All Ye Faithful in The PPT

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I am turning 30 years old today, so I am going to duck out of here early. While the huge gap up scenario would have been much easier to assess, regarding the possible abandoned baby or morning star doji bullish reversals, the market is insistent on making things tough for everyone, as usual.

Nonetheless, I have faith in The PPT and its historical accuracy in these types of situations. I also outlined in my market wrap up last night some reasons why I think we are at solid support levels across the broad indices and sectors. We are well on our way to printing another doji today, although anything can happen by the closing bell. The Japanese Yen continues to weaken against the Dollar, combined with the general weakness in the Yen ETF, $FXY. I remain steadfast in my belief that a weaker Yen will make higher equity prices much easier to attain, so keep that “tell” on your screens.

Good luck the rest of the day, and I will check in over the weekend.

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MARKET WRAP UP 08/12/10

After yesterday’s bloodbath, today featured another win for the bears, albeit a muted one. With the S&P 500 closing down 0.54% to 1083, we are now back below the 50 day moving average, as that reference point served as resistance today. Above all else, however, today marked an indecisive doji day–a pause, if you will. I expect tomorrow to be a big move, and based on The PPT and its breathtaking historical accuracy, there is a good chance that move will be higher.

If we do, indeed, see a sharp gap higher tomorrow, the S&P could be looking at a three day bullish reversal pattern, known as an abandoned baby or morning star doji. These types of reversal patterns are rare, yet also highly reliable when they do occur. Of course, this is all theoretical at this point. Presuming a reversal is always a dangerous game to play with Mr. Market. However, it is something to keep in mind, should we rally.

As the updated and annotated daily chart of the S&P 500 illustrates below, after yesterday’s big marubozu candle down, today was a much more benign selloff.

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Updating some key daily charts of the major indices and sectors, the Dow Jones Transportation Average printed a bullish reversal hammer candlestick today. As always with hammers, we will need to see confirmation to the upside before we get cocky.

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Continuing with an ongoing theme, the Nasdaq Composite and Russell 2000 (small caps) are relative underperformers, while the emerging markets ETF is by far the best major chart that I see.

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The financials held in tough today, and the bulls defended the $14 level with vigor.

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As for my portfolio, I added more to $ISLN, and bought $LCAPA today. I like both charts, as they have been outperformers since April. If the market bounces back here, I want to be in the leaders who are “flying the friendly skies,” above all of their major moving averages.

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TOTAL PORTFOLIO

EQUITIES: 40%

• LONG: 40% ($LCAPA $BZ $OVTI $ISLN $RDWR $CMI)

OTHER INSTRUMENTS: 8%

• $TBT

CASH: 52%

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Into the closing bell, I bought a 3/4 long position in $LCAPA. See my notes on the chart for explanation.

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All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO

EQUITIES: 40%

• LONG: 40% ($LCAPA $BZ $OVTI $ISLN $RDWR $CMI)

OTHER INSTRUMENTS: 8%

• $TBT

CASH: 52%

I bought 1/4 more to add to my existing $ISLN long. I now have a full position in the name. I really like the risk/reward profile here, as I have defined my risk as a close and hold below the 20 day moving averages. I am expecting the fact that the 20 day m.a. has finally met up with price to serve as a springboard for the stock’s next move higher.

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All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO

EQUITIES: 34%

• LONG: 34% ($BZ $OVTI $ISLN $RDWR $CMI)

OTHER INSTRUMENTS: 8%

• $TBT

CASH: 58%

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One of my posts yesterday put you on notice about a possible bullish reversal hammer candlestick being printed on the Dollar/Yen daily chart. Today, we can see that the reversal is coming to fruition.

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Some of my readers pointed out that other Yen crosses are equally, if not more, important than the Dollar/Yen relationship. I consider that argument to be debatable. However, you will see below that I have included charts of the Yen versus both the Euro and Aussie Dollar. In both cases, we have the setup of a long multi-month base, not to mention a possible inverted head and shoulders bottoming pattern. If both the Euro and Aussie can hold on here, the right side of these bases will have been completed. This would set us up for a sustained period of Yen weakness. Be sure to check in on these currency crosses, as the inverse relationship between the fluctuations in the Yen versus global risk appetite cannot be overstated.

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MARKET WRAP UP 08/11/10

Starting with the futures tanking last evening, the bears delivered a sound thrashing from bell to bell today, with the S&P 500 closing down 2.82% to 1089. Actually, the bears have extended their supremacy into the after hours, as the $CSCO earnings and conference call helped to push the futures down as low as 1073. Regardless of the reasons, the simple fact is that today was a very ugly day for bulls. Breadth was horrible, and volume was the heaviest that we have seen in weeks. Perhaps what was most bearish was that the bulls could manage no intraday rallies longer than a few minutes, and they were laughably weak ones not just in terms of time but also price.

Despite the hearty victory for the bears today, the broader technical picture remains mixed. Starting with the updated and annotated daily chart of the S&P 500, we can see the bulls are hanging on for dear life just above the 50 day moving average.

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Continuing with my theme of relative weakness in the Nasdaq Composite and Russell 2000 (small cap stocks), we can see how much damage was done to their charts today. If the bulls are going to prevent a retest of the July lows, they had better get their act together soon.

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The relative strength in the Dow Jones Transportation Average took a huge blow today, as the updated daily chart illustrates below. Again, a quick recovery by the bulls is essential.

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By far, the healthiest chart remains the emerging markets ETF, $EEM. Despite the selloff today, the ETF is at a key prior resistance level. Again, as with the charts above, if the bulls can rise to the occasion, this will have been a strong buying opportunity.

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The widely watched financials suffered an ugly gap lower on their daily ETF chart. However, all is not lost yet, as there is plenty of support below. The financials could still be forming the right shoulder of an inverted head and shoulders bottom.

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In sum, the steep uptrend since July 1st has now been broken. However, that the does not automatically mean we will see a fresh leg down to new lows. I know that can be frustrating to some of you who come here looking for easy answers. However, the market does not offer easy answers very often. Accordingly, you will find a bit more analysis in my work.