Oh, yeah…and the chart looks good too with earnings out of the way 😉

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http://www.youtube.com/watch?v=faxxYs7CSNA

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Wednesday’s trading session was a strong one for the bulls insofar as they held the overnight gaps higher projected from Apple’s post-earnings bump Tuesday evening, even in the face of a “Fed Day.” Even more impressive than just the technology stocks in the Nasdaq moving were the materials and energy stocks attracting inflows. I like the charts of many firms in the chemicals space, although a slew of them are reporting earnings this week. Since I do not like playing earnings, I will wait for them to react and settle.

That said, I do not want to make too much out of any one trading session. Until proven otherwise, we are still working through a corrective phase in the market as we run directly into the dreaded “sell in May and go away” phenomenon. The S&P 500 looks to be in a 1358-1392 range, as the bear flag appears to have morphed into a base. I can trade with some goalposts in place, even if we are not off to the races again.

There seem to be competing forces all over the place in this market. On the one hand, there is little evidence that we are working through anything other than a standard bull market correction. Then again, we have seen sloppy charts and price action for a few weeks now, which makes blindly investing based on the bull market argument seem short-term foolish. I am not interested in picking sides at this point so much as I am maintaing my agility, ready to pounce at a moment’s notice. If the bulls follow-through on today, here are some small cap energy plays to consider. Should the bears recapture the initiative, as has been the pattern in April, I am sitting in cash waiting for a better spot.

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The initial market reaction to Apple’s earnings on Tuesday night is positive, and index futures are pointing higher as well. The reaction to the initial reaction will be telling, considering that we are working through a corrective market with plenty of headfakes in either direction. While traders have routinely become downright giddy with each quarterly release of Apple’s earnings, it is important to consider the broader backdrop of the market in each particular quarter the company reports. In other words, it seems a bit too easy for this market correction to bottom in sympathy with the AAPL call.

Hunches aside, this is the type of market where you had better come prepared, or you are better off not taking on the fight at all. For the short-term, I have provided you with a short setup in the form of Tiffany & Company, a high end retail play that looks ripe to break down in a weak market. Should the market sustain a rally after the Apple news, though, instead of the technology or consumer cyclical stocks I believe the bulls would be best served by an old-fashioned Dow Theory buy signal. The transportation stocks would offer such a signal with a bullish divergence. The price action in the trannies was strong on Tuesday, and there is no better one to look at than the rail  monster, Union Pacific.

Like the rest of the sector, UNP has been marking time in correction since early-February. As we rapidly approach the three-month mark, you are looking to see if strong hands will arrive to break the stock up and out of its massive falling channel. I like the stock, sector, and Dow Theory buy signal upon a high volume breakout this week or next. Keep in mind, though, that Dow Theory buy signals take time to play out in terms of the rest of the market catching up. Thus, UNP breaking out would not be an immediate buy signal for stocks so much as it would indicate that this correction is likely closer to ending than it is to just getting started.

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It’s not all bad out there.

I have been posting about Macerich for a few months now, due its bullish weekly chart cup and “high handle” setup. MAC is in the REIT space, and the general real estate sector continues to have a strong bid underneath it. In addition, well-known REITs such as GGP and SPG are acting well in the face of a sloppy tape. My sense is that capital wants to rotate over to this sector, but the general market malaise is keeping a figurative lid over the sector as it marks time.

As you can see below on the weekly chart the IYR, ETF for the real estate sector, a healthy move higher is only a few ticks away as the sector knocks up against those 2011 highs. The inverse head and shoulders bullish setup projects a strong move. The idea is to be prepared to act quickly if and when the overall market firms up to the point where sustained, energetic breakouts become more commonplace again. When that happens, real estate is one place where you should probably be.

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The market is unlocking one of Super Mario’s ways to “get big” this morning, as the Dow Jones Indusrtial Average stodgy mega cap firms are clearly outperforming the Nasdaq, retail sector, as well as the consumer cyclicals and small caps. I remain short Priceline.com, though I am apt to cover at any moment given the lack of downside follow-through in the overall market by the bears to yesterday’s attempted breakdown. For the most part, I will spend the rest of my morning inside 12631 tidying up my portfolio even more than it currently is, still with a heavy cash position ready to put to work.

I am not seeing too many quality long swing trading setups just yet, though the occasional impressive chart like SAVE or MAC has popped up on my screens. In addition, the now-obvious bear flag on the S&P 500 daily chart could easily morph into a longer base should we continue to bounce around on a daily basis. Indeed, the lack of trend has been the defining change in character of this tape in April. While it would be great to see that the upward trend resumes imminently, I’d at least like to see a better-defined trading range before I adjust accordingly and put on a series of new trades.

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Netlfix is down over 16% in after-hours trading in light of its earnings report, firmly below the $100 level. Now, I know that a rudimentary bearish post here would be nothing more than piling on the likes of Whitney Tilson and other assorted characters who have been bullish on the internet subscription service which streams television shows and movies. Be that as it may, as far back as October 2011 I was discussing the major sea change the stock had seen. I also drew quite a few comparisons, from a technical standpoint, between the Netflix and Green Mountain Coffee Roasters’ charts.

With that in mind, I might as well complete a thorough analysis of the price action of both firms’ shares.  I updated my GMCR analysis earlier today in this post. More importantly, though, is the value in using logarithmic scales for longer-term timeframes when issues have seen dramatic moves. Recall this post from earlier in the month, where I argue that correctly using a logarithmic scale in lieu of an algorithmic one yields evidence that points to much further downside potential in GMCR. Applying the same principle to Netlix, we can clearly see the difference between the two scales on the same exact timeframe.

Thus, even if this current bull market continues higher in the coming quarters, the old leaders will not necessarily keep their thrones. Leadership changes as the bull matures, with GMCR and NFLX now serving as the old, washed-up Las Vegas acts, lucky to procure gigs in off-the-strip lounges.
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