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Market Wrap Ups

It’s Getting Whippy

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MARKET WRAP UP 09/09/10

After opening up to 1110 within the first several minutes of trading, the S&P 500 saw several whipsaws on the way down to close the day up 0.48% to 1104. Volume remained light in the face of the Jewish holidays this week, and breadth was decent, but far from inspiring. Continuing with an ongoing theme, the broad market has been correcting in time much more than in price. The attempt at a breakout this morning was rather quickly rejected, and we continue to chop and churn along the 1100 level.

The present situation is as neutral as it gets. We are in a broad, multi-month trading range, and we are consolidating near the top of that channel. To presume that this consolidation is automatically bullish or bearish is pure guesswork. Thus, my portfolio has returned to a defensive posture. I have a heavy cash position, yet again, and I am hedged with longs ($CMG, $CTXS, $ROVI, $TQNT) as well as some short exposure (long $SRS).

I am still of the belief that many individual issues, as impressive a run as they have had over the past few weeks, need some time to come in and digest their recent gains. That event would also have the added bonus of providing higher probability entry points for swing traders than the opportunities we are seeing now. Of course, the market has no obligation to make our task easier. We cannot control that. Instead, what can we can control is our risk profile.

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Get Your Mind Set on Time

[youtube:http://www.youtube.com/watch?v=hqhoEyvddyA 450 300]r
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It’s gonna take time

A whole lot of precious time

It’s gonna take patience and time…

To do it right…

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MARKET WRAP UP 09/08/10

On Monday evening, I argued that the market was ripe for a correction after screaming higher the previous week, from 1039 to 1105 on the S&P 500. As I discussed, the key issue would be whether we would see either a correction in price, or a consolidation over a period of time. After the past two trading sessions, we have essentially corrected in time much more than in price, with the S&P closing today up 0.64% to 1098. In front of the Jewish holidays this week, volume remained anemic. As you would expect during a mild correction, breadth was decent, with pockets of strength amidst glaring weakness.

Unless we are looking at a March or July of 2009 scenario, where we sprint higher in parabolic fashion for the next several weeks, I believe it is best to remain as agnostic as one can in this scenario. If you were bullish when we were at 1040 last week, then now would be an excellent time to lock in some profits and wait for higher probability entry points. Similarly, if you are looking to go all-in short, it is best to wait for more follow through to the downside before becoming aggressive.

My analysis of the leading indices and sectors, seen below, leads me to conclude that more time is needed to digest last week’s move. Accordingly, I increased my cash position today, and will rely on patience to minimize the vast array of mistakes that so often plague market players during a trading range.

George Harrison was right, it is going to take time.

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Back to Work with Little Fanfare

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MARKET WRAP UP 09/07/10

Despite the expectations for a “back to business” type of day, we saw that familiar summer-esque light volume action, as traders are slow to return from vacation and/or are preparing for the Jewish holidays this week. Either way, the S&P 500 gave back some of its gains from last week’s powerful rally to finish today down 1.15% to 1091. Many stocks weakened during the final hour of trading, as the market closed on the lows of the day. However, today was not a complete bloodbath, as some leading stocks held up remarkably well, such as $CMG, $CRM and $NFLX.

Above all else, today was likely the first step in a much needed consolidation after last week’s sharp move from 1039 to 1105. Whether this pullback proves to be an excellent buying opportunity remains to be seen. Seeing as we remain in a defined trading range, caution is probably the best strategy going forward, until the bulls can establish a bonafide higher low above 1040.

The updated and annotated daily chart of the S&P 500, seen below, should illustrate just how tight the range is starting to become. On a short term basis, we could easily fall to roughly 1080 before the bulls will put up a fight.

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Looking at the daily charts of some of the other leading indices and sectors, the market could easily give back more of last week’s gains, yet would still be holding some key support levels. Thus, a cautious and patient approach is probably the best strategy in the immediate future.

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Going forward, the basic idea is that the short term parabolic nature of last week’s rally is in the process of correcting. Trying to ascertain how long and how deep this correction will be is a tricky game to play. According to The PPT, we should see some more sideways or down action in the coming days. Despite the progress that many charts have made over the past few weeks, the bulls still need to arrive to support them, or else they risk giving the initiative back to the bears to take us down to the bottom of the range, yet again.

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Cautious Pessimism

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MARKET WRAP UP 09/02/10

If I had to most precisely isolate the overarching sentiment of traders, it would best be described as cautious pessimism. By now, the secular headwinds facing the economy are well known. When these macro issues are combined with the sharp correction that we saw in equities in May, followed by the past three months of choppy, amorphous price action, it is no wonder that most market players are expecting, at best, a continued sideways market.

With the prevailing belief being that we are either going down or sideways, in addition to the fact that we held the lower end of the trading range this week, I am still in the camp that says it is correct to have a hearty risk appetite at this point in time. If we move above 1120 or so, then I will likely become more cautious again (as many others will presumably become more and more bullish). Normally, my preferred style is to not be much of a contrarian, as I want to ride established trends. However, as I noted several months ago, I was either going to have to adjust to this market, or sit out entirely. Given the fact that this broad trading range can continue much longer than anyone thinks possible, I decided to adjust.

As for today, the bulls impressed with solid follow through on yesterday’s massive rally. With the S&P 500 closing up 0.91% to 1090, the bulls recaptured both the 20 and 50 day simple moving averages, as the updated and annotated daily chart illustrates below.

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Updating the daily charts of other key indices and sectors, we likewise saw sound follow through from yesterday’s rally. This follow through helps to reinforce the possibility that a series of double bottoms and inverted head and shoulders have been formed.

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After trend traders dominated in 2008 (down) and 2009 (up), my working thesis for 2010 is that those trend traders need to be humbled. The nature of a secular bear market, which I believe we have been in since 2000, is that all excesses are washed out, not just in the economy at large but also in the market. When we tested 1040 a few days ago, many traders mistakenly assumed the downtrend would persist. Instead, we are seeing that 2010 is shaping up to be the year of the range trader.

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[youtube:http://www.youtube.com/watch?v=H3QEKT2mk_Q&ob=av3e 450 300]r

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The Range Lives On

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MARKET WRAP UP 09/01/10

With the stage set for a significant breakdown headed into a seasonally bearish period for the markets, the S&P 500 naturally rallied 2.95% to finish at 1080. Breadth was the strongest that we have seen in at least several weeks, while volume was surprising potent. Regardless if we continue to move in a straight line higher from here, or if we consolidate for a few days, the bottom end of the multi-month trading range has once again proven to have been a sound buying opportunity in the face of pervasive negative sentiment. With many traders complacently assuming that the market had started a fresh downtrend, the price action today reminds us that we have been in an oscillating market, rather than a trending one, for at least the past three months. Until we see a convincing break–and hold–of the range, it lives on.

As the updated and annotated daily chart of the S&P 500 indicates below, we have quickly rallied up to the 20 and 50 day moving averages on very strong volume. A break of those moving averages leaves us with a nice vacuum to fill above.

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Turning to other key indices and sectors, the common theme is that of powerful buying at crucial support levels.

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After several weeks of seeing any bounce, whatsoever, aggressively faded, the rally today had impressive staying power. Do not discount this change in sentiment going forward. While many will look to reload shorts in the next day or two, this rally could easily last longer than anyone thinks possible. For the past few days, the market has been looking for an excuse to rally. Off of economic data last night and this morning, we found those excuses. Going forward, if risk appetite remains healthy, I expect that change in sentiment to trump all economic data, good or bad.

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[youtube:http://www.youtube.com/watch?v=QR4Y6Ll0DwA&a=GxdCwVVULXcOXl33RxUOaQ3vM3IrhPiv&playnext=1 450 300]r

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An Inside Day of Pain

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MARKET WRAP UP 08/30/10

After the sharp reversal and rally on Friday, stocks sold off steadily today. Volume was the lightest of the year, indicating the lack of interest in late summer trading with conviction. Despite the fact that the S&P 500 closed on the lows, down 1.47% to 1048, the price action today was confined within the parameters of Friday’s highs and lows. This type of price action creates an “inside day,” which signals indecision. Despite how painful today felt for many bulls. the fact that we are seeing indecision after the steep downtrend from 1130 over the past few weeks could be a sign of a change in the short term trend.

As the updated and annotated daily chart of the S&P 500 illustrates below, the 1040 level continues to be the line in the sand over which bulls and bears are battling.

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Looking across the other major indices and sectors, we saw inside days across the board. The case for many double bottoms continues, as the defined lines of support become more pointed by the day.

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Finally, let us take a look at the semis. Many traders have been concerned about the recent weakness in that area. The daily chart tells the story of a steep downtrend since late April. Now, however, the semis are at the bottom of the multi-month falling channel, and printed a hammer-type of candle on Friday. After today’s inside day, there remains a distinct possibility for a change in trend.

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