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MARKET WRAP UP 12/16/10

Just when it looked like the bears had finally cracked the code to this market, the bulls showed some real heart to finish the S&P 500 up 0.62% to 1242. Breadth was soundly positive, as the internal weakness that we had seen the past few days was not nearly as pervasive, save a few disasters such as $MA, $V, and $VECO.

If anything, today illustrates the danger in trying to initiate swing trades that are counter to the prevailing trend. Many market players took yesterday’s weakness as a sign to put on some short positions and cut all longs. Unfortunately, Mr. Market does not usually make those opportunities so easy to identify, especially as we approach the end of year festivities.

Going forward, I continue to believe that holding shorts for anything more than a quick scalp is a mistake. With the leading indices and sectors sporting bullish consolidation patterns (see charts below), the correct posture is either long or in cash. Moreover, just as everyone seems to be writing off the rest of 2010 as a dead period, we could finally see those marquee market leaders break out, namely $AAPL.

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MARKET WRAP UP 12/15/10

The S&P 500 printed its first red daily candle in over a week, as the benchmark finished down 0.51% to 1235. While breadth and volume were far from intimidating to bulls, there was some distinct weakness in some of the classic “hot money” names, such as $BIDU and $LVS. The 1234-1235 area should provide the first area of firm support, dating back to last week, and we saw that hold today. Beyond that, I am looking for the general area of 1220-1230 to give the bulls some sturdy defense.

As tempting as it is to look for a major inflection point, the fact is that the market can only continue to dribble higher on a daily basis for so long without taking a rest, particularly when it is already extended. The overall uptrend remains firmly intact, and the bears are going to have to accomplish a whole heck of a lot more then what we saw today before the idea of swing shorting should even be entertained. Moreover, the key areas of the market that have given the best “tells” over the past six months, the small caps and trannies, continue to develop bullish charts.

Hence, the correct strategy is to patiently wait for a new round of setups to emerge. At the same time, writing off the rest of 2010 as nothing to wait around for is not something that I am ready to do, just yet.

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MARKET WRAP UP 12/14/10

While the S&P 500 closed up 0.09% to 1241, the underlying action was noticeably weak in many areas of the market. At some point, the extended daily charts of the leading indices and sectors need to take a rest. Today, perhaps, marked the beginning stages of a very short term pullback. The high momentum names saw some real weakness today, and the fact that the broad indices provided a thin veil is somewhat troublesome for longs.

As easy as it is to infer from today’s action that swing shorting is the way to go, I still remain in the camp that the risk/reward profile simply is not there. With all of the “cautiously optimistic” bulls out there, there is likely to be a strong underlying bid to the market after a 2-3% pullback. Thus, you had better be nimble with any countertrend bearish bets.

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MARKET WRAP UP 12/13/10

Although the major indices are making new 52 week highs on a daily basis, they are doing so in a very nonchalant way, dribbling higher. The areas of the market where the “hot money” is welcomed with arms wide open are growing smaller. While many traders may perceive the above analysis as an invitation to get aggressively short, I contend that strategy is flawed. Just because the indices have gone much higher in a relatively short amount of time, it does not necessarily mean that they will give most or all of it back. Thus, I am not convinced that the risk/reward profile is conducive for net shorts for anything more than a one or two day trade, if that.

In addition, the marquee names are still basing out (some have been doing so for seven weeks) with tight price candles and without heavy selling volume. These include: $AAPL $AMZN $BIDU $GOOG $PCLN. Although the consolidations in those stocks have been of the bullish variety, they still need to be monitored closely to see in which direction they eventually break.

In sum, a little skepticism about whether Santa Claus is coming this year could go a long way, literally and figuratively.

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MARKET WRAP UP 12/09/10

Although we are on top of the proverbial mountain, right at 52 week highs on the S&P 500, the price action this week has been indecisive and frustrating for all but a few stocks. In all forms of gambling where strategy is an integral component, it is selective aggression that gets the money over the long run. As fun as it may be to crush the shorts when names like OPEN and NILE run, it is actually more important to exude patience and regroup those other times when the market is consolidating and chopping up the majority of traders. Coming into this week, I discussed the idea that we would need to see some digestion in the general 1220-1230 range on the S&P. Thus far, we have seen precisely that–A high and tight consolidation.

Going forward, a quick one or two day dip is highly likely to be a Christmas gift for swing traders with cash on had to take advantage. Closing out this week with yet another boring, choppy day would also do wonders for setting up many large cap tech names that are basing above all major moving averages, namely AAPL AMZN BIDU CRM GOOG NFLX PCLN VMW.

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MARKET WRAP UP 12/08/10

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