MARKET WRAP UP 06/17/10

On the back of yesterday’s consolidation, the market yet again put in a boring, choppy day. With the S&P 500 staging a last minute mini-burst to close up 0.13% to 1116, this market is quickly becoming fodder for an hibachi chef. Traders trying to play intraday trends are being sliced and diced like tender chicken, noodles and onions on the grill.

After the run up that we have seen since we printed 1042 a mere nine days ago, a quiet period of consolidation is a solid check in the bulls’ win column. This type of price action is far more constructive for the bulls in terms of tightening up extended daily charts, and building sound bases. What the bears were hoping to see was a quick reversal on heavy volume, giving back the previous nine days’ gains, presumably taking us to new lows. Instead, the current benign toggle between bulls and bears is helping to offer very good long setups, should we see a few more days of this type of action.

Anecdotally, I am seeing a high level of apathy and disinterest amongst traders, which is often found after the kind of fast, emotional selling that we saw in May and early June. Usually, apathy is the last stage of sentiment during a correction before we turn back up. Of course, prognostications aside, the price action on the updated an annotated daily chart of the S&P 500 tells the story of a healthy flattening out just above the 200 day moving average (see below).

Looking ahead, the bulls can afford to see a bit of a pullback from here, so long as it is not on heavy volume. A light volume dip to 1085-1100 would likely invite some aggressive bulls to load up on longs. The bears, on the other hand, need to start asserting themselves quickly, as the longer that we come to terms above the resistance trend line (see my chart above) as well as the 200 day moving average, the more likely it is that our next move will be much higher from here.

Regarding my portfolio, my top three performers today were: $APKT, $CRM as well as $IAG again. All three of those charts continue to look bullish. As for $LULU, I noted last night that I expected a pullback in that extended name, and indeed we saw that today. I am content to hold my 1/2 position, as the daily chart of that high momentum name presumably takes a healthy breather.

With a cash position of 67% and some small hedges in $TLT and $TZA, I am well positioned to take advantage of any more consolidation and/or healthy pullbacks. Note also that my current allocation limits my downside, should the bears regain the initiative. Seeing as we remain below a downsloping 50 day moving average, a cautious approach is still preferred. While the character of this market appears to be changing in favor of the bulls, the bears have by no means been left for dead yet.

[youtube:http://www.youtube.com/watch?v=4SSOTm0hEDQ 450 300]

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“Worked all week now it’s time to play/Gonna get a little bit…Sideways”

-Dierks Bentley, “Sideways”

MARKET WRAP UP 06/16/10

For the first time in several weeks, we witnessed a relatively tame trading session, as the S&P 500 closed off 0.06% to finish at 1114. Despite closing flat on a few occasions during the past two months, we have seen wild intraday whipsaws. Compared to the market’s recent price action, today qualifies as an orderly consolidation session. In particular, after the huge move up from 1040 over the past ten days, the lack of a huge selloff today can be viewed as a bullish.

For many weeks now, I have talked about the idea of becoming more aggressive on the long side if and when we saw a few days of quiet consolidation. Not only is it important to digest our recent move higher in an orderly way, but this type of price action helps to firm up many short term extended daily charts. In fact, many of the high growth names that I highlighted last night have been up for five/six days in a row on solid volume, and need to take a pause.

As I note in the updated and annotated daily chart of the S&P 500, seen below, the bulls are by no means out of the woods yet. We are looking at a declining 50 day moving average, as well as a fresh batch of overhead supply from early to mid May. Thus, several more days of building a sound base is crucial to being able to tackle all of that tough resistance, in my view.

Because we could pull back to the 20 day moving average at 1084, and still be in a short term uptrend, I added some small hedges into the closing bell today. With a cash position of 67%, I am still taking a wait and see approach at this point. Being aggressive in all forms of gambling may be a fun time, but selective aggression is what gets the money over the long haul. Even in other professions, such as with fighter pilots and police officers, selective aggression is the hallmark of the most successful people. Letting the market reveal itself in the face of all of the recent events will continue to require a great deal of patience…and cash.

My top performing long today, $IAG (which I bought yesterday), is a pretty good example of a daily chart firming up and forming a sound base before breaking out (see below).  Props to Jake Gint.

On the other hand, another one of my top longs, $LULU, needs to take a breather. I will likely add to my 1/2 position on a light volume pull back.

My two new longs today both offer appealing charts, to the point where took 1/2 positions in each, seen below.

[youtube:http://www.youtube.com/watch?v=qfj93IQAfEE 450 300]

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MARKET WRAP UP 06/15/10

The market shook off more bad news today, as the S&P 500 closed up 2.35% to finish at 1115. During the past several trading sessions, we have seen opening gains that were aggressively faded into the closing bell. One would think that type of action would be followed up with a sharp reversal to the downside. However, that never came to be. Instead, the bulls have squeezed everything, and everyone, higher. In sum, we are in the midst of another hated rally.

The reason why this kind of rally is so hated is because there have not been any easy entry points. Unless you timed the bottom perfectly (or went to cash as SPYder Crusher and I did), you got crushed on the way down during the correction. Then, when we reversed on a dime and headed higher, we went straight up, until it looked like we were going to fall apart yet again. When we did not fall apart again, the bears frantically scrambled to cover their shorts, and the underinvested traders scurried about to find some longs.

As the updated and annotated daily chart of the S&P 500 shows, we took out some key levels of resistance today (see below).

My best strategy right now is to selectively deploy my cash position back into the market. The leading growth stocks are performing well, and many others are setting up nicely. As I noted in an earlier post, I bought four longs today: $APKT $LULU $CRM and $IAG. Note that I still have an 80% cash position. At this point, I am putting out some feelers into the market. Should this rally turn out to be a vicious bull trap, I will not have paid too dear a price.

However, I would be remiss if I ignored the fact that so many traders are distrustful of this rally. When perma bulls like Jim Cramer are providing excuse after excuse for why this rally is not legitimate, I am inclined to add more long exposure. I am still looking for a light pullback–even if it is just half a day– to add more longs, but then again so are many other traders.

Thus, my game plan now is to pounce on the names on my watchlist in the event of an orderly consolidation period, but to take a pass if the market continues to run away from me to the upside.

UPDATE: More examples of The PPT magic being shown to befuddled third tier toilet bloggers.

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

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MARKET WRAP UP 06/14/10

On the back of rallies on Thursday and Friday, the bulls came out running strong this morning with a gap higher of about 1%. However, as the trading session progressed we saw the familiar chop and whipsaw type of action come back into play. Just when traders with a holding period of longer than a few hours thought it was safe to come out and play, all of the earlier gains were faded into the closing bell as the S&P 500 finished off 0.18% to close at 1089.

As the updated and annotated daily chart of the S&P 500 illustrates, the market yet again rejected the 1100-1105 resistance area, which was previous support in early to mid May (eee below).

That resistance area coincides with the still rising 200 day moving average. Today marked the third time we have been rejected at that widely monitored reference point within the past few weeks. Thus, although we have recaptured the 20 day moving average, the 200 day m.a. and  the resistance trend line dating back to early May are the most pressing obstacles that the bulls need to overcome. Moreover, we are short term very overbought, according to arguably the most reliable algorithm over the past eighteen months: The PPT.

Thus, if you consider yourself a swing trader seeking to take advantage of intermediate term moves in the market, some more patience is required here. While there are many stocks I am monitoring for long swing trades, it is important to remember that the broad market remains unhealthy. We are still operating well below a declining 50 day moving average, for example. Beyond that, some key stocks are looking like good short selling opportunities, such as $FCX, which has rallied back to resistance on tepid volume. What I am looking for now is an orderly, benign consolidation period where we work off our overbought condition, allowing me to go long. If that never happens, then cash and some select inverse ETFs is my strategy.

As I have said before, the wild price swings that we have seen during this correction, combined with the exuberant but short lived rallies, have elicited raw emotions from traders. While both bulls and bears are loudly blowing their vuvuzelas during the trading session, just like the rabid fans at the World Cup are doing, you must block out all of the noise out and focus your attention solely on what is happening on the field.

NOTE: The PPT magic being shown to piker third tier toilet blogs. (LOL at the David Blaine spoof)

[youtube:http://www.youtube.com/watch?v=wTqsV3q7rRU&feature=channel 450 300]

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MARKET WRAP UP 06/10/10

The bulls earned a resounding victory today, as they bid stocks up across the board to close the S&P 500 up 2.95% to 1086. While breadth was strong, volume was particularly anemic in several key indices and sectors, such as in the $SPY, $QQQQ, and $IWM. One of the stronger areas of the market has been the transportation sector, and the volume there was slightly above average today on the $IYT‘s 4% rise.  So, the bulls can point to that as a sign that validates the rally.

As I have been discussing for several days now, rallies within a downtrend are characterized by the strong emotions of market players. Many aggressive bears who have been successfully pressing their shorts the whole way down suddenly find themselves falling victim to a heinous squeeze. On the flip side of the coin, the bulls who have been buying the whole way down start to feel redeemed, and become giddy.

There are also those traders sitting in very high levels of cash. Many of them, on days like today, quickly become fearful that they will miss out on a big move higher, and start to chase stocks up. What is amazing to me is how abruptly traders can change the object of their fears within the span of a day.  One trading session they are fearful that the market will have an epic crash, and the next they are scrambling to accumulate long inventory on the fear that the market will never pull back and give them an entry point to buy.

A better approach, in my estimation, is to block out all of the noise and emotion. Instead, the idea is to focus on the health of the market via seeing the big picture in terms of price and volume.  Without sound technical bases, combined with a strong underlying bid from institutional buying, it is unlikely that stocks will be able to hold a sustained uptrend

As the updated and annotated daily chart of the S&P 500 illustrates, today’s rally was impressive, but does little to change the bigger picture (see below).

Look for  the 20 day moving average, currently at 1091 and sloping down, to be a key battleground area should we see follow through in the coming days.  Also, note that we are now back up to the choppy zone where we spent the last half of May. Many market players who tried to pick the bottom were badly hurt on our most recent selloff in early June. So, there is the concept of overhead supply to contend with. As they are close to breaking even after a wild ride down, the bottom pickers are likely to take some money off of the table.

Frankly, a few days of quiet consolidation with an upside bias would be ideal here, so long as that kind of action entices institutions to reenter the market as serious buyers to support stocks. However, what I would like to see happen is irrelevant. The market does what it does, and feeling one way or other about it is futile. The key point is to look for follow through: Continued buying, on volume, across the board which helps firm up daily charts. As a swing trader looking for next big move, that is what I am looking for in order to get back involved in this market on the long side.

Finally, to continue with an ongoing theme, here is an updated and annotated daily chart of $FCX, which has been my tell for the broad market. The stock is rallying back to its major breakdown point on meek volume. Should the stock continue to rally on weak volume up to its breakdown zone, and then roll back over on strong volume, I will look to add short exposure to the market at large. Watch this one closely.

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MARKET WRAP UP 06/09/10

After hitting a late morning high of 1077, the S&P 500 fell apart into the close to finish off 0.59%, at 1055. As I have noted in my previous posts, the raw emotions of many traders come to the forefront when we see price action like this.  The punishing downtrend that we have seen for weeks on end causes many traders to hope that they can buy stocks at the exact bottom, and make a huge score. When we finally see a relief rally, it is usually fast and furious, as shorts are squeezed, and bulls pound their chests in victory. However, when the rally falls apart quickly, the tables turn yet again, and the bulls find themselves quickly underwater on their new long inventory, and the bears scramble to reinitiate shorts.

Of course, all of these emotions are not constructive.  While it is tempting to think of trading as a test of one’s intestinal fortitude, it is important to remember that we are engaging in a complex mental exercise here. Any aggression that you show as a trader should be in a very well thought out and controlled manner. Leave the street fighting to others.

As the updated and annotated daily chart of the S&P 500 illustrates below, we continue to chop and flop around our key 1040-1050 zone. As I have noted before regarding key reference points, the longer that the market spends at these levels, the more likely it is that the support will fail.  What you are looking for are buyers stepping up with conviction, and greedy shorts paying the price for pushing their bets too far. From the action that we saw today, that kind of bullish scenario has yet to materialize. In order for me to get involved again on the long side, I am going to need to see that happen.

Thus, keeping a heavy cash position and an open mind are still the best ideas that I have.  Note that taking a pass on trading in this type of environment has the added bonus of viewing the action in an objective way. Having a healthy frame of mind and a healthy confidence level are essential in all forms of gambling.  Make no mistake, trading IS gambling, as we are betting on outcomes that have yet to be determined. Instead of denying that fact, a better strategy would be to embrace sound gambling concepts. A market like this will punish you for overtrading, fighting the trend, and any lack of discipline whatsoever. Novice traders will likely learn those lessons the hard way. Many other traders, however, have enough experience to the point where they think they are untouchable as far as bearing the brunt of the market’s force. They think they can manage their way out of any corner, no matter what they did to put themselves there.  In short, they allow their emotions, hubris, and machismo to overtake them, and they are essentially outthinking themselves.

You don’t make that same mistake.

[youtube:http://www.youtube.com/watch?v=A4JtI-g7rvw&feature=related 450 300]

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