The short-term breakout that we saw this morning did not hold. However, just as I discussed in my earlier post, that is not a reason to automatically assume the bears will imminently reverse this market. Instead, I see mostly “dead money” type of action, in front of the major macro events later this week. In other words, relax and brew some Illy espresso, take a fish oil capsule, and eat some red grapes.

While we are on the subject of burning time, if you are looking for some good Netflix suggestions, here are a few:

1. Breaking Bad (best show on television–much better than Mad Men)
2. Brotherhood (highly underrated series on Showtime, no longer running)
3. Chinatown (Top 5 all-time movie that most people 30 and under have not seen/heard of)
4. The Friends of Eddie Coyle (one of the original tough-guy ensemble cast movies from early 1970’s)
5. Europa Europa (Best holocaust movie ever made–better than Schindler’s List)

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On a 30 minute timeframe, the broad market broke out this morning. As you can see on an updated 30 minute chart of the actively traded ETF for the S&P 500, $SPY, the symmetrical triangle that had been forming over the past week or so resolved to the upside today. At issue now is whether that breakout will hold. We have already seen roughly half of the move faded today, yet the breakout point has remained true. On the $SPY, you are looking to see if 118.70 holds as support now, after acting as tough resistance last Friday. On the S&P itself, you are looking at 1185 to hold.

If the breakout point fails to hold, it does not necessarily mean that the bears have regained the upper hand. Instead, it simply means that the market has rejected a breakout for now, and more choppy, sideways action could be in the cards. Either way, you would be remiss to not pay close attention to those levels.

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The steel stocks have been notably underperforming over the past several months. To give you an idea of just how poorly the actual steel names have been acting, the two largest weighted holdings in the ETF for the steel sector ($SLX) are $RIO and $VALE, which are basic materials firms that deal with the inputs for steel. Despite $RIO and $VALE being relative broad market outperformers, the actual steel names have been too much of a drag on the $SLX for it to be one of the leaders in the beginning of the rally in September. Nonetheless, the $SLX finally, and quietly, broke out above multi-month resistance in early October. Not too long after the breakout, the ETF has spent the past two weeks retracing to fill the gap created by the breach of prior resistance.

One such indicator that is useful in determining the probability of whether the breakout will hold its retest is the Chaikin Money Flow (“CMF“). CMF seeks to gauge the strength of buying and selling pressure based on the Accumulation/Distribution Line over 21 periods (days, this case). In essence, it is a no nonsense way to judge the volume pattern and price action (price closing in the upper half of the day’s range has a bullish effect on the CMF reading, and vice-versa). Generally speaking, the CMF is bullish when positive and turning up, and bearish when negative and pointing down. You are also looking to see how long the CMF can hold in positive or negative territory, in order to confirm the potency of a bullish or bearish reading.

As you can see on the daily chart of the $SLX below, the steels have a bullish CMF reading, in conjunction with price bouncing off of the key breakout level on Friday. Perhaps what is most bullish is that the CMF was able to remain in an uptrend despite price correcting back to fill the gap over the past few weeks. Keep in mind, however, that CMF is best used only as a supplement to other aspects of technical analysis, rather than when looked at in a vacuum. In this case, I believe it to be sound evidence of an increased probability that the $SLX will hold its summer breakout and commence a new leg higher, as the ETF has seen steady accumulation.

Based on this bullish thesis, which individual steel stocks are the best plays? Stay tuned for my weekly setups on Sunday…

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I sold out of my Cognizant Technology Solution, Corp. position ($CTSH), as they have earnings coming up on Monday.

All trades are time-stamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES/ETF’s: 40%

• LONG: 40% ($ATPG $DDS $HMIN $HRC $IOC $MSTR $WEN)

CASH: 60%

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Imagine that you are seven years old again. You have a nice, big birthday party, complete with your token pedophiliac magician, lukewarm pizza, and several parents talking about how they wish they could invest in a hedge fund run by Nouriel Roubini, so that they could get really rich. The party builds to a climax, in the form of you and your friends gathering around an oversized bull pinata.

Just from looking at the bull, you can tell that he is bloated, and therefore probably has tons of juicy candy inside. You imagine everything from Kit Kats to Jolly Ranchers lurking behind that fat pig of a bull. A few good whacks to the gut, and you are confident he will burst at the seams, sending you and your little buddies on a frenzy to be the first ones to get the best candies and assorted confections. Since it is your birthday, you are trying to time it so you will be the one who delivers the KILL SHOT to the bull, opening it up.

A few of your weaker friends take initial swings with the stick and make not so much as a dent in the pinata. They are laughed off of the stage and cry in their parents’ arms. Some of your stronger friends wind up and take huge, Darryl Strawberry-esque swings at the bull, but they too are driven to tears.

Finally, there are no others to attempt to break the pinata. Your best friend dutifully hands you the stick to deliver the KILL SHOT. Your name might as well be Doug Kass, as you are now all-in short on this bull pinata. Your generational bottom of being a six year old kid is now upon us, on this glorious seventh birthday of yours.

You wind up, take a huge swing at the bull and strike it forcefully. You almost knock yourself off-balance, and barely avoid falling flat on your face. The bull absorbs the blow…and then something really shocking happens. The bull pinata goes through a metamorphosis and proceeds to turn into a real-life bull! He knowingly smirks at you, showing off his “AJC 4TW” (Abby Joseph Cohen) tattoo, engraved in white for contrast.

The bull runs off into the distance, leaving you and your friends crying to no end and traumatized for life.

The End.

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[youtube:http://www.youtube.com/watch?v=XsYJyVEUaC4&feature=fvsr 450 300]r

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Whereas the first thirty minutes of trading are akin to the Wild West, with overnight orders and a whole host of factors making for less than ideal times to initiate swing trades, the final thirty minutes is like being on a ship trapped in the middle of a storm. The whipsaws tend to increase, as the high frequency traders jockey for position into the close. Consider this a friendly reminder, for swing traders, to be cognizant of first and last thirty minutes of trading when placing market orders. In general, I try to abstain from trading during those times.

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