.
What will entice you to get back in?
Thanks
waiting until after earnings–so I am essentially taking a pass on it despite the nice chart.
Appreciate you analysis.
Institutional selling has abated over the past month. That is why we see light volume even as the market is rallying. An absence of heavy selling can have somewhat of a bullish affect on the market. Essentially, it has allowed smaller traders and investors to participate in their own induced rally.
This begs the question as to how violent a sell off will we see when the institutions do get bearish and start selling again.
That said, higher highs and lower lows means that our bias should be to buy weakness and not sell strength.
When selling volume increases dramatically from current levels, that may be the time to close up the shop and go to cash, hedges or short. It will depend on a number of factors, including sentiment, market leadership and what is happening in Europe, Japan and the emerging market economies, just for starters.
Just my observations.
The institutions sell in response to redemptions. Maybe redemptions are about fizzled out. How much more can go into bonds at these low interest rates? I think the scared money has already pulled out.
Chess – Nice work as usual. Thanks.
I enjoy reading your blog every day.
What do you think about CSCO?
I like what I see, but I’m a rookie.
Thanks–I like CSCO only if it can hold above $24
Sold all my UWM (no courage today so hope to buy back at lower price later or at pull back in upward trend) and bought some DAG (Russia announced export embargo). Now 80% cash.