Subjectively Objective

______________

MARKET WRAP UP 01/24/11

The bulls bounced back from some of the weakness last week, as the S&P 500 closed up 0.58% to 1290. Interestingly, in what could be construed as a warning sign for bulls, the S&P noticeably underperformed both the Dow Jones Industrial Average and Nasdaq Composite Index. Moreover, other key names that have often telegraphed the true direction of the market, such as FCX, failed to put in much of a bounce at all despite suffering significant technical damage over the past few sessions. Nonetheless, AAPL and some of the stodgier mega cap firms in the Dow ultimately paved the way higher for bulls.

When traders talk about conducting objective analysis in determining their market posture, it is often a task easier said than done. In the archives of iBankCoin, you will see that I turned bullish on the market at various points throughout last summer when the S&P plunged to the 1010-1040 area. The reason why I dusted off and put on my contrarian hat was because of the glaring bullish divergences in the historically market-leading Dow Jones Transportation Average and small cap led Russell 2000 Index. Consistent with that analysis, we have now arrived at a point in time, several quarters later, where we see a relatively unscathed daily chart of the S&P 500 at odds with weakening dailies of the trannies and small caps.

When you combine the above bearish divergences with the increasingly common occurrence of breakdowns from bases (e.g., the cloud-computing names, and precious metal miners), I see reason for great caution here. While today’s price action is a good reminder that some underlying weakness is not enough to immediately become aggressively short, I believe it to be good enough reason to place the goal of capital preservation as a higher priority for now than capital appreciation.

______________

______________

______________

______________

______________

______________

If you enjoy the content at iBankCoin, please follow us on Twitter