A brief, but quite efficient meeting between Dr. Le Fly, and Marla from Zero Hedge. INDEUD.
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[youtube:http://www.youtube.com/watch?v=B-Enz–UqNQ 450 300] Comments »Oh Snap!
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MARKET WRAP UP 07/08/10
Following up on yesterday’s 3% plus rally, the S&P 500 consolidated most of the day today before sprinting higher into the closing bell, to finish up 0.94% to 1070. As I mentioned last weekend, the broad market had become so oversold and stretched to the downside that we were likely to either crash, or violently snap back to the upside. Continuing with my rubber band analogy, clearly the market did not break but, instead, snapped back in the other direction.
The key issue now is whether we continue to move higher in a straight line, if at all. As the updated and annotated daily chart of the S&P 500 illustrates, we are suddenly close to revisiting the 20 day moving average, not to mention all of the overhead supply presumed to be found in the mid point of the broad trading channel (see below).
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Thus, although it is clearly a bullish development that we have seen confirmation of the hammer, we must also come to terms with the overhead resistance that looms. Many bulls were trapped in our most recent selloff down to 1010, and it is hard not to expect some near term profit taking. When I titled my post yesterday, “Commence the Battle,” I was referring to specifically this type of situation.
On the one hand, the near term setup is bullish, with the hammer and follow through from last week. On the other hand, we must contend with the longer term prevailing downtrend since late April. I expect those two competing forces to accelerate the fight on the market battlefield in the coming days. Bears are not likely to give up their longer term initiative quite so easily, as they have a confluence of factors still in their favor, such as all of the major moving averages sloping down above our current price action.
I must say, however, the argument that the volume on the broad indices has been uninspiring may prove to be a trap that many bears will fall into. As an example, the volume throughout the February-April rally this year was downright lousy, but you would have missed a great move in terms of price action, from 1043-1219, had you sat it out on the basis of weak volume. Moreover, we are in the middle of the summer, where volumes are historically light. Hence, the focus should be even more so on price action than anything else, in terms of looking at the broad indices.
With my 60% cash position, I will continue to be patient before I become aggressive in this market. Into the huge rallies over the past two days, I took some partial profits here and there. There are several stocks I am stalking for long entries on pullbacks. I am pleased with how the charts of my current holdings are looking, notably $APKT, $NTAP and $NR (don’t chase!). Below, you will find the names at the very top of my list of scans. However, I will not chase them higher. If they run away from me, then so be it.
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TOTAL PORTFOLIO:
EQUITIES: 40%
- LONG: 40% ($NR $NTAP $LULU $CRM $THOR $APKT)
CASH: 60%
Comments »CHESS MOVES
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I am taking some profits by selling 1/2 of my $LULU position. (The PPT Is briefly down now, but I timestamped my entry as well as all other trades).
As far as the broad market is concerned, the ideal scenario to get me to deploy more cash on the long side would be to consolidate above the 1040 level for a few more days. However, keep in mind when we consolidated above 1120 a few weeks ago, the outside reversal day fooled me. Good thing I kept my hedges on with a huge cash position to boot. Nonetheless, it just goes to show the importance of playing it safer than usual when the market is in a prevailing downtrend, save those situation like Tuesday, where we were dramatically oversold.
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TOTAL PORTFOLIO:
EQUITIES: 40%
- LONG: 40% ($NR $NTAP $LULU $CRM $THOR $APKT)
CASH: 60%
Comments »Commence the Battle
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MARKET WRAP UP 07/07/10
After remaining uncomfortably oversold for several days now, the market finally sustained a rally from bell to bell. With the S&P 500 closing up 3.13% to finish at 1060, the bulls sliced up through the important 1040 level with ease. The type of candle printed today on the S&P, as well as across other indices and sectors, was the bullish Marubozu, where the opening price was very close to the low of the day, and the closing price was at the highs of the day. There are no shadows on this candle, and it indicates how strong of a day the buyers had.
On the other hand, volume was not particularly impressive today. Further, we are still within the context of a broad overall downtrend, and overhead supply as well as aggressive bears are likely to cause some turbulence in the coming days. My recent call for a rally was solely predicated on the idea of a near term bounce, as I indicated last evening. Going forward, the bears will most certainly look to reload their short positions in the coming days. In order for the bulls to complete a longer term trend reversal, much more work is required than what we saw today.
As the updated and annotated daily chart of the S&P 500 shows, the bulls are back in the hunt. However, the true battle appears to be just getting started (see below).
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On days like today, it is easy to forget that we are still operating below all of the major moving averages, which are declining. However, we are seeing some bullish developments that need to be monitored closely, before we conclude that shorting every bounce is the default strategy.
Updating a few charts from last evening, you can see that the trannies broke out of their falling wedge on pretty strong comparative volume today.
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The emerging markets bottomed before the S&P back in late May, and have been leading the charge ever since. Note the rock solid follow through from last week’s hammer.
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As I mentioned on Monday, the homebuilders looked prime for a heavy short squeeze from the all-important $14 level, and names like $LEN ripped a few faces off today of the latecomer bears. The top name on my list of scans, however, is $SAPE, as per my earlier post on the bullish engulfing candle.
If you have been following my trades, then you know that I still have an overweight cash position, as a sign of respect for the prevailing downtrend since late April. Throughout this correction, I have not wavered from holding high levels of cash. However, from time to time it is correct to remove hedges and have long only exposure. The bears were caught leaning too hard, and the bulls can now run for a while longer. I do expect the coming days to be a bit tougher for the bulls than today was, but to automatically assume that the bears will move in and push us back down to new lows would be conclusory.
Finally. I would be remiss if I did not chime in on the Euro/Dollar. I see many traders are pounding the table to short the Euro here, betting on it to roll over. These are probably the same types of traders who got caught short equities in July 2009. Folks, the time to short the Euro in size was a few months ago. If you really want to scalp a few pips that badly, then go for it. However, the inverse head and shoulders bottom and subsequent breakout and flag in the chart below leads me to believe that the Euro is a long, if anything.
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TOTAL PORTFOLIO:
EQUITIES: 44%
- LONG: 44% ($NR $NTAP $LULU $CRM $THOR $APKT)
CASH: 56%
Comments »CHESS MOVES
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Selling out of $AAP (NOT Apple) for a small loss. In the near term, I am not looking for BTFO type of plays in this market. I am focusing more on mean reversion, dip buying plays. Speaking of which, check out Danny’s latest post on that subject.
(All trades timestamped in The PPT)
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TOTAL PORTFOLIO:
EQUITIES: 44%
- LONG: 44% ($NR $NTAP $LULU $CRM $THOR $APKT)
CASH: 56%
Comments »Top Gulf!
In Japanese candlestick terminology, a bullish engulfing pattern occurs after a series of red (or black) candles in a downtrend, when a large green (or white) candle is said to “engulf” the previous day’s candle. The reason why the green candle engulfs the smaller, red candle is because the size of the body of the bigger candle is larger than the total size of the previous day’s candle.
The larger the green candle, and the more it engulfs the previous red one, the more bullish the pattern is said to be. As with other reversal patterns, confirmation is key. In sum, the bullish engulfing pattern shows a change in sentiment, as bulls aggressively take the initiative back away from bears after a downtrend.
My top idea on my list of scans right now is $SAPE. I currently have no position in the name. Check out the current daily chart to see just how big the engulfing candle is. I am looking for a strong close today, with some more volume coming in, as well as confirmation of the reversal in the coming days.
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