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In front of their respective earnings reports tomorrow, I sold out of both of my $IMAX and $RGS positions for gains. I will likely revisit both names in the future, as their charts remain healthy.
All trades are timestamped inside The PPT.
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TOTAL PORTFOLIO:
EQUITIES/ETF’s: 44%
CASH: 56%
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The bears are doing their best to spook the market today, as they have helped to breach the 1177-1178 support level on the S&P 500, dating back to last Friday. With the rising 20 day moving average currently at 1168, there is still an awful lot of selling that needs to be done before the overall uptrend can be called into question. The U.S. Dollar is strong again today, and the bulls are not as successful in fighting that potent inverse relationship as they were yesterday.
My main focus right now is on not prematurely calling a top to this multi-month rally. I will continue to trade around my positions throughout earnings season, out of respect for the amount of external variables that an earnings report presents. Other than that, however, the best thing to do right now is leave the scary noises to bears who have been fighting this tape the whole way up, underinvested bulls who missed most of the move higher, and early Halloween partiers.
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MARKET WRAP UP 10/26/10
Stocks finished virtually unchanged, and in the case of the S&P 500 literally unchanged, as that key index closed once again at 1185. The bears had a brilliant opportunity to capitalize on the series of bearish shooting star candlesticks that were printed yesterday on a variety of daily charts, but they were unable to do anything more than growl. The bullish action was in the oil space, as well as the marquee names in the Nasdaq Composite, such as $NFLX and $DECK.
Even with a stronger U.S. Dollar, the bears could not use that tightly correlated inverse relationship to push equities down. Clearly, the Dollar is in a steep downtrend, and, generally speaking, the weakness in the currency has been seen as a major reason for the rally in equities since September. As the daily chart of the Dollar index illustrates below, one would think with the recent stabilization in the Dollar that stocks would weaken. Instead, they have gone sideways at best.
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Even if the Dollar breaks above the 20 day moving average, to automatically assume that the rally in equities will end may be too conclusory. When a highly correlated relationship between asset classes becomes too obvious, Mr. Market has a tendency to surprise those who presume that a certain trade is a slam dunk. Of course, the Dollar is something that commands respect from traders looking to gauge the direction of equities, but it is important to resist the urge to assume that you have cracked some kind of code by merely glancing at a currency.
Despite the multitude of robots and programs that individual traders are competing against today, there remains no substitute for discipline and a consistently strong work ethic in order to get a true sense of the market and the best individual trading opportunities.
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The inverted head and shoulders bottoming formation that I first discussed in early September here, as well as earlier this month in this post here, has come to fruition in the Shanghai Composite Index. It has been an aggressive move higher, once the neckline was finally broken. As the updated daily chart illustrates below, my initial target for the breach of the inverted head and shoulders bottom has now been attained. While I am now neutral in the short-term on the China market as I expect some consolidation in light of the initial target being acquired, I believe the case for a longer-term bearish to bullish reversal is an increasingly likely scenario.
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[youtube:http://www.youtube.com/watch?v=67Fb8XbpWMM 450 300]r
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This market is putting up a valiant fight on a daily basis to not dramatically sell off. Unlike the early 1980’s cheesy rock band, Mr. Market perhaps can fight this feeling to avoid rolling over, or even experiencing a sharp correction. Regardless, the fact that the market has gone this far for this long fighting the steep sell-off is bullish, in my view. Simply put, there is a strong underlying demand for equities.
Keep an eye on 1177-1178 on the S&P 500, which is proving to be key short-term support. As for resistance, that stubborn 200 period weekly moving average up at 1194 is really the main event in this battle. My two best performing holdings today are: $DDS (which I featured in a short squeeze post yesterday), and $RGS, so you may want to keep them on your radar. Also, for your action junkies, two high beta names looking attractive here are $IOC and $AKRX.
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MARKET WRAP UP 10/25/10
Stocks continued their inconceivable march higher today, as the S&P 500 chopped around after a morning gap up to gain 0.21% to 1185. The 200 period weekly moving average, which I discussed in this earlier post, provided resistance during the morning thrust higher. I expect that reference point to continue to be a key level, given that the 200 period weekly was the scene of the top that we formed back in April of this year.
As far as the internals are concerned, breadth was fairly strong today, with the energy and materials complex leading, while financials continued to underperform. Across the daily charts of the leading indices and sectors, we printed what could be argued as a series of bearish shooting star candles. However, to presume a top remains a perilous task, given how potent the uptrend has been over the past several weeks. In order for those shooting star candles to prove true, the bears need to firmly take control of the initiative over the next few days.
Despite how overdue some may think the markets are for a correction, as I noted on Sunday evening, it is best to err on the side of the prevailing trend until further evidence of a change in market character is upon us.
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