[youtube:http://www.youtube.com/watch?v=G6HbuUzsBWE 450 300]r

H/t @RaginCajun for the great collaboration on the video.
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MARKET WRAP UP 08/27/10

After the second test of 1039 in three days, the S&P 500 staged a stunning about-face to sprint higher into the end of the week. With the S&P closing up 1.66% to 1064, it is clear that the market was too oversold and had too much bearish sentiment over the past few days. With the rubber band being stretched too far in one direction, we were either going to snap back violently in the other direction, or break in the form of a crash. Betting on crashes is almost always a losing bet. More often than not, the market will revert to the mean. However, with 2008 and early 2009, not to mention the flash crash, still fresh in the minds of many traders, it is understandable why many thought we were on the cusp of another washout after yesterday’s dismal performance.

I will leave you on this late summer Friday with some improved daily charts of the major indices and sectors. The common theme is that significant support levels have held, and today’s strength gives the bulls back the baton in the short term. With more than a full week until Labor Day, the bears would have to be awfully ambitious to aggressively short for the remainder of the dog days of summer.

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EDIT: $EEM Chart too:

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MARKET WRAP UP 08/26/10

Stocks closed near the lows of the day, as traders braced for more economic data that will be released tomorrow. With the S&P 500 finishing down 0.77% to 1047, yesterday’s lows were not violated. Nonetheless, the level of frustration was as pronounced as I have seen since at least July 1st of this year. The decreasing ranks of bulls are in a state of deep dejection, as each intraday bounce fails miserably. Conversely, the bear team is seeing an influx of new members by the hour, as the late summer selling reinforces itself.

Seeing that I am still convinced that we are in an oscillating market, instead of a trending one, I maintain my belief that now is much more of a buying opportunity for the short term, than a selling one. With poor economic data lining up with lousy technicals and notably weak sentiment, I am comfortable dusting off my contrarian hat and putting it on. As bearish as today seemed, we still held above yesterday’s key lows, as the updated and annotated daily chart of the S&P 500 illustrates below.

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Updating the charts of some important indices and sectors, the trannies finished in the green today. Further, the small cap bulls held right where they needed to.

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Going back to my main point, this is not a case of me being a stubborn bull. Rather, it is more of a situation where I disagree with many traders who have proclaimed that we are in a fresh new trending market. For the past three months, Mr. Market has punished  both aggressive bulls at the top of the trading range (1100-1130) and bloodthirsty bears at the bottom of the range (1040-1010).

In my view, the trading range continues.

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[youtube:http://www.youtube.com/watch?v=oOuW9odA9hA 450 300]r

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MARKET WRAP UP 08/25/10

After yet another weak open, stocks recovered nicely to finish in the green, as the S&P 500 closed up 0.33% to 1055. Across many indices, sectors and individual issues, we saw a variety of bullish reversal candles being printed today. As always, follow through to the upside will be key for the purposes of confirmation. With that said, the updated and annotated daily chart of the S&P 500, seen below, tells the story of 1040 holding as a crucial support level once again, during the morning gap down.

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Updating some key indices and sectors, despite the fact that the weak Nasdaq Composite, Russell 2000, and financial sector ETF broke support at what could have been a potential inverted head and shoulders formation, they printed nice candles today just above their early July lows to present the case for a double bottom. The trannies and emerging markets are in relatively better shape than the other charts here.

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Finally, with all of the talk about how terrible housing is, let us take a look at $LEN. The daily chart, seen below, is a pretty good example of how the market is a discounting mechanism. We can see the steep downtrend since late April. However, within the past two days, there has been the strongest buying volume in months, as the stock looks to have hammered out a bottom and followed through to the upside today. With everyone supremely confident that housing is indicating a double dip/depression, if you had put on some short positions yesterday after that terrible housing data, you got burned.

Nonetheless, it is important to remember that housing could STILL be leading us into a depression. It is the timing of the trade that is important. Based on the chart below, you should ask yourself, is right here, right now, the time to short the homies? Or, better yet, is now the time to give the bulls some room to breathe before trying to short again, given that the past four months have discounted an awful lot of bad news?

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MARKET WRAP UP 08/24/10

The stock market’s downtrend continued today, as the S&P 500 opened lower to 1046, before somewhat stabilizing to close down 1.45% at 1051. Selling volume saw a slight uptick from the recent price action, and breadth was weak. The action in the bond and currency markets, combined with terrible housing data, was more than enough ammunition for the bears to press their bets into the closing bell to erase any hopes of a last minute rally. The bears showed their claws and are out for blood, as both the technicals and fundamentals are lined up in their favor. Moreover, the confidence of the bulls has eroded to the point where any attempts at rallies can only be seen intraday, and are laughable in their vigor.

Despite all of the above, I am positioned for a tradable rally. I have maintained for several months now that we are in an oscillating market, rather than a trending one. This market has rewarded traders who have faded the prevailing sentiment at each extreme. Just when the bulls thought we were going to breakout above 1130, it paid to move to cash or go short. Similarly, each time that the bears have pressed their bets below 1060, it was correct to scale out of shorts and/or deploy cash to the long side. Bear in mind that trying to time an oscillating market carries additional risk, as we saw in early July when 1040 quickly became 1010.

Nonetheless, as the updated and annotated daily chart of the S&P 500 illustrates below, if you believe we remain in a trading range, now is the time go cover shorts and go long.

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Most of the other index and sector charts that I update for you on a regular basis display similar patterns to the S&P after today. The bears are knocking on the lower end of the trading range, but the risk/reward profile favors a snapback rally. The lone exception is the emerging markets ETF, $EEM. These guys have been the leaders, and today saw a marginal breakdown. I will be monitoring this closely to see if there is any convincing follow through by the bears. Based on the doji gap down, as seen in the chart below, I am inclined to think it is a false breakdown.
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As a trader, it is important to distinguish between a short term trading call and a longer term view. I have very little doubt that we remain in a secular, multi-decade bear market that began in the year 2000. Moreover, we have been in a cyclically corrective phase since late April of this year. Come Labor Day, I am likely to be positioned much differently than I am now. Until that time, however, the stage is set for relief rally.

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[youtube:http://www.youtube.com/watch?v=FXKBUK94cC0 450 300]r

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MARKET WRAP UP 08/23/10

With the beginning of the end of summer trading commencing this week, the market stayed to its script of chopping up both bulls and bears. After several uninspiring attempts at a rally today, the S&P 500 sold off into the closing bell to finish down 0.40% to 1067. As has been the norm, volume was tepid and breadth was weak. The good news for the bulls is that we did not take out Friday’s lows of 1063. However, the bad news is that we closed on the lows of the day, and we are still dangerously probing multi-month support levels.

The updated and annotated daily chart of the S&P 500, seen below, should illustrate these points.

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The daily charts of the other key indices and sectors also continue to tell the story of the bulls tempting fate, in the form of dancing on significant support levels.

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With the market acting weak at key support zones, I have one eye on the exit doors with respect to the longs in my portfolio. The nature of this market has been to punish bulls who anticipated big upside breakouts, as well as bears who shorted at support, looking for a breakdown. The essence of a trading range is to reward traders who resist the urge to extrapolate that weak price action will beget more selling, and vice versa for rallies. In other words, fade the prevailing sentiment. Right now, sentiment is poor, and traders are frustrated and just about ready to give up on this market. It will be interesting to see if we find support here and stay within this tight trading range.

If we do not, the stampede towards the exits will be deafening.

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MARKET WRAP UP 08/20/10

To almost no one’s surprise, today’s options expirations made for a nauseating day, full of whipsaws. After finding a bottom at 1063 by midday, the bulls staged a late day comeback to hold the late July support. Nonetheless, the bears remain in control of the short term initiative. With the S&P 500 closing down 0.37% to 1071, we have more or less come roundtrip since the Monday intraday lows of 1069. Consistent with this lack of progress in either direction, the prevailing mood with traders seems to be one of burnout and frustration.

Despite the apparent lack of progress, we did print a hammer today on the S&P, as well as on many individual daily charts. The updated and annotated daily chart of the S&P 500, seen below, should illustrate this point.

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In this abridged, late summer Friday market wrap up, I will leave you with a chart of the Nasdaq Composite Index. I think the Nazzy more or less sums up the state of the overall market right now. As you can see in the updated chart below, the index bounced from Monday’s key multi-month support, only to be rejected at the 50 day moving average. Today, the bulls once again held the crucial support zone.

However, how much longer can the bulls keep this up? The more times that they probe support, the more likely it is the support will fail. If this support fails next week, I will blow out of all of my longs very quickly. This is not something to be taken lightly. You are talking about a key support zone that will open the floodgates for the bears, should it finally be violated.

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[youtube:http://www.youtube.com/watch?v=TQ008ASeVZ0 450 300]r

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