Ignore the daily charts of $AA and $VALE at your own peril. I am still probing my working thesis that we will see a rotation out of technology and into the industrial/material/energy complex. Thus far, the materials appear to be leading that group. I saw yesterday on CNBC that noted bear James Chanos is shorting basic materials firms as a way to short China.

I do not care to dispute the long term success of that bet. In the short term, though, contrarian bears like Chanos are often very wrong before they are proven to be wholeheartedly correct. It is simply the nature of his niche. You should not let his longer term thesis, of a time frame of several years, interfere with objectively reading the price action and volume patterns, such as in the charts seen below.

Let the seller beware…

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…back to the 1131 zone on the S&P 500 cash, or 113.20 on the $SPY ETF. Buckle up and wait to see who wins the battle this time, before leaning one way.

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I made two trades today:

• I bought a 3/4 position back into $HMIN, based on the chart below.
• I got stopped out of my $NYT position for a loss. I will consider revisiting the stock as per my thesis that it will benefit from the e-reader market.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 42%

• LONG: 42% ($ATPG $BTU $HMIN $RDN $VMW)

CASH: 58%

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After Tuesday’s Fed announcement, which not only held rates at 0% but also hinted at the possibility of more quantitative easing, it should be pretty obvious that individuals and households are nowhere close to revisiting the go-go days of the middle part of last decade. Sure, the American pastime of conspicuous consumption will not disappear anytime soon, but consumers will cut corners here and there in order to compensate for paying $500 for an outfit consisting of $TRLG jeans and an Ed Hardy shirt.

As an example of such cost-cutting measures, instead of paying $40 for popcorn and a ticket at their local movie theater to see Tom Cruise play a one-eyed Nazi, they will either subscribe to $NFLX, or conveniently choose movies on a whim, a la carte style, at a strategically placed Redbox (a subsidiary of $CSTR) in their local pharmacy, supermarket or McDonald’s. We know $NFLX has seen a tremendous run over the past several quarters, but $CSTR may be tapping into an unfortunately growing market of low-end consumers who refuse to subscribe to a $NFLX monthly fee. In addition to their Redbox DVD rental business, Coinstar also has a strong self-service coin-counting machine business which, again, is going to continue to flourish so long as unemployment is high (think digging though sofas to find loose change to buy a Value Meal).

Looking at the daily chart, seen below, I believe an attractive risk/reward long setup is upon us. The stock had a huge spike in late April, and ever since has been working through a falling channel. Currently, the stock is awfully close to completing the gap full back to April, as well as touching the 200 day moving average. I have the stock on my list of scans, and will be watching it closely in the coming days.

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As is typical of days when The Fed makes an announcement, traders are reticent to make any big moves before 2 p.m., EST. The S&P 500 is down slightly as of this writing, and it can be argued that many stocks are taking a healthy respite after yesterday’s rally. It will be interesting to see if there is any kind of sustainable move after the announcement today, in either direction. We all know the economy is still weak, and any type of recovery is fragile. Thus, it is hard to see any kind of surprise rate hike.

We have also become accustomed to nasty whipsaws in the minutes immediately after the press release, but at this point it is hard to envision The Fed announcing something that would greatly surprise the market. I expect daytraders to try and catch the moves after 2 p.m., but beyond that, the healthiest thing for this market would be to close the day right about where it is churning now.

Truth be told, I am just as much in a holding pattern as everyone else is. In an hour or so, we should have a better grip on just how strong the underlying bid to this market truly is. Sit tight and buckle up.

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Part of the reason why the market can keep going higher is because so many market players doubt the veracity of the rally. Many traders have resorted to acting as though they are in a 20 student undergraduate liberal arts class. They go around the room, raising their hands when their beatnik adjuncts ask them how they feel about the market.

In response, the undergads say things like, “This market feels off to me. My feelings and emotions are out of touch with it, ” or “Something just isn’t right to me. Like, OMG, It really feels shady and random and sketchy. I need to call my life coach and fix this major problem in my life because of this evil market.”

Folks, have some goddamned pride. You should be focused on rigorous analysis of the markets, and that should dictate your bias and portfolio allocations. Your feelings, if anything, should act as a contrary indicator. Better yet, do not play that game. Perhaps these “feelings” are nothing more than your breakfast sitting in your stomach the wrong way. Thankfully, I have never heard one of my loyal readers say something like that (because my readers are, pound for pound, as intelligent as any traders anywhere).

In my video over the weekend, I talked about the importance of being as objective as possible in your analysis. While we were consolidating last week, my strategy was to play along on the long side, but with a big cash position as a buttress because I felt the risk of trying to anticipate a major breakout was too high to go all-in long. Today, we have indeed broken out above 1131, and because that level was so significant over the past several months, as soon as we broke above it we saw a “woosh” effect up to 1142. How much higher can the market go? Well, the first target would be 1150, the key resistance area dating back to at least January. After that, look for 1170, which marked the tough resistance that turned the market away after the flash crash.

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