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MARKET WRAP UP 09/15/10
Not much has changed in the past few days, as the market continues to drift higher at the very top of the multi-month trading range. Yesterday, I talked about the idea of the market pausing at the proverbial fork in the road. Today, we saw a continued sense of indecision for most of the day, before stocks staged a final hour push to close up 0.35% to 1125. Volume continues to be a dud, even after all of the summer vacations have ended. Besides the weak volume, breadth was mixed, as many of the leading stocks took a well deserved break from their extended runs.
Another theme that has been recurring in my posts over the past few days has been the notion that the trading range itself is becoming too obvious to continue to persist. Seeing as I have a 68% cash position in my portfolio, I am not exactly pounding the table to be bullish here. However, I am trying as best I can to keep an open mind to the prospect that we are in the early stages of a March or July of 2009 style melt-up. Further supporting the case that we could be in the midst of a major move higher, both the $AUD/JPY cross and the Shanghai Composite Index are exhibiting bullish signs.
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Beyond that, leading stocks such as $CRM, $FCX and $NFLX took healthy pauses today. Despite bears calling for imminent reversals in these names, the charts indicate more of a constructive consolidation than anything else. Note the lack of high volume selling in all three names. If anything, they are setting up to provide excellent buy points for patient swing traders.
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The bottom line is that just because we have seen an impressive rally thus far in September does not necessarily mean that we are going to crash. The price action in a vast array of daily charts indicates that much of the selling pressure decreased as the summer progressed, which is now allowing stocks to drift higher on light volume. My high level of cash is more an expression of patience for better buying opportunities than it is of displaying a bearish thesis.
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Take a look at the VIX and tell me what you think of this theory:
The 200-day moving average provided support and signalled
a reversal in the market (down) whenever VIX neared it, ending past rallies.
This time it broke that support,
but I am thinking once it regains the 200
around the 23 range, that is the time to start shorting.
At least testing anyway.
Its a fallacy to do any type of technical analysis on a chart of the VIX. It’s not a product that actually trades, or has any kind of supply / demand dynamic. It’s just a calculation based off a derivative of an index (SPX options). You can use it in general terms, like that it’s relatively low, but the concept of support / resistence doesn’t mean anything in this case.
I appreciate your input,
but I am pretty sure traders were looking
at the VIX when it was at below 21 saying,
as Dan Fitzpatrick would say,
“When the VIX is low, it’s time to go…”
and buying inverses,
even Spydercrusher suggested scaling into inverses
when the VIX dipped to 21.
That may have been too early,I think.
Right, except if the market is going to have a breakout now, in which case the VIX can go into the mid teens and stay there for quite some time, ala 2003–2007.
I’m sure there were people thinking that. It doesn’t mean that it’s a logical trading plan.
Don’t invest angy, don’t invest angry!
Even though I’m holding TZA I agree that when the set-up is obvious (pulling back from the top end of the range) the chance of that scenario playing out goes down. I just looked at the A/D line on an hourly chart for the past 60 days and I see that a positive divergence has developed. Each SPY high has marked a higher high in the A/D. Chess, any thoughts on this? Do I need unlock the safety on the escape hatch for my TZA position?
I would have a line in the sand. One strategy may be if the S&P breaks and holds above 1131.
Chess, do you mean exit short when S&P breaks and holds above 1131 to cut losses? Both Europe and Asia markets are down so maybe tomorrow there will be a pull back here as well.
Yup you got it.
The YEN crosses are out of whack right now though…we have no way of knowing how the Chinese will react to the intervention…seeing that they just got screwed
History tells me they will react in a day or so…possibly buying even more spiking price and then quick sell off and who knows….maybe a buy in again just to rub salt in the wound and make the entire Japanese Trading groups nervous and hesitant to do anything but hold cash…or gold.
The goal here (yes I know fly already said this…)
Is to screw over the Japanese exports and the YEN, a ‘win win’ for China…They are producing better autos…and acquiring known brand names…this is a Market they want to grow in and supply N.A. and other Countries with…Volvo ring any bells?
Don’t forget the electrics….Buffet is in this big time too.
Yes I realize the Technical jargon isn’t accurate…just bringing up a “possible scenario”
C&W,
Please explain what ticker you use to get those first two charts. Trying to follow along with the charting, but can’t get them to come up? Thanks for all your insight, really look forward to it
goto http://www.freestockcharts.com, enter in top left hand corner AUD/JPY for currency cross and then SSEC for Shanghai Composite
C&W
I needed to add the forex exchange before it would find the symbol. Thanks
Mr Chess, do you have any thoughts/opinions on Demark indicators? Is it something your familiar with? Just curious… I see it mentioned periodically but have never been able to find a software program for it. Thanks in advance.
I have studied it. It has only been around since the 1970’s, whereas Japanese candlesticks have been around for centuries, so I am more trusting of the latter. DeMark is not for me.
However, Woodshedder did an awesome post about the system two years ago. Here is the link http://ibankcoin.com/woodshedderblog/2008/12/15/the-demark-indicators/
I’m a little late with this response. Thanks very much.