Buyers on Strike

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MARKET WRAP UP 06/24/10

For the fourth day in a row, the S&P 500 finished in the red, as any meek intraday attempts at a rally were met swiftly with fresh supply. Not only did we lose the 20 day moving average on the benchmark index, but that reference point (currently at 1090) also acted as resistance from the moment the opening bell rang. Further, we fell back into the bearish descending triangle that had been forming for the past several months. Above all else, there were simply no powerful buyers with conviction that came to work today.

As the updated and annotated daily chart of the S&P 500 illustrates, about the only two things that the bulls can hang their hats on is that volume has been weak, and we are now short term oversold again (see below).

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While the possibility of forming a right shoulder of an inverted head and shoulders bottom may still be in the cards, the bulls have thus far shown no initiative in doing so. However, as noted above, volume continues to be far below what is was during the previous legs down in May and early June. Thus, the inverted head and shoulders scenario should not be disregarded on a whim.

Indeed, if we are following the 2004 script, we should base out from now until early August, before breaking out. Below is a scenario that would pretty much be in line with 2004.

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Respecting the 2004 scenario is important, because psychologically investors experienced similar markets in the two years prior. For example, both 2002 and 2008 were years characterized by unrelenting selling that is typical of a vicious bear market. After those years, 2003 and 2009 were years where the market turned on a dime and sprinted much higher, with most traders doubting the move higher the whole ride up. After two dramatic years in a row, 2004 was a fairly flat year that chopped up many traders, during the summer especially, after a solid first several months. Although history rhymes more so than it repeats, we are seeing a similar scenario play out in 2010 as we did in 2004.

As for my portfolio, I made no changes today. My longs were down 1-2% across the board, while my cash and $TZA hedge cushioned the blow.

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TOTAL PORTFOLIO:

EQUITIES (Including ETF instruments):42%

• LONG: 34% ($APKT $LULU $CRM $GMXR $ISH $DECK $THOR)
• SHORT/HEDGED: 8% ($TLT $TZA)

CASH: 58%

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For many key names, as well as in the broad indices, this is where the rubber meets the road. Either we are forming the right side of many bases and inverted head and shoulders to move us higher, or we are breaking down to retest the late May/early June lows…or worse. Therefore, I thought it would be useful to update two key tells for the broad market:–$FCX and the small caps.

$FCX is hanging on by the hair of its chinny-chin, chin. Either it is forming the right shoulder of an inverted head and shoulders bottom, or it is slipping away from the crucial $65/$66 zone. The volume on Monday’s move higher was impressive, but the bulls are going to need to follow that up in short order with more strength, or else this is likely going below $60 again.

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The small caps have held up relatively well throughout this correction, compared to the broad market. The daily chart of their index shows the potential for an inverted head and shoulders. Either way, the line in the sand is pretty clear. Should the right shoulder not materialize, we are likely going back to those early June lows.

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MARKET WRAP UP 06/23/10

After a morning gap down to 1085, the S&P 500 chopped and flopped slightly higher the rest of the day to close down 0.30% to 1092. On days when the Federal Reserve makes an announcement, the market usually sees violent price swings after it is released. While we certainly saw some volatility today, the overall action was quite tame compared to what we have seen the past few days. In addition, the broad market volume today was again meek relative to the past few weeks, showing a lack of conviction by market participants.

Thus, the market is still stuck in a trading range, and is attempting to chop up as many traders as it can. As the updated and annotated daily chart of the S&P 500 illustrates, the market found support in its morning gap down at the 20 day moving average, as well as the resistance trend line dating back to April (see below).

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As you can see, the competing forces of the downsloping 50 day moving average, yet rising 20 day moving average, are clearly at play here. Eventually, we are working towards a resolution of these conflicting reference points. However, being patient and holding hedges–as well as high levels of cash– are my best ideas until the moment of truth arrives.

While it is encouraging to see that the prior resistance trend line on the S&P turned into support today, it simply is way too early to bet that we go straight up from there. However, it is worth noting that the historically leading transportation stocks also have found temporary support at the prior resistance line (see below).

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Finally, I made no changes to my portfolio today. I was pleased to see every position in the green, save $GMXR. Ironically, I think $GMXR has by far the most upside out of any stock in my portfolio. I will be patient with this one, so long as the volume pattern and bottoming out process remain in tact.

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TOTAL PORTFOLIO:

EQUITIES (Including ETF instruments):42%

• LONG: 34% ($APKT $LULU $CRM $GMXR $ISH $DECK $THOR)
• SHORT/HEDGED: 8% ($TLT $TZA)

CASH: 58%

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[youtube:http://www.youtube.com/watch?v=MeWC59FJqGc 450 300]

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With the influx of new subscribers to The PPT, I think it is important to take a moment to review the rules of decorum and attire, as per the private policy found inside:

“FORUM RULES AND REGULATIONS:

This is a classy joint. Don’t act like you’re in the Yahoo Message Board.
Be sure to honour the iBC Dress Code (boardroom attire) at all times.”

All riff-raff will be treated in the following way:

[youtube:http://www.youtube.com/watch?v=Fr3mlbv16Cw 450 300]

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As for the market, it is another choppy Fed day. The good news is that we appear to have stabilized at the 1085 level on the S&P 500, and many charts, like $LULU, have bounced at the 20 day moving average. The bad news is that we have not seen any buying with conviction. Until this murky market clears up a bit more, I am holding off on making any moves.

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MARKET WRAP UP 06/22/10

After yesterday’s bearish reversal, today featured an initially flat market that eventually gave way to a late day selloff. With the S&P 500 closing down 1.61% to 1095, any sense of complacency by market participants was replaced with fear of further downside after losing the 200 day moving average. Moreover, the market also closed under the psychologically significant 1100 level.

With that said, today was not a high volume selling affair when compared to that which accompanied each thrust down that we saw in May and earlier this month. Further, after the market’s huge run up from 1042 to 1131, to retrace half of that would not be unheard of.

As the updated and annotated daily chart of the S&P 500 illustrates, despite losing the 200 day moving average today, the 20 day moving average is sloping up and could easily be a place where buyer’s step in (see below).

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Incidentally, the pink resistance line that we broke out of last week is right where the 20 day moving average is, and a retest of that area is likely to be the next battleground area. Moreover, to find support around these levels would put in a nice inverted head and shoulders bottom on the daily chart of the S&P. Strategically, I am trying to balance out my portfolio with the competing bearish and bullish arguments. While operating below a downsloping 50 day moving average is certainly bearish, we cannot discount a rising 20 day moving average.

Thus, I continue to be hedged in my portfolio, with a large cash position. Despite my gut feeling that the selling over the past two days was a mere shakeout, I will respect my stop losses and be properly hedged. Trading based on hope is not part of my strategy.

As noted earlier here and in The PPT, I made some changed to my portfolio.

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TOTAL PORTFOLIO:

EQUITIES (Including ETF instruments):42%

• LONG: 34% ($APKT $LULU $CRM $GMXR $ISH $DECK $THOR)
• SHORT/HEDGED: 8% ($TLT $TZA)

CASH: 58%

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Into the bell–adding to $TLT and $TZA hedges.

Took half off in $APKT.

All time stamped inside The PPT.

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