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MARKET WRAP UP 07/28/10

Stocks drifted lower for the second day in a row, as the S&P 500 finished down 0.69% to 1106. After the sharp run up that we have seen this month, from 1010 to 1120, some type of correction was to be expected. The issue is whether the correction would be one rooted in the passage of time, the relinquishing of prices, or both. Thus far, the bulls have avoided any 3% down type of bloodbath days, which illustrates their resiliency. On the one hand, as I pointed out earlier today in a post, just because we are churning sideways instead of down after a strong move higher, does not necessarily presage higher prices, as witnessed by the bearish outside reversal trap on June 21st of this year. On the other hand, we have already seen what can be argued as a higher low, at the 1056 level last week.

As the updated and annotated daily chart of the S&P 500 illustrates below, the bulls are struggling to maintain control of the price action, despite the fact that we are trying to work off overbought conditions in the face of resistance from the multi-month trading channel.

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Beyond the S&P, the Nasdaq, Russell 2000, Dow Jones Transportation Average, as well as the emerging markets all indicate the state of purgatory that market players find themselves in for now. Their annotated and updated daily charts, seen below, show that they continue to outperform the S&P, which remains a bullish omen.

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A key level that I am watching is 1100 on the S&P. That price marked resistance during the middle part of this month. Should the bulls prove inept in holding on to it, the bears will seize the opportunity to push us back down into the even choppier range of 1050-1100. Thus, as boring as it is to be in heavy cash during the summer doldrums, I will continue to do just that until this range resolves itself. Beyond that, many stocks are providing attractive entry points during this consolidation, so long as it remains as a mere consolidation, as opposed to the beginning of another leg down.

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TOTAL PORTFOLIO:

EQUITIES: 22%

• LONG: 22% ($BX $SAPE $POWR $JMBA)

CASH: 78%

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MARKET WRAP UP 07/27/10

Stocks more or less flatlined today, as the S&P 500 closed down 0.10% to 1113. As I have been discussing, the recent rally has brought us back to the upper end of our multi-month trading range. Despite the fact that many stocks have shown promising breakouts, we are going to need more evidence before we presume that the oscillating market has completed the metamorphosis into a trending one. Coinciding with the top end of the broad trading range, the 200 day moving average on the S&P has been tough resistance as well, since May 20th of this year. Even if we are on the verge of breaking out –and holding–above the 200 day moving average this time, we are likely to tiptoe around this area for a while longer.

As the updated and annotated daily chart of the S&P 500 illustrates below, a short term pause seems to be in order.

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Similarly, turning to other key indices and sectors, the Nasdaq, small caps, trannies and emerging markets have all enjoyed steep moves higher. Now, however, they appear prime for a breather (see charts below).

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Finally, to update two key broad market “tells” in the charts below, $FCX could pull back here after a steep move higher, and still be operating in a bullish space. $GS, on the other hand, would be better served to continue flattening out here, as a break down below the ascending triangle would be bearish.

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With my cash position just south of 80%, I am in no mood to get caught leaning the wrong way when the market makes its next big move. My goal right now is to maintain my focus, despite my huge cash holding, because the market can be such a dynamic beast and turn on a dime. When the next direction of the market is revealed, I will be in a good position to take advantage of it.

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TOTAL PORTFOLIO:

EQUITIES: 22%

• LONG: 22% ($BX $SAPE $POWR $JMBA)

CASH: 78%

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MARKET WRAP UP 07/26/10

In just a few short weeks of summer trading, the bulls have rejected the breakdown below the key 1040 level on the S&P 500, and have now pushed us up towards the top of our multi month trading range. Not only have the bulls recaptured the 20 and 50 day simple moving averages, but we also closed slightly above the 200 day moving average today as well. Breadth was strong, while volume was weaker than Friday’s positive close. With the S&P closing today’s session up 1.12% to 1115, the key issue going forward is whether the bears will soon arrive to prevent a true breakout, and push us back down into the broad trading range.

As the updated and annotated daily chart of the S&P 500 illustrates below, we are pushing the upper limits of the price action that we have seen since May 20th of this year.

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Turning to other key indices and sectors, it remains bullish to see technology, small caps, the transportation stocks, as well as the emerging markets leading the charge higher. All four of those areas showed relative strength throughout the correction, and are now outperforming to the upside, as their updated daily charts illustrate below.

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Going forward, my strategy is to lock in more profits (as I detailed today in earlier posts), should we continue a melt up of sorts. Despite the vast change in sentiment amongst traders in the past few weeks, from wildly bearish to bullish, my inclination is to keep buying the dips and selling/shorting the rips, holding an overweight cash position to boot. Should the market continue with a definite breakout in the coming weeks, I have no bias preventing me from quickly reverting back to my bread and butter strategy of aggressively swing trading in a trending market.

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TOTAL PORTFOLIO:

EQUITIES: 26%

• LONG: 26% ($ARUN $BX $SAPE $POWR $JMBA)

CASH: 74%

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MARKET WRAP UP 07/23/10

The bulls closed out a solid week in impressive fashion, as the S&P 500 finished up 0.82% to 1102. The sentiment of traders has quickly changed back to an eager tone, as market players witnessed various stocks and sectors hold their breakouts this week. As far as declaring the end of the broad market correction that commenced in late April, there remains much work yet to be done. As we near overbought levels, the bears are highly likely to take a stand next week, in the face of any further upside. The amount of technical damage that has been inflicted on the charts in the past few months will cause overhead supply to become an issue, regarding trapped bulls who are now close to being made whole again.

The updated and annotated daily chart of the S&P 500, seen below, should illustrate the big picture issue facing the bulls. Despite the impressive victory in this week’s battle, the war is far from over. We are only now nearing the upper resistance trend line of the broad, multi month trading channel. Nonetheless, the bulls made significant progress over the past few weeks in recapturing–and holding– the crucial 1040-1050 zone. The prospect that the market has made a higher low is now a distinct possibility.
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Undoubtedly, what would make the bulls even more sanguine are the daily charts of the Nasdaq, Russell 2000 (small caps), Dow Jones Transportation Index, and Emerging Markets. All of those dailies indicate a breakout. Whether or not it holds next week will be crucial. Even if sustained upside does not come, a lateral base above the breakout area would be bullish as well (see charts below).

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Should this upside move prove to be legitimate, then we will see more and more charts of individual issues begin to set up. Those of you following my trades know that I have had more of an itchy trigger finger than usual in terms of taking profits in this type of market. Beyond that, cash is still my largest position.

If, indeed, we are seeing the beginning stages of a sustained uptrend, then by definition there will be time for me to become more aggressive. To restate one of my basic trading tenets, I am most aggressive when I see an established trend, in the middle 80% of the move. Whether or not I miss out on some profits in the initial or final 10% is irrelevant to me. Aggression is great, but selective aggression is what gets the money over the long haul.

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TOTAL PORTFOLIO:

EQUITIES: 34%

• LONG: 34% ($ARUN $BX $NTAP $SAPE $POWR $JMBA)

CASH: 66%

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MARKET WRAP UP 07/22/10

After the sharp decline that occurred in the final two hours of yesterday’s trading, many longs panicked out of their positions, while countless bears started to get excited at the prospect of another fast and furious multi week decline. Seeing as Mr. Market usually does that which frustrates the greatest amount of traders, it was only fitting that the senior indices gapped up 2% this morning and held their gains pretty much for the duration of today’s session.

With the S&P 500 closing up 2.25% to 1093, we now find ourselves back in a position where we have been at various points over the course of this correction, since April. With several key indices, sectors and individual stocks hinting at making major breakouts and bearish to bullish reversals, one has to wonder whether this will wind up being yet another vicious trap many into which many bulls will fall. As an example, turning wildly bullish on the morning gap higher on June 21st (not to mention at several other false breakouts in the past few months), would have been a huge money loser. The torture involved with acting on these false breakouts–and breakdowns–has made this market particularly frustrating for many traders who are used to making money in a trending market.

Thus, despite the improved daily charts that I am seeing, it is important to wait for more follow through and confirmation to the upside, before the bulls declare victory. As the updated and annotated daily chart of the S&P 500 illustrates, just because we broke out of the moving average “sandwich,” it does not mean that it is time to go all-in long just yet (see below).

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Please note that I tinkered with the upper trend line of the broad channel above, as I believe the new one more accurately captures the essence of the multi month broad trading channel of the S&P. Thus far, both the breakouts and breakdowns from this channel have been soundly rejected, each time.

Turning to other indices and sectors, the emerging markets, transportation stocks, small caps, and the Nasdaq all look to be leading us higher. Again, follow through is key. See my notes on their respective daily charts below.

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As noted earlier today here and in The PPT, I took some partial profits in $NR and $SWSI. I also initiated a position in $BX, based on its improved daily chart.

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TOTAL PORTFOLIO:

EQUITIES: 34%

• LONG: 34% ($ARUN $BX $NR $NTAP $SAPE $SWSI)

CASH: 66%

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MARKET WRAP UP 07/21/10

After trading flat for most of the day, the market sold off fast and furiously in mid afternoon on the back of statements by Federal Reserve Chairman Ben Bernanke. Earlier this morning, the S&P 500 actually made it slightly above the crucial 50 day moving average when we printed 1088. By day’s end, however, we had tested the 20 day moving average below for support, during the selloff, and finished down 1.28% to 1069. At the close of today’s session, we are now sandwiched between those two significant reference points. The 50 day moving average is sloping down, currently at 1086, while the 20 day is sloping down at 1066.

This “sandwich” indicates the indecisive and choppy nature of the market at this point. Until we see a decisive break, and hold, in either direction, it is best to wait before making aggressive bets long or short. As the updated and annotated daily chart of the S&P 500 illustrates below, our recent price action has been squeezed inside the small range between the 20 and 50 day simple moving averages.

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The Nasdaq, Russell 2000 (small cap stocks), and Dow Jones Transportation Average all continue to tell the story of choppy price action within the middle to upper ranges of their respective falling channels (see charts below).

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The emerging markets remain on my radar, as their ETF has made a series of higher lows since late May, while we know during that time the S&P made some lower lows. Further, the 50 day moving average is now below price, and is flattening out with the 20 day crossing above it. Keep an eye on how this apex is resolved in the coming days, as seen in the daily chart below.

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I made no changes to the portfolio today, with $NR and $SWSI my top gainers, while $NTAP was the laggard.

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TOTAL PORTFOLIO:

EQUITIES: 36%

• LONG: 36% ($ARUN $NR $NTAP $SAPE $SWSI)

CASH: 64%

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