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MARKET WRAP UP 01/25/11

The dip-buyers showed some more resilience, as the S&P 500 went out on the highs today, up 0.03% to 1291. Despite the strong finish, the action was rather scattered and quite random today, as we saw several intraday whipsaws and an overall lack of leadership. In front of the State of the Union Address tonight, as well as an announcement from The Fed tomorrow, market players are predictably trying to game these macro/headline news stories.

From my vantage point, however, the bearish divergences in the small cap and transportation stocks relative to the senior indices are much more concerning. While many of the high beta names in the materials/energy complex that have been crushed the past few days may be ripe for a bounce, I am not seeing anywhere close to the amount of quality long swing trade setups that I would expect to find in a healthy market. Instead, I see some beaten down names that could see a quick relief rally.

It is often said in the poker world that good players frequently fold the best the hand. The reasoning behind that aphorism is derived from the idea that a good poker player is fully aware that, while he may indeed be holding the best hand, the risk/reward simply is not there to justify making a big bet based on that assumption. In other words, having the discipline to see the subtleties when deciding to take risk is crucial to avoid taking the big loss.

Applied to the current stock market, the bulls could easily deliver another explosive move higher in the coming days. However, with all of the churning at key support levels in many of the leading indices and sectors, combined with those bearish divergences mentioned above, I believe it is correct to fold my hand and wait for a better spot to risk capital.

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MARKET WRAP UP 01/24/11

The bulls bounced back from some of the weakness last week, as the S&P 500 closed up 0.58% to 1290. Interestingly, in what could be construed as a warning sign for bulls, the S&P noticeably underperformed both the Dow Jones Industrial Average and Nasdaq Composite Index. Moreover, other key names that have often telegraphed the true direction of the market, such as FCX, failed to put in much of a bounce at all despite suffering significant technical damage over the past few sessions. Nonetheless, AAPL and some of the stodgier mega cap firms in the Dow ultimately paved the way higher for bulls.

When traders talk about conducting objective analysis in determining their market posture, it is often a task easier said than done. In the archives of iBankCoin, you will see that I turned bullish on the market at various points throughout last summer when the S&P plunged to the 1010-1040 area. The reason why I dusted off and put on my contrarian hat was because of the glaring bullish divergences in the historically market-leading Dow Jones Transportation Average and small cap led Russell 2000 Index. Consistent with that analysis, we have now arrived at a point in time, several quarters later, where we see a relatively unscathed daily chart of the S&P 500 at odds with weakening dailies of the trannies and small caps.

When you combine the above bearish divergences with the increasingly common occurrence of breakdowns from bases (e.g., the cloud-computing names, and precious metal miners), I see reason for great caution here. While today’s price action is a good reminder that some underlying weakness is not enough to immediately become aggressively short, I believe it to be good enough reason to place the goal of capital preservation as a higher priority for now than capital appreciation.

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MARKET WRAP UP 01/20/11

Both the S&P 500 and the Nasdaq Composite Index experienced “distribution days,” with follow-through to the downside on increased volume after yesterday’s selling. At the same time, with the S&P 500 closing off its lows to finish down 0.13% to 1280, the dip-buyers are unwilling to acquiesce so easily to the bears’ newfound glory. Going forward, these two competing forces are likely to duke it out, and we shall see a winner emerge in the coming days. Having the capital available to pounce on which camp wins the battle will be key to not only banking coin, but to also avoid being caught leaning too heavily in the wrong direction.

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MARKET WRAP UP 01/19/11

In what proved to be the first real victory for the bears in weeks, the S&P 500 finished down 1.01% to 1281. After AAPL earnings last night, the market was in a “sell the news” mood today, and the regular dip-buyers appear to be losing a bit of their luster. Moreover, after the bell today I see that FFIV, as well as the entire cloud-computing space trading in sympathy, is causing some real turbulence. At the same time, a consequence of such a powerful uptrend is that we should have sturdy support zones not too far below, in the event the bears can actually follow-through on today’s selling. Thus, becoming an aggressive bear here is a tricky proposition.

A real test of mettle in the coming days will be whether that 1276-1277 on the S&P, which had previously acted as resistance to start the year, will now turn into bonafide support. Indeed, if that does happen, then this selling will be yet another vicious trap to suck in eager bears. However, if the bulls cannot adequately defend that zone, then extreme caution is urged with any potential and existing longs, as a deeper broad market correction would become a distinct reality.

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MARKET WRAP UP 01/18/11

The power of the prevailing trend saw Mr. Market flex his muscles again today, as the S&P 500 brushed aside negative AAPL and C news to finish up 0.14% to 1295. While the market still has a laid back feel to it, rather than awesome momentum, it was another impressive day for the bulls nonetheless. Just when it seemed as though AAPL was on the cusp of pulling technology down, the Nasdaq Composite actually led the charge higher today.

After hours, I see that we have a mixed bag of earnings results and reactions, with IBM and WDC moving higher, while CREE is getting sold hard. AAPL is being whipped around, although the bulls look to have the edge. As we progress throughout earnings season, particularly in light of the broad market run we have seen, it is crucial to keep a close eye on all positions. Just as the market was dynamic enough to turn on a dime last September, it could just as easily take us back to the dark side with the same abruptness.

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MARKET WRAP UP 01/13/11

Despite closing off of the worst levels of session, we had another trading session of blasé action. With the S&P 500 finishing down 0.17% to 1283, you got the sense that the market was holding its collective breath in front of INTC and JPM earnings. At the time of this writing, I see that INTC is higher in moonlight trading. Keep in mind that INTC, the chipmaker bellwether, has seen its post-earnings bounces faded rather aggressively over the past several quarters. With that said, the broad market is still technically sound, even if the underlying enthusiasm and energy are not particularly impressive. Attempting to call a major top has not only been a waste of time and capital, but it also had been uncorroborated with the charts of the leading indices and sectors, seen below.

Indeed, no trend lasts forever, but when too many market players acknowledge that we are extended and ripe for a buyable dip, the net result is a daily drip higher that is starting to frustrate just about everyone watching the tape which, oh by the way, is exactly Mr. Market’s modus operandi.

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