Go Eat a Moving Average Sandwich

_____________

MARKET WRAP UP 07/21/10

After trading flat for most of the day, the market sold off fast and furiously in mid afternoon on the back of statements by Federal Reserve Chairman Ben Bernanke. Earlier this morning, the S&P 500 actually made it slightly above the crucial 50 day moving average when we printed 1088. By day’s end, however, we had tested the 20 day moving average below for support, during the selloff, and finished down 1.28% to 1069. At the close of today’s session, we are now sandwiched between those two significant reference points. The 50 day moving average is sloping down, currently at 1086, while the 20 day is sloping down at 1066.

This “sandwich” indicates the indecisive and choppy nature of the market at this point. Until we see a decisive break, and hold, in either direction, it is best to wait before making aggressive bets long or short. As the updated and annotated daily chart of the S&P 500 illustrates below, our recent price action has been squeezed inside the small range between the 20 and 50 day simple moving averages.

_____________

____________

The Nasdaq, Russell 2000 (small cap stocks), and Dow Jones Transportation Average all continue to tell the story of choppy price action within the middle to upper ranges of their respective falling channels (see charts below).

____________

___________

____________

_____________

The emerging markets remain on my radar, as their ETF has made a series of higher lows since late May, while we know during that time the S&P made some lower lows. Further, the 50 day moving average is now below price, and is flattening out with the 20 day crossing above it. Keep an eye on how this apex is resolved in the coming days, as seen in the daily chart below.

_____________

____________

I made no changes to the portfolio today, with $NR and $SWSI my top gainers, while $NTAP was the laggard.

____________

TOTAL PORTFOLIO:

EQUITIES: 36%

• LONG: 36% ($ARUN $NR $NTAP $SAPE $SWSI)

CASH: 64%

[youtube:http://www.youtube.com/watch?v=asTZ-pvrkFs&feature=related 450 300]

__________

Keeping your head on a day like today is important. We abruptly sold off after the Bernanke statement earlier this hour, and the market is now awash in fear. You will want to obey your stop losses, but apart from that, suddenly panicking out of positions is not a good idea. We were not overbought before the selloff, and The PPT suggests that we still have higher to go.

I would be surprised if we did not have a mild recovery from the swoon by day’s end.

____________

Inside The PPT, the Ragin’ Cajun designed a screen that automatically detects stocks showing unusual strength that are near their 52 week highs. The list tonight offers several attractive setups. One aspect of tonight’s reading that sticks out to me is that the triumvirate of cell phone towers are on the list: $SBAC, $CCI and $AMT.

Note that the cell phone tower space is an area that hedge funds have recently become infatuated with. If they decide to get back into the market in an overweight equities position, then I would expect these three names to move, and move fast.

Like many other stocks, their daily charts have been sideways-to-down over the course of the past few months. All three experienced huge spikes higher today on very strong volume. For the purposes of getting a bigger picture perspective, I am going to show you their weekly charts, which should illustrate that they have been in bullish consolidation phases over the past few months.

I currently have no positions in any of them, but will be stalking.

__________

___________

__________

___________

MARKET WRAP UP 07/20/10

Early last evening, several anchors on the financial news networks were trying to ascertain how many points the Dow Jones Industrial Average would fall today, given the poor earnings out of $IBM, as well as a few other large firms. Unfortunately, the market is not quite that easy to game. After a sharp gap down this morning to 1056 within the first ten minutes of trading, the bulls lifted stocks up with their horns for the rest of the day, and never looked back.

With the S&P 500 closing up 1.14% to 1083, the possibility that today marked an elusive higher low remains of the utmost importance. As the updated and annotated daily chart of the S&P 500 illustrates, despite the bulls’ progress today, the declining 50 day moving average that looms above continues to be an obstacle for a sustained move higher (see below).

____________

___________

All kidding aside, the issue of whether or not today marked a higher low will need to be resolved in the coming days. To automatically presume that we started a new trend higher based on today’s action is likely premature. Similarly, the bears are going to have to think twice about aggressively shorting another meeting with the 50 day moving average, after the myriad of false breakdowns that we saw today.

Turning to other indices and sectors, the Nasdaq, Russell 2000 (small caps), and Dow Jones Transportation Average all had impressive days as well, but remain within their falling channels (see charts below).

___________

___________

____________

____________

As for the portfolio, my top performer today was $NR. The updated daily chart illustrates below that the stock began to resolve the friction associated with an ascending triangle with a powerful move higher on strong volume today. Follow through is now key, as the presumption is that this pattern will resolve up and out.

_____________

____________

I sold out of the rest of my $THOR position for a small loss, after selling the first 1/2 a few weeks ago for a gain. The stock simply did not rise to the occasion today, despite the broad market reversal, so I am content with my decision to cut my ties as the stock has done nothing of late.

Finally, I added a full position of $ARUN. The stock has been an outperformer throughout this whole correction, and has formed an ascending triangle as a well as a cup and handle bullish pattern. The chart below should illustrate both.

_____________

_____________

TOTAL PORTFOLIO:

EQUITIES: 36%

• LONG: 36% ($ARUN $NR $NTAP $SAPE $SWSI)

CASH: 64%

__________

I sold my remaining 1/2 position in $THOR for a small loss. The stock is not participating in today’s rally, and the daily chart has not progressed in a bullish manner. The chart is not exactly broken, but I would rather use that cash for better performing names.

All trades are timestamped inside The PPT.

UPDATE: I bought a full long position in $ARUN.

___________

TOTAL PORTFOLIO:

EQUITIES: 36%

• LONG: 36% ($ARUN $NR $NTAP $SAPE $SWSI)

CASH: 64%