Survive and Advance

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MARKET WRAP UP 09/16/10

The market continued its pattern of showing glimpses of weakness throughout the trading session before staging a final hour rally, as the S&P 500 closed today down just 0.04% to 1124. At the same time, we have yet to come close to breaking the key 1131 resistance level on the S&P from earlier this summer. Thus, we are building a string of doji days of indecision at the top end of the multi-month trading range. After hours, I see that $RIMM, $ORCL and $TXN are ripping higher on the back of impressive earnings. If the gains hold into tomorrow morning, I would expect these names to provide the jet fuel for the market to at least entertain the idea of peeking its head above 1131.

However, trying to anticipate a true breakout at this point remains pure guesswork. Even if we do break 1131 tomorrow, I would be skeptical of it, at least initially, as it could easily be a trap to lure in eager bulls, just like we saw in late June. Because of the choppy trading these past few sessions, sentiment seems to have turned mixed, although it is most certainly more bullish than what we saw when the S&P was hovering at 1040 in late August. Throughout this correction since last April, cash has been king in many respects, and I believe that is the case now more than ever.

The late North Carolina State men’s basketball coach Jim Valvano made famous the phrase, “survive and advance” during the Wolfpack’s run through the single elimination tournament to win the 1983 National Championship. I believe that motto applies to this market as well. The idea is to survive this tough trading range, making as few mistakes as possible, in order to emerge intact and ready to profit from an easier market down the road.

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