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MARKET WRAP UP 08/24/10
The stock market’s downtrend continued today, as the S&P 500 opened lower to 1046, before somewhat stabilizing to close down 1.45% at 1051. Selling volume saw a slight uptick from the recent price action, and breadth was weak. The action in the bond and currency markets, combined with terrible housing data, was more than enough ammunition for the bears to press their bets into the closing bell to erase any hopes of a last minute rally. The bears showed their claws and are out for blood, as both the technicals and fundamentals are lined up in their favor. Moreover, the confidence of the bulls has eroded to the point where any attempts at rallies can only be seen intraday, and are laughable in their vigor.
Despite all of the above, I am positioned for a tradable rally. I have maintained for several months now that we are in an oscillating market, rather than a trending one. This market has rewarded traders who have faded the prevailing sentiment at each extreme. Just when the bulls thought we were going to breakout above 1130, it paid to move to cash or go short. Similarly, each time that the bears have pressed their bets below 1060, it was correct to scale out of shorts and/or deploy cash to the long side. Bear in mind that trying to time an oscillating market carries additional risk, as we saw in early July when 1040 quickly became 1010.
Nonetheless, as the updated and annotated daily chart of the S&P 500 illustrates below, if you believe we remain in a trading range, now is the time go cover shorts and go long.
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Most of the other index and sector charts that I update for you on a regular basis display similar patterns to the S&P after today. The bears are knocking on the lower end of the trading range, but the risk/reward profile favors a snapback rally. The lone exception is the emerging markets ETF, $EEM. These guys have been the leaders, and today saw a marginal breakdown. I will be monitoring this closely to see if there is any convincing follow through by the bears. Based on the doji gap down, as seen in the chart below, I am inclined to think it is a false breakdown.
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As a trader, it is important to distinguish between a short term trading call and a longer term view. I have very little doubt that we remain in a secular, multi-decade bear market that began in the year 2000. Moreover, we have been in a cyclically corrective phase since late April of this year. Come Labor Day, I am likely to be positioned much differently than I am now. Until that time, however, the stage is set for relief rally.
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[youtube:http://www.youtube.com/watch?v=FXKBUK94cC0 450 300]r
I think we are going to break down
I think NDX to 1300 in 6 months
– some asshole talkin shit on the internet.
S&P 1040 is a level I am watching, seems to be a vicious defense whenever it gets there. Why not 1039.6 I wonder, but I am not a chart guy. Friday’s Bernanke speech should be interesting indeed.
Overnight we may get a boost from German news…enough to carry forward?
New Home sales?
puke
Durable Goods orders?
…maybe not so bad….don’t see a huge upswing though
…How about Thursday instead?…with some overseas momentum…
but then we have Unemployment claims and Mortgage Delinquencies to deal with..
when the last guy gets laid-off and theres NO NEW claims…Yeah…maybe Thursday?
Chess, you have said in the past that you like to use FCX as a guide for the overall market. FCX broke down hard today. I am not sure if now is the time to get in the way of the market. I am watching closely, but I do not plan on putting any money behind a trade until I see some real buying. And at that point, I will actually be looking to get short instead of long. This market looks really ill.
Hey FIG. Yeah, another reader correctly brought up FCX on one of my earlier posts today. You know what? I think I am going to do a post about it right now.