Charts Are Like Shakira’s Hips

They just don’t lie.

When you see the shares of some of the fastest growing publicly traded firms in the world continue to be bought up by institutions in this kind of macroeconomic environment, you would be remiss not to factor that into your analysis. As you know, I have been as cautious as anyone on the broad market since late April. In fact, I warned of the megaphone bearish topping pattern before most chartists, a few days before the flash crash. On May 3rd of this year. I posted this chart on chart.ly– click here (see chart below).

My point is that I am far from a perma bull. Recently, a big reason for me being cautious was because of the sloppy chart patterns of some of the market leaders. Although they have held up relatively well during this correction, their daily charts were less than inspiring in terms of compelling me to rush in and put on longs.

However, I have seen some strong buyers come in to support several key high growth names. Below are some charts of the high flyers, where I have denoted the underlying bid that helped to firm up the sloppy patterns. As The Fly notes in his evening post tonight, The PPT confirms that we are certainly extended in the short term.  If we continue to rally in a straight line higher from here, I will not chase. On the other hand, if we get the expected pullback or sideways consolidation, I believe some very good buying opportunities could present themselves, providing the market does not see more heavy distribution days.

While it remains troubling that the volume in the broad indices continues to be fallow, it is hard to ignore the price action supported by strong volume in these fast growing names:

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MARKET WRAP UP 06/15/10

The market shook off more bad news today, as the S&P 500 closed up 2.35% to finish at 1115. During the past several trading sessions, we have seen opening gains that were aggressively faded into the closing bell. One would think that type of action would be followed up with a sharp reversal to the downside. However, that never came to be. Instead, the bulls have squeezed everything, and everyone, higher. In sum, we are in the midst of another hated rally.

The reason why this kind of rally is so hated is because there have not been any easy entry points. Unless you timed the bottom perfectly (or went to cash as SPYder Crusher and I did), you got crushed on the way down during the correction. Then, when we reversed on a dime and headed higher, we went straight up, until it looked like we were going to fall apart yet again. When we did not fall apart again, the bears frantically scrambled to cover their shorts, and the underinvested traders scurried about to find some longs.

As the updated and annotated daily chart of the S&P 500 shows, we took out some key levels of resistance today (see below).

My best strategy right now is to selectively deploy my cash position back into the market. The leading growth stocks are performing well, and many others are setting up nicely. As I noted in an earlier post, I bought four longs today: $APKT $LULU $CRM and $IAG. Note that I still have an 80% cash position. At this point, I am putting out some feelers into the market. Should this rally turn out to be a vicious bull trap, I will not have paid too dear a price.

However, I would be remiss if I ignored the fact that so many traders are distrustful of this rally. When perma bulls like Jim Cramer are providing excuse after excuse for why this rally is not legitimate, I am inclined to add more long exposure. I am still looking for a light pullback–even if it is just half a day– to add more longs, but then again so are many other traders.

Thus, my game plan now is to pounce on the names on my watchlist in the event of an orderly consolidation period, but to take a pass if the market continues to run away from me to the upside.

UPDATE: More examples of The PPT magic being shown to befuddled third tier toilet bloggers.

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

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The market has been shaking off bad news, and continues to push higher. Thus, I am shifting gears a bit here. I am taking some long positions, and will add short hedges should we roll over. Note that the same arguments against the strength of this market were also made in early February–namely volume. If you decided not to play back then because of the weak volume, then you missed out on a very big move until mid April. Price is what pays. I am not saying that we will assuredly see another move like that, but it is a possibility. In sum, I believe the health of the market has improved, and I am willing to come back in with a strategy that allows for hedging.

(All buy orders time stamped inside The PPT)

LONG:

1/2 sized positions in $LULU $CRM $IAG

full position in $APKT

TOTAL PORTFOLIO:

EQUITIES: 20%

CASH: 80%

NOTE: These are trading ideas only. If you choose to follow me, please use stop losses to mitigate your downside risk (I prefer a trailing 7-8% stop).

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MARKET WRAP UP 06/14/10

On the back of rallies on Thursday and Friday, the bulls came out running strong this morning with a gap higher of about 1%. However, as the trading session progressed we saw the familiar chop and whipsaw type of action come back into play. Just when traders with a holding period of longer than a few hours thought it was safe to come out and play, all of the earlier gains were faded into the closing bell as the S&P 500 finished off 0.18% to close at 1089.

As the updated and annotated daily chart of the S&P 500 illustrates, the market yet again rejected the 1100-1105 resistance area, which was previous support in early to mid May (eee below).

That resistance area coincides with the still rising 200 day moving average. Today marked the third time we have been rejected at that widely monitored reference point within the past few weeks. Thus, although we have recaptured the 20 day moving average, the 200 day m.a. and  the resistance trend line dating back to early May are the most pressing obstacles that the bulls need to overcome. Moreover, we are short term very overbought, according to arguably the most reliable algorithm over the past eighteen months: The PPT.

Thus, if you consider yourself a swing trader seeking to take advantage of intermediate term moves in the market, some more patience is required here. While there are many stocks I am monitoring for long swing trades, it is important to remember that the broad market remains unhealthy. We are still operating well below a declining 50 day moving average, for example. Beyond that, some key stocks are looking like good short selling opportunities, such as $FCX, which has rallied back to resistance on tepid volume. What I am looking for now is an orderly, benign consolidation period where we work off our overbought condition, allowing me to go long. If that never happens, then cash and some select inverse ETFs is my strategy.

As I have said before, the wild price swings that we have seen during this correction, combined with the exuberant but short lived rallies, have elicited raw emotions from traders. While both bulls and bears are loudly blowing their vuvuzelas during the trading session, just like the rabid fans at the World Cup are doing, you must block out all of the noise out and focus your attention solely on what is happening on the field.

NOTE: The PPT magic being shown to piker third tier toilet blogs. (LOL at the David Blaine spoof)

[youtube:http://www.youtube.com/watch?v=wTqsV3q7rRU&feature=channel 450 300]

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Unless you have been able to pinpoint the short term machinations of this market recently, you have likely been chopped up and mugged by commission fees and intraday whipsaws. With the bulls on the verge of putting together a three day winning streak, the temptation is to put on some longs, right here right now. However, the S&P 500 is struggling just below its 200 day moving average, and we are short term very overbought (see The PPT).

As I am writing this, I see that we are giving back a fair share of the gains today. Frankly, it would be healthy for this market to digest the move of the past few days. So long as we see an orderly pullback here, with no signs of heavy distribution rolling us over, I will take long positions in some of the setups and names that I listed last evening.  Again, I am looking for a time frame of at least 3-4 days. Thus far during this correction, that time frame has seemed Buffett-esque, given the intraday moves we have seen.

Remember, the broad market is still unhealthy from an intermediate term perspective, so having some extra patience here is prudent. Should things get ugly again, we will have lost nothing.

At the very top of my long scans are: $CRM $MDAS $LULU $KOG $DECK $RBCN–ONLY on a pullback for that last one.

NOTE: My tell, $FCX, is at a huge crossroads right now. The $66 level is huge, as it was previous support, and is now in danger of becoming resistance. Watch this closely, as it is up against both the resistance and support trend lines.

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I cannot stress enough the importance of keeping an open mind in the current market environment. Stubbornly sticking to a thesis will guarantee you one thing: You will miss out on some great opportunities. There are strong arguments to be made for both bulls and bears at this point. Let’s take the 200 day moving average on the S&P 500, for example. Bears will claim that since breaking down through it on heavy volume, we have been chopping around below it for quite some time, and that our next move is lower from here. Bulls will claim that the 200 day is still rising, and that during the 2003-2007 bull run, every time we dipped below the inclining 200 day m.a., it turned out to be a terrific buying opportunity.

Regardless of what your gut tells you, there is no excuse for not being prepared. Should we sell off again and make new lows, I have no problem keeping a high level of cash and dabbling in some inverse ETFs. If the bulls regain the initiative, however, I want to know exactly where to look. Having a watchlist of stocks that have performed brilliantly throughout this correction is essential.

Below, you will find my top long ideas for the upcoming week. Assuming a healthier market, I will be monitoring these names closely for a long entry. Feel free to pick and choose whichever setups best fit your style. I urge you to use stop losses (I prefer a trailing stop of 7-8%, on average) in order to mitigate your downside risk. Please note that these are merely trading ideas only.

In addition to the ten charts below, I am also monitoring: $CRM $VMW $DECK $APKT $LULU $NFLX $MDAS $NTAP $FFIV $CSTR $CRUS $ARUN $DLTR $DTV $UTLA.

I hope you find these helpful.

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