Much to the chagrin of steadfast bears, Big Blue, a.k.a. $IBM, is knocking up against multi-year highs. You may recall that back in early August, I wrote a piece discussing the implications of $IBM breaking out above the $130 range, which has been resistance dating back to 1999. If Big Blue can, indeed, complete the major breakout in the coming weeks, then I believe that the broad market will be catapulting higher as well. Remember, we are talking about a resilient technology firm with a market capitalization of $169 billion, which was a thriving company long before anyone knew what what a website was.
Looking at the stock in multiple timeframes, in the short term $IBM is extended. However, the weekly and monthly charts should illustrate how technically sound Big Blue is from a broader perspective. This time around above $130, the odds favor a successful resolution. Even if you style is more amenable to trading higher beta, small cap stocks, Big Blue should still be on your list of broad market scans, right next to $FCX.
The title of this post could easily have been written this past January, which should give you an idea that, for all of the talk about the imminence of big moves that are projected to happen in stocks, we are essentially dealing with a dead money market. Bulls and bears alike not only have their subjective biases, but in this case they can also point to bonafide underlying facts to support their respective theses. However, if you tune out all of the noise and short term swings, 2010 is shaping up to be a relatively flat year, and that seems entirely appropriate after the epic moves seen in 2008 (down) and 2009 (down, then up huge).
Regarding today, the bulls staged a bell to bell thrashing to close the S&P 500 up 2.12% to 1148. Breadth was potent, and there were virtually no intraday dips to even be bought. The rally was particularly damaging to the bear case, as they had a golden opportunity to press their shorts after yesterday’s weak finish below 1131. The bulls not only soundly recaptured 1131, but are again bumping up against 1150, which represents a significant mulit-year price level. While some of the leaders continue to have extended charts, such as $AAPL, we are seeing a bevy of other stocks breaking out from healthy bases. After three days in the red this week, any follow through to today’s rally should make it pretty obvious that this market is no longer oscillating, but is instead a trending one where all dips should be bought.
If it looks like an uptrend, walks like an uptrend, and trades like an uptrend, it probably is an uptrend.
I bought a full position in $GNK. The stock has a monstrous 25% short position. In addition, as you can see in the daily chart below, the stock also broke out of a tight falling wedge pattern today. I expect more upside in the short term, which will put an awful lot of pressure on the plethora of bears for this well-managed shipping company.
It may not me very prudent to constantly be a contrarian in the stock market, but once the closing bell rings I tend be one. While Wall Street: Money Never Sleeps is capturing all of the attention across America today, I am more excited about the long awaited season two premier of Eastbound & Down this Sunday night. One thing about Kenny Powers is no matter how bad of a mood you are in before watching the show, you won’t be in one after it has ended.
As for the market, I bought a 3/4 position in $PAY, a clear leadership stock over the past several months. Recently, the stock had a benign pullback, which has me pouncing on this entry point. Essentially, my bet is that this recent pullback does not represent a Jenga game gone bad type of scenario, where a momentum stock simply collapses all at once.
The bulls are acting like it is already Friday night on the town, going all Big Pimpin on this market. The bears completely blew a golden opportunity that they had after yesterday’s final hour selloff. Breadth is as strong as I have seen in quite some time, helping to conquer the 1131 level on the S&P 500, once again.
The next key level is 1150, which has actually been a significant price level for over a decade. Recently, you will recall that 1150 was a brick wall back in January of this year, as failure at that level marked the start of an 8% correction. This past Tuesday we failed at 1148, and now that we are back up here again I expect us to at least see some churning.
As far as my positions, I am letting my longs run and resisting the urge to quickly sell into strength. The main reason why I can afford to do so is because of my hedge, going ultrashort the Q’s. I am also stalking a variety of longs, in the even this momentum has much more gas left in the tank than anyone thinks is possible.
With the market well on its way to another day of benign consolidation, the bears summoned the intestinal fortitude to push stocks convincingly down during the final hour and twenty minutes of the trading session. After the bulls so valiantly defended the key 1131 level yesterday, they clearly lost it today as the S&P 500 closed down 0.83% to 1124. The recent underperforming areas of the market, which have made me reticent to categorize this rally as a sustained uptrend, looked awful today. Those weak sectors include the financials, transportation stocks, not to mention the huge gap down that we saw in the real estate stocks. Moreover, we saw an abundance of “gravestone doji” candles on many extended charts today, which usually indicates, at a minimum, a short term exhaustion in buying (A gravestone doji is simply a candle denoting indecision, with a clear high in price before making a low near both the open and close).
The key issue right now is whether the bears can successfully press their shorts after today’s breach of 1131. They now have the short-term initiative, and the bulls are back in the familiar role of trying to save the financials from becoming a falling knife that fatally stabs their dreams of a bonafide rally above 1200 on the S&P. The price action today also begs the question of whether Monday’s huge rally was actually a trap to lure in eager bulls. In my view, after the past few days of consolidation, the coming days should give some well-defined answers to whether the bulls or bears will dominate the next big market move.
Regardless, today’s price action forced me to take on some bearish hedges, namely going long the $QID (ultrashort $QQQQ) as a way to exploit any coming weakness in the extended technology names, including $AAPL. My trading philosophy aims to be in touch with what actually is, rather than what I would like to see. To be sure, a sustained rally into 2011 would be fun and relatively easy to trade. After today, however, we are back inside the multi-month trading range on the S&P, and must also contend with weakness in other major sectors and indices.
The bears did more than just growl today, and I am going to respect that fact.
