Contrarians Roasting on an Open Fire

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MARKET WRAP UP 12/21/10

As the S&P 500 steadily moved higher today to finish up 0.60% to 1254, Mr. Market continues to dish out lessons to those that consider their analysis superior to the aggregate price discovery mechanism of the marketplace. Perhaps it is all one big house of cards, and perhaps there will, indeed, be a day of reckoning. However, that kind of mentality would have seen you miss virtually all of the 2003-2007 bull market, not to mention the bull run since March of 2009. So long as protective stop losses are respected, as well as sensibly locking in profits along the way, there really is no reason why those who consider themselves traders should not have been riding this prevailing trend higher.

As the updated daily charts of the leading indices and sectors illustrate below, the orderly consolidations last week are now resolving higher. As we close out 2010, the final act of this year might not feature a magnificent short squeeze so much as it could a panicky rush to chase stocks higher by chronically underinvested, “cautiously optimistic” bulls.

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MARKET WRAP UP 12/20/10

Although the broad indices had the feel of a flat day, with the S&P 500 finishing up 0.25% to 1247, the 1250 level was hit intraday. Beyond being a psychologically significant price, 1250 marks a fairly precise measured move target from the upside breach of the inverted head and shoulders bottoming formation we saw this summer. One of the best traders outside of the iBankCoin franchise, @OptionRadar, deserves kudos for openly discussing this year-end price target for quite some time.

Beyond the actual target itself, on November 14th inside 12631 I discussed my logic behind the 1250 number. For the purposes of this post, only the first 2:40 of the video is relevant, as the individual stock ideas are now dated.

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[youtube:http://www.youtube.com/watch?v=MTwmXx7PPuc 450 300]r

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Apart from the S&P, there was some impressive underlying action today in the market. While many seem to be writing off the rest of 2010 as a wash, I remain convinced that trading the actual price action is the best way to go. With the type of moves we saw in some of the risk assets today, the bulls may not be done charging into 2011.

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This video was originally published on Friday, December 10, 2010, inside 12631–a premium service affiliated with The PPT. Click for details.

NOTE: If the video below is too small to watch here, you can simply double-click the screen and watch it on YouTube.

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[youtube:http://www.youtube.com/watch?v=Dna_6ItyqCY 450 300]r

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[youtube:http://www.youtube.com/watch?v=elPZYjaHL_Q 450 300]r

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MARKET WRAP UP 12/16/10

Just when it looked like the bears had finally cracked the code to this market, the bulls showed some real heart to finish the S&P 500 up 0.62% to 1242. Breadth was soundly positive, as the internal weakness that we had seen the past few days was not nearly as pervasive, save a few disasters such as $MA, $V, and $VECO.

If anything, today illustrates the danger in trying to initiate swing trades that are counter to the prevailing trend. Many market players took yesterday’s weakness as a sign to put on some short positions and cut all longs. Unfortunately, Mr. Market does not usually make those opportunities so easy to identify, especially as we approach the end of year festivities.

Going forward, I continue to believe that holding shorts for anything more than a quick scalp is a mistake. With the leading indices and sectors sporting bullish consolidation patterns (see charts below), the correct posture is either long or in cash. Moreover, just as everyone seems to be writing off the rest of 2010 as a dead period, we could finally see those marquee market leaders break out, namely $AAPL.

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MARKET WRAP UP 12/15/10

The S&P 500 printed its first red daily candle in over a week, as the benchmark finished down 0.51% to 1235. While breadth and volume were far from intimidating to bulls, there was some distinct weakness in some of the classic “hot money” names, such as $BIDU and $LVS. The 1234-1235 area should provide the first area of firm support, dating back to last week, and we saw that hold today. Beyond that, I am looking for the general area of 1220-1230 to give the bulls some sturdy defense.

As tempting as it is to look for a major inflection point, the fact is that the market can only continue to dribble higher on a daily basis for so long without taking a rest, particularly when it is already extended. The overall uptrend remains firmly intact, and the bears are going to have to accomplish a whole heck of a lot more then what we saw today before the idea of swing shorting should even be entertained. Moreover, the key areas of the market that have given the best “tells” over the past six months, the small caps and trannies, continue to develop bullish charts.

Hence, the correct strategy is to patiently wait for a new round of setups to emerge. At the same time, writing off the rest of 2010 as nothing to wait around for is not something that I am ready to do, just yet.

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