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MARKET WRAP UP 06/21/10
The futures roared into the opening bell this morning, on the back of the weekend news out of the Chinese central bank that they will ease their currency’s peg to the U.S. dollar. Just after 10 a.m. EST., the S&P 500 hit its intraday high of 1131. From that point on, the market slowly dripped down into the close, to finish off 0.39% at 1113. Needless to say, intraday gains in many individual issues were wiped out as well, as overeager traders who bought during the first hour were trapped and drowning without a life vest.
As ugly as the action seemed to the bulls, it was not entirely unexpected. Seeing as we hit 1042 on the S&P thirteen days ago, we have come a long way in a short period of time, considering we touched 1131 today. While many frustrated traders were eager to call a market top based on today’s action, the updated and annotated daily chart of the S&P 500 illustrates that we are still battling just above the 200 day moving average (see below).
It is also worth noting that today was not a high volume day, which supports my belief that this is likely not a huge reversal day. From a technical standpoint, a shallow, light volume pullback from here to around the 1100 level would offer some excellent entry points to some of the best looking charts, such as $DECK, $LULU, $CMG, $VMW. Some more consolidation would also give other charts a chance to firm up some more, making them more viable long candidates.
The key point is to continue to be patient with a high cash position, and to not let your emotions get the best of you during these intraday whipsaws. To put it simply: the fight is on right now between the bulls and bears. Eventually, this range will be resolved sharply one way or the other. As we have broken out of the descending resistance trend line (see chart above), the bulls still have the short term upper hand. However, the bears retain the intermediate term edge with a downsloping 50 day moving average.
I cannot emphasize enough the significance of patience in my trading strategy. If we are, indeed, in the process of forming a sustained uptrend, then by definition there will be plenty of entry points. Until that materializes, let other market participants do the heavy lifting for you, before diving in with aggressive bets. As an example, if you had patiently sat out the late January/early February correction, you could then have put out some small long positions in late February. The correct time to become very aggressive on the long side was not until early March, and even then you would have had a full month and a half of easy gains before we topped out!
While my style may not be the sexiest, very selective aggression is what gets the money over the long run and, to me, that is as sexy as it gets.
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TOTAL PORTFOLIO:
EQUITIES (Including ETF instruments):38%
- LONG: 32% ($APKT $LULU $CRM $GMXR $ISH $DECK $THOR)
- SHORT/HEDGED: 6% ($TLT $TZA)
CASH: 62%
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