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MARKET WRAP UP 08/09/10

Despite the impressive performance by some individual issues, as well as the positive tone of the broad market, stocks generally remained in a holding pattern ahead of tomorrow’s meeting at the Federal Reserve. With the S&P 500 closing up 0.55% to 1127, we are still operating below the key 1131 level, which marked the precise print where we touched and sharply reversed down to 1010 back on June 21st. While breadth was strong, volume once again was notably weak, even for the summer.

Nonetheless, as the updated and annotated daily chart of the S&P 500 illustrates below, we closed above all of the major moving averages heading into the big Fed announcement tomorrow.

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Turning to other key indices and sectors, the emerging markets and transportation stocks remain highly impressive areas of the market. However, the daily charts of the Nasdaq Composite, the small caps, and the financials are slightly lagging the progress of the daily S&P 500 chart (see charts below).

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Given the individual strength and breakouts that I saw today, it was tempting to significantly raise my long exposure. However, the whipsaws surrounding days when the Fed meets and announces have historically been nasty. Rather than use all of my ammunition before the market confirms a breakout, I will wait for a convincing break and hold above 1131, preferably on more impressive volume than we saw today.

Unlike Ben Bernanke, I am not going to use up all of my bullets before I have to.

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TOTAL PORTFOLIO:

EQUITIES: 52%

• LONG: 52% ($BZ $OVTI $ISLN $GNK $LSCC $RDWR $BX $CMI)

CASH: 48%

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MARKET WRAP UP 08/05/10

Today was probably the closest thing that you will see to an “intentional walk” in the stock market. In baseball, an intentional walk–or base on balls–is a tactic used by managers to avoid pitching strikes to a good hitter, or to gain some other advantage from having another man on base (ironically). In the stock market, as we saw today with the S&P 500 closing down 0.13% to 1125, the price action was more or less in a holding pattern in front of tomorrow morning’s employment report. As you know, I am not an advocate of trading based on news. In fact, I often seek to avoid doing so. Instead, I prefer to look for advantageous situations where price and volume indicate that I have an edge. However, I believe it is crucial to note the reaction to the news. We could just as easily selloff tomorrow from a supposedly good jobs report, as we could rally after a “bad number.”

Beyond the employment report, the price action has also been indicating that traders have essentially hit the pause button until they decide which way they want to lean. While it is true that we have maintained a steady uptrend since early July, it is also worth noting that the overhead resistance from late June has caused considerable choppiness over the past few days. As the updated and annotated daily chart of the S&P 500 illustrates below, we have essentially flatlined ever since the big gap up we saw on Monday.

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The good news from the past few days of consolidation is that it has given some of my top holdings a chance to rest and build sound bases. Two of my favorite plays right now, $BX and $GNK, are pretty good examples of this, as their updated daily charts illustrate below.

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In conclusion, the past few days of quiet consolidation do not guarantee that this has marked a bull flag after Monday’s rally. However, the bears have been unable to hold any gap down this week, and each pullback has actually been a healthy sign of a lack of complacency amongst the bulls. Anecdotally, I am seeing an awful lot of cautious bulls, rather than raging ones. After the vicious trap in late June, the caution is completely understandable. However, the lack of complacency might very well be the lighter fluid that propels us higher out of this broad, multi-month trading range for good.

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TOTAL PORTFOLIO:

EQUITIES: 40%

• LONG: 40% ($GNK $LSCC $RDWR $BX $CMI $SWSI)

CASH: 60%

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MARKET WRAP UP 08/04/10

Stocks survived another morning gap down to finish near the highs of the day, as the S&P 500 closed up 0.61% to 1127. With the buyers picking up steam in the final hour of trading, one cannot help but conjure up the old Wall Street axiom that bull tapes finish strongly, while bearish tapes feature weak closes into the bell. Seeing that many traders are either skeptical or flat-out bearish on this market, the fact that the bulls refuse to relinquish the initiative needs to be respected. Despite the ongoing light summer volume, breadth was impressive today, given that the S&P hit eleven week highs, on a closing basis.

Perhaps what is most impressive about the price action during the last few days is how quickly each intraday gap down has been bought. After Monday’s 2% rally higher, I discussed the concept of overhead supply, which dictates that longs who were previously trapped at a given price level are now likely to sell once they are made whole, as opposed to buying more or holding. The closer we have come to 1131 on the S&P, which is precisely where we touched and reversed hard to 1010 on June 21st, the more chop we have understandably seen. However, as the updated and annotated daily chart of the S&P 500 illustrates below, there has been an underlying demand to meet this supply, helping the market to digest the recent gains in an orderly way.

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Turning to other key indices and sectors, it is becoming clear that the transportation stocks and the emerging markets are leading us higher. However, as their daily charts indicate below, the technology led Nasdaq Composite, as well as the small caps, are slightly underperforming here.

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With more and more stocks forming lateral bases and subsequently moving higher, the market has all the makings of a continued summer rally. I am looking for a move over–and hold above–that 1131 level on the S&P before I think we see a new wave of buyers emerge. However, I will wait for confirmation before jumping the gun with overly aggressive portfolio allocations. Beyond that, I am not interested in holding individual issues through their earnings reports, so I have been shuffling around my portfolio a bit as well.

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TOTAL PORTFOLIO:

EQUITIES: 42%

• LONG: 42% ($COCO $GNK $LSCC $RDWR $BX $CMI $SWSI)

CASH: 58%

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

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MARKET WRAP UP 08/03/10

On the back of yesterday’s 2.20% move higher to open the month, the price action today was not unlike a poor sequel to a good movie. Breadth was negative, as healthcare and energy were the only major sectors in the green. Volume was slightly higher, as the overhead supply that I discussed yesterday came to fruition in the morning, with longs who had been trapped earlier this summer using the recent rally as a selling opportunity. All in all, with the S&P 500 closing down 0.48% to 1120, today was an “inside” day, where the price action was within the confines of yesterday’s range.

Despite the lack of strong follow through from yesterday’s rally, the bulls maintained the initiative. The bears proved inept in doing any noticeable technical damage today. In fact, when the morning gap down to 1116 was quickly bought, it marked a perfect retest of the late July highs. While a benign consolidation period after a sharp run up is not a sure thing (no such thing in the market), the odds do favor a continuation of the bull trend of higher highs and higher lows. Accordingly, I increased my long exposure today, taking it up to 48% of my portfolio.

As the updated and annotated daily chart of the S&P 500 illustrates below, the series of higher highs and higher lows is confronting the fact that we are also at the very top of our multi-month trading range.

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I am going to focus the rest of today on the financial sector. Everyone seems to be talking about the $15 level on the $XLF. To be sure, the financials were one of the sectors that led us down in mid April, presaging the broad market correction. Given the proximity of the financials to the bubbles and crashes in equities over the past few years, it makes sense to take a look at them in multiple time frames.

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In sum, it is not safe to presume that the next move is lower just because both the S&P and the financials are at the upper end of their multi-month trading ranges. My strategy going forward is to build up my long exposure, so long as the broad market continues to act constructively, and I see quality setups across the board.  Presuming anything in the market can be dangerous, but the improved price action cannot be ignored. I continue to see the number of quality setups improve almost on a daily basis. Should the market take a turn for the worse, however, my plan is to immediately hop into downside hedges, and lock in some profits on my longs.

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TOTAL PORTFOLIO:

EQUITIES: 48%

• LONG: 48% ($COCO $GNK $LSCC $GSI $RDWR $BX $SAPE $POWR $SWSI)

CASH: 52%

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[youtube:http://www.youtube.com/watch?v=bm5TZX5hz3g 450 300]

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MARKET WRAP UP 08/02/10

The bulls came out running with a purpose today, as the broad indices printed big, green marubozu candles to start the month in style. With the S&P 500 closing up 2.20% to 1125, the four indecisive days down last week appear to have been a bullish consolidation pattern. Perhaps what was most encouraging for the bulls today was the lack of aggressive profit taking after the morning gap up. Ever since late April, just when it seemed like we had a breakout in the making, the bulls would quickly head for the exits, and the bears would storm in ready to send us down to the lower end of our trading range. Today, we saw none of that price action as the gains held on throughout the day, and we actually closed right near the highs.

As bullish as today seemed, the S&P still has to contend with the 1131 price level, which is precisely where we touched and reversed on June 21st of this year, sending us straight down to 1010. Perhaps I am being overly cautious, but I believe that we will get some chop around that area, as many of the bulls who were previously trapped there are now made whole. Nonetheless, today was a sound victory for the bulls, and should be treated as such. As I illustrated last evening with my setups, I am seeing far more constructive charts than I have seen in months.

Taking a look at the updated and annotated daily chart of the S&P 500, one can see that the bulls have cleared several key obstacles, in terms of resistance. However, the late June resistance, as well as the 100 day simple moving average, still loom directly above (see below).

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Turning to other key indices and sectors, the Nasdaq Composite, Russell 2000, Dow Jones Transportation Index, as well as the emerging markets ETF all show continued bullish developments on their daily charts, seen below.

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As more charts setup and breakout, I will look to become more aggressive on the long side. To deny the bullish progress made in the charts seen above would be allowing your bearish ideology to blind you from the message of the market. While the late June resistance is still an issue for the S&P 500 and the Nasdaq, we are well on our way to making a series of higher lows and higher highs.

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TOTAL PORTFOLIO:

EQUITIES: 34%

• LONG: 34% ($GSI $RDWR $BX $SAPE $POWR $SWSI)

CASH: 66%

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MARKET WRAP UP 07/29/10

Both the morning gap higher and the midday selloff were faded today, as the S&P 500 wound up closing down 0.42% to 1101. The past three days have been an exercise in futility for most swing traders, as the market is in the process of consolidating before making its next big move. The mixed picture of positives and negatives for the both the bull and bear cases has been reason enough to take a pass on trying to be a hero and aggressively position oneself in directional bets.

As the updated and annotated daily chart of the S&P 500 illustrates below, despite the wide price range we had today, the market closed near the middle of it, indicating just how indecisive market players are.

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The other key indices and sectors, however, continue to give the bulls the edge with their relative strength to the S&P. The updated and annotated daily charts of the Nasdaq Composite Index, Russell 2000, Dow Jones Transportation Average, and the emerging market ETF all indicate as much, seen below.

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Periods like these can be extraordinarily frustrating for traders, as they struggle with the idea of patiently sitting in heavy cash, waiting for better market conditions. For all I know, circumstances can change as early as tomorrow, which is all the more reason why it is important to perform nightly scans on various stocks and sectors. Indeed, many charts are looking remarkably better than they did a few weeks ago. However, nothing is guaranteed by Mr. Market, especially when it comes to traders complacently assuming that we have started a new trend higher.

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TOTAL PORTFOLIO:

EQUITIES: 22%

• LONG: 22% ($BX $SAPE $POWR $JMBA)

CASH: 78%

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