A Boring Sequel

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MARKET WRAP UP 08/03/10

On the back of yesterday’s 2.20% move higher to open the month, the price action today was not unlike a poor sequel to a good movie. Breadth was negative, as healthcare and energy were the only major sectors in the green. Volume was slightly higher, as the overhead supply that I discussed yesterday came to fruition in the morning, with longs who had been trapped earlier this summer using the recent rally as a selling opportunity. All in all, with the S&P 500 closing down 0.48% to 1120, today was an “inside” day, where the price action was within the confines of yesterday’s range.

Despite the lack of strong follow through from yesterday’s rally, the bulls maintained the initiative. The bears proved inept in doing any noticeable technical damage today. In fact, when the morning gap down to 1116 was quickly bought, it marked a perfect retest of the late July highs. While a benign consolidation period after a sharp run up is not a sure thing (no such thing in the market), the odds do favor a continuation of the bull trend of higher highs and higher lows. Accordingly, I increased my long exposure today, taking it up to 48% of my portfolio.

As the updated and annotated daily chart of the S&P 500 illustrates below, the series of higher highs and higher lows is confronting the fact that we are also at the very top of our multi-month trading range.

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I am going to focus the rest of today on the financial sector. Everyone seems to be talking about the $15 level on the $XLF. To be sure, the financials were one of the sectors that led us down in mid April, presaging the broad market correction. Given the proximity of the financials to the bubbles and crashes in equities over the past few years, it makes sense to take a look at them in multiple time frames.

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In sum, it is not safe to presume that the next move is lower just because both the S&P and the financials are at the upper end of their multi-month trading ranges. My strategy going forward is to build up my long exposure, so long as the broad market continues to act constructively, and I see quality setups across the board.  Presuming anything in the market can be dangerous, but the improved price action cannot be ignored. I continue to see the number of quality setups improve almost on a daily basis. Should the market take a turn for the worse, however, my plan is to immediately hop into downside hedges, and lock in some profits on my longs.

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TOTAL PORTFOLIO:

EQUITIES: 48%

• LONG: 48% ($COCO $GNK $LSCC $GSI $RDWR $BX $SAPE $POWR $SWSI)

CASH: 52%

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[youtube:http://www.youtube.com/watch?v=bm5TZX5hz3g 450 300]

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I made three more trades today.

• I bought a full position in $GNK (chart below).
• I bought 1/2 position in $LSCC (chart below).
• I bought a full position in $COCO for a casino (you will recall my $JMBA was a push, with me selling up a mere penny) (chart below).

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 48%

• LONG: 48% ($COCO $GNK $LSCC $GSI $RDWR $BX $SAPE $POWR $SWSI)

CASH: 52%

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After entering $GSI at $2.99 yesterday (timestamped in The PPT), the stock has catapulted to $3.44 today. I still like the chart of the stock a lot, but this small capper can move around wildly, as we are seeing now. Thus, I sold out of 3/4 of my position around the $3.40 level.

If you are following my trades, be sure to check back in.

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TOTAL PORTFOLIO:

EQUITIES: 28%

• LONG: 28% ($GSI $RDWR $BX $SAPE $POWR $SWSI)

CASH: 72%

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MARKET WRAP UP 08/02/10

The bulls came out running with a purpose today, as the broad indices printed big, green marubozu candles to start the month in style. With the S&P 500 closing up 2.20% to 1125, the four indecisive days down last week appear to have been a bullish consolidation pattern. Perhaps what was most encouraging for the bulls today was the lack of aggressive profit taking after the morning gap up. Ever since late April, just when it seemed like we had a breakout in the making, the bulls would quickly head for the exits, and the bears would storm in ready to send us down to the lower end of our trading range. Today, we saw none of that price action as the gains held on throughout the day, and we actually closed right near the highs.

As bullish as today seemed, the S&P still has to contend with the 1131 price level, which is precisely where we touched and reversed on June 21st of this year, sending us straight down to 1010. Perhaps I am being overly cautious, but I believe that we will get some chop around that area, as many of the bulls who were previously trapped there are now made whole. Nonetheless, today was a sound victory for the bulls, and should be treated as such. As I illustrated last evening with my setups, I am seeing far more constructive charts than I have seen in months.

Taking a look at the updated and annotated daily chart of the S&P 500, one can see that the bulls have cleared several key obstacles, in terms of resistance. However, the late June resistance, as well as the 100 day simple moving average, still loom directly above (see below).

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Turning to other key indices and sectors, the Nasdaq Composite, Russell 2000, Dow Jones Transportation Index, as well as the emerging markets ETF all show continued bullish developments on their daily charts, seen below.

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As more charts setup and breakout, I will look to become more aggressive on the long side. To deny the bullish progress made in the charts seen above would be allowing your bearish ideology to blind you from the message of the market. While the late June resistance is still an issue for the S&P 500 and the Nasdaq, we are well on our way to making a series of higher lows and higher highs.

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TOTAL PORTFOLIO:

EQUITIES: 34%

• LONG: 34% ($GSI $RDWR $BX $SAPE $POWR $SWSI)

CASH: 66%

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One thing that really irks me is to see a position of mine underperform the broad indices. I have very little patience for losers in my portfolio. To paraphrase Paul Tudor Jones, winners add winners, while losers average losers. In that vein, I sold out of $JMBA (made a penny on the trade lol). There is still a lot to like about this firm, but I am not going to stick around right now to find that out.

In its place, I bought back in to a full position of $SWSI, which I have traded before. It was also one of my featured setups for this week.

All trades are timestamped inside The PPT.

NOTE: Introducing Brandon Hardesty.
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[youtube:http://www.youtube.com/watch?v=gTywAyDcMo8 450 300]

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TOTAL PORTFOLIO:

EQUITIES: 34%

• LONG: 34% ($GSI $RDWR $BX $SAPE $POWR $SWSI)

CASH: 66%
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Thus far today, I made two trades. I went long a full position in $GSI, and I also went long a 1/2 starter in $RDWR.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 34%

• LONG: 34% ($GSI $RDWR $BX $SAPE $POWR $JMBA)

CASH: 66%

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[youtube:http://www.youtube.com/watch?v=OSsj6jr5eJc 450 300]

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