CHESS MOVES

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Thus far today, I have made the following trades:

• I added 1/4 more to $LULU. I now have a full position in the name.
• I added 1/4 more to $GMXR. I now have 3/4 of a position in the name.

As I have said before, my style is to be extra cautious as a swing trader when we are operating below a declining 50 day moving average. Therefore, my buys are very selective and done in measured steps.

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TOTAL PORTFOLIO:

EQUITIES (Including ETF instruments):42%

• LONG: 36% ($APKT $LULU $CRM $GMXR $ISH $DECK $THOR)
• SHORT/HEDGED: 6% ($TLT $TZA)

CASH: 58%

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MARKET WRAP UP 06/21/10

The futures roared into the opening bell this morning, on the back of the weekend news out of the Chinese central bank that they will ease their currency’s peg to the U.S. dollar. Just after 10 a.m. EST., the S&P 500 hit its intraday high of 1131. From that point on, the market slowly dripped down into the close, to finish off 0.39% at 1113. Needless to say, intraday gains in many individual issues were wiped out as well, as overeager traders who bought during the first hour were trapped and drowning without a life vest.

As ugly as the action seemed to the bulls, it was not entirely unexpected. Seeing as we hit 1042 on the S&P thirteen days ago, we have come a long way in a short period of time, considering we touched 1131 today. While many frustrated traders were eager to call a market top based on today’s action, the updated and annotated daily chart of the S&P 500 illustrates that we are still battling just above the 200 day moving average (see below).

It is also worth noting that today was not a high volume day, which supports my belief that this is likely not a huge reversal day. From a technical standpoint, a shallow, light volume pullback from here to around the 1100 level would offer some excellent entry points to some of the best looking charts, such as $DECK, $LULU, $CMG, $VMW. Some more consolidation would also give other charts a chance to firm up some more, making them more viable long candidates.

The key point is to continue to be patient with a high cash position, and to not let your emotions get the best of you during these intraday whipsaws. To put it simply: the fight is on right now between the bulls and bears. Eventually, this range will be resolved sharply one way or the other. As we have broken out of the descending resistance trend line (see chart above), the bulls still have the short term upper hand. However, the bears retain the intermediate term edge with a downsloping 50 day moving average.

I cannot emphasize enough the significance of patience in my trading strategy. If we are, indeed, in the process of forming a sustained uptrend, then by definition there will be plenty of entry points. Until that materializes, let other market participants do the heavy lifting for you, before diving in with aggressive bets. As an example, if you had patiently sat out the late January/early February correction, you could then have put out some small long positions in late February. The correct time to become very aggressive on the long side was not until early March, and even then you would have had a full month and a half of easy gains before we topped out!

While my style may not be the sexiest, very selective aggression is what gets the money over the long run and, to me, that is as sexy as it gets.

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TOTAL PORTFOLIO:

EQUITIES (Including ETF instruments):38%

• LONG: 32% ($APKT $LULU $CRM $GMXR $ISH $DECK $THOR)
• SHORT/HEDGED: 6% ($TLT $TZA)

CASH: 62%

While everyone is transforming into a berry munching, hippie backpacker eating bearshitter, allow me to play the role of Larry Kudlow. I would like to point out that $FCX is breaking out of a crucial consolidation zone ($66 level) on the strongest volume it has seen in two weeks. This has been an excellent leading indicator for the broad market for years now. If we are truly rolling over from here, this should be getting slaughtered on heavy volume, not the other way around.

As the kids would say, “just sayin’.”

How ’boutz battlin’ for a late day rally, yo?

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I sold out of my $MDAS and $IAG positions earlier today, and picked up some $GMXR. Other than that, I will still slowly chip away at this market. I am in no rush buy all at once.

I know that may frustrate many of you degenerate types, but understand that if we are indeed going to see a sustained uptrend from here, we have plenty of time as the 50 day moving average needs to flatten out and then rise again. If it turns out that this rally is a huge trap, then I will still have my huge cash position as a cushion.

So, while many of you run around playing checkers, I am taking your Queen and putting that bitch away for good, right before I checkmate this market.

Sold out of $MDAS due to its breaking down below its flag.

Initiated a 1/2 long position in $GMXR.

My “tell” $FCX squeezing the shit out of all bears (no position).

Developing…

Being a swing trader that seeks to profit from intermediate term moves, most of my money is made on the long side when the broad market is operating above the 50 day moving average–preferably a rising one. Below it, my focus is on preserving capital. As much as I would love to be a raging bull here, with virtually all of my portfolio allocated to long positions, the fact remains that we continue to operate below a declining 50 day moving average in the broad market. As the updated and annotated daily chart of the S&P 500 shows, the bulls have made some short term progress, but are going to need a sustained effort to pull us up through the tough overhead supply (see below).

Thus, my best strategy is to gradually get involved with some select longs, since there are most certainly pockets of strength forming in the market, which is definitely a plus for the bulls. I also hold a very high level of cash, currently at 61%, along with some small hedges in $TZA and $TLT.

With the market at a key battleground zone in the form of the 200 day moving average, I want to be nimble and ready to pounce on a break either way. Note that because of the recent progress by the bulls, I have shifted gears away from my 100% cash strategy. Above all else, I want to continue to exercise patience while the market tries to heal itself, although as we all know there are no guarantees that it will be successful in doing so, anytime soon.

Below, you will find my top long ideas for the upcoming week. Feel free to pick and choose whichever setups best fit your style. I urge you to use stop losses (I prefer a trailing stop of 7-8%, on average) in order to mitigate your downside risk. Please note that these are merely trading ideas only.

I hope that you find these actionable.

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FULL DISCLOSURE: I am currently long $APKT $LULU $CRM $MDAS $ISH $DECK $THOR.