___________
MARKET WRAP UP 09/21/10
To give you an idea of how much ground the market has covered in just the past two days, coming into Monday I discussed the idea of 1131 on the S&P 500 acting as a price magnet pulling us higher. Today, the S&P came within a point and a half of hitting the next important price level, 1150, before turning back and finishing down 0.26% to 1139. Indeed, we saw the usual pattern occur on days when the Federal Reserve makes an announcement: dead price action before 2 p.m., followed by violent intraday whipsaws for the duration of the trading session.
Across many indices and sectors, as well as on the individual charts of some key stocks, we printed long legged doji candles. In Japanese candlestick terminology, a long legged doji is one of the exaggerated types of doji candles, denoting extreme indecision. During the course of the candle’s time frame (here, it is one trading session), the buyers were able to push price higher before a sharp bout of profit taking kicked in. Even though price finished the session relatively unchanged, when you see this type of a candle after a prior uptrend, it warrants caution in the immediate future. As is the norm with single candles, confirmation to the downside will be needed to at least drive home the fact that many areas of the market need to take a pause.
One way to think about some of more extended sectors and stocks of late is that they have just enjoyed a hearty five course meal over the past few weeks, when many traders had been betting that they would be in line at a soup kitchen begging for scraps. Now, after their feast, some might say that they ate too much and will be sick to their stomachs. However, another possible scenario is that those extended parts of the market merely need a good liqueur, such as sambuca, to help with digestion of the recent big gains.
Incidentally, that latter scenario would neatly fit into the idea I talked about on Sunday evening of a sector rotation in lieu of a broad market swoon. The technology sector continues to look a bit frothy here, while many names in the industrial/material/energy complex look ready to move higher after building mulit-month bases. I have been considering putting on a pairs trade, going long $QID (ultrashort $QQQQ), while making bullish bets on the aforementioned energy/materials sectors.
Regardless, we came awfully close to hitting 1150 on the S&P today, and if you will recall that price marked significant resistance back in January of this year. To blow through both 1131 and 1150 in a matter of days may very well be in the cards for the market this week, but I will take a pass on chasing that scenario…for now.
____________
____________
____________
____________
____________
____________
____________
Totally agree on AMZN…it’s up 20% since 9/1, in a straight line. I shorted, via short Oct 150/155 call spreads, into the bell. Sure it can keep shreiking higher, but I like my odds with today’s doji.
Alan Farley of “hardrightedge” is also calling for shorting AMZN at this time.
great book