Excuses Cut Both Ways

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When the market was struggling at the 1040 level on the S&P 500 in late August, many traders argued that, unless we had a catalyst, we would continue to chop at that level before breaking lower. I disagreed, and wrote this post where I submitted that the market was simply looking for any old excuse to rally due to oversold conditions, combined with widespread negative sentiment. At that point, some mixed economic data came out, and the market did, indeed, use it as an excuse to scorch higher to just above 1100.

In the past few days, the market has become short term overbought at the upper end of the multi-month trading range on the S&P. This time, we are seeing bulls argue that, unless the bears can find a catalyst to send us lower, we are going to consolidate around 1100 before we move much higher. Perhaps they are correct. However, as we are seeing today, breadth is mixed and volume remains light. Moreover, many charts of key stocks are very extended and in need of healthy pullbacks. In my view, unless we are looking at a March or July of 2009 scenario, the risk/reward profile is simply not favorable to allocating capital on the long side right now.

The risk of the market looking for an excuse to go lower is now too menacing to not be respected.

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I am raising some more cash here. I sold my 1/2 long position in $RINO as the ascending triangle is breaking down. This shows the power of layering into a position, where the pattern has not yet fully resolved. I had bought a 1/2 starter, but if things went awry then I was out of there. That is exactly what happened.

I also sold out of my $LULU short in front of their earnings tomorrow. The stock has drifted higher the past few days, and I want to be clear that I remain bearish on the name. However, earnings are earnings, and I have no interest in adding more external variables to my trades. I hope to revisit the name as a short after earnings.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 30%

• LONG: 30% ($ROVI $TQNT $CTXS $CMG)

CASH: 70%

[youtube:http://www.youtube.com/watch?v=hqhoEyvddyA 450 300]r
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It’s gonna take time

A whole lot of precious time

It’s gonna take patience and time…

To do it right…

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MARKET WRAP UP 09/08/10

On Monday evening, I argued that the market was ripe for a correction after screaming higher the previous week, from 1039 to 1105 on the S&P 500. As I discussed, the key issue would be whether we would see either a correction in price, or a consolidation over a period of time. After the past two trading sessions, we have essentially corrected in time much more than in price, with the S&P closing today up 0.64% to 1098. In front of the Jewish holidays this week, volume remained anemic. As you would expect during a mild correction, breadth was decent, with pockets of strength amidst glaring weakness.

Unless we are looking at a March or July of 2009 scenario, where we sprint higher in parabolic fashion for the next several weeks, I believe it is best to remain as agnostic as one can in this scenario. If you were bullish when we were at 1040 last week, then now would be an excellent time to lock in some profits and wait for higher probability entry points. Similarly, if you are looking to go all-in short, it is best to wait for more follow through to the downside before becoming aggressive.

My analysis of the leading indices and sectors, seen below, leads me to conclude that more time is needed to digest last week’s move. Accordingly, I increased my cash position today, and will rely on patience to minimize the vast array of mistakes that so often plague market players during a trading range.

George Harrison was right, it is going to take time.

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Despite how resilient the market has been today, I am not convinced that we have ended a much needed consolidation. Therefore, I made the following trades:

• I booked profits in $NTCT and sold out.
• I booked profits in $MELI and sold out.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 42%

• LONG: 34% ($ROVI $TQNT $RINO $CTXS $CMG)
• SHORT: 8% ($LULU)

CASH: 58%

[youtube:http://www.youtube.com/watch?v=HnSwlFyL8n4&feature=related 450 300]r

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I went long a full position in “The Rover,” $ROVI. I featured the chart as one of my top setups of the week on Monday, and today it is seeing an uptick in buying volume. There are enough factors in my favor to the point where I see an edge here.

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All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 48%

• LONG: 40% ($ROVI $TQNT $RINO $CTXS $CMG $NTCT $MELI)
• SHORT: 8% ($LULU)

CASH: 52%