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MARKET WRAP UP 09/30/10
On the last day of the third quarter, the market threatened a major breakout within the first twenty minutes after the opening bell rang. As quickly as the S&P 500 touched 1157, it rejected that level and reversed down to 1136. At that point, the dip-buyers made another appearance to close the session down 0.31% to 1141. After a day like today, the temptation is to make a comparison to the nasty reversal we saw back on June 21st of this year, where the S&P briefly touched 1131 and then proceeded to reverse course and head down to 1010 over the next two weeks.
The simple answer is that we saw immediate confirmation to the downside following the reversal back in June, after printing that massive red engulfing candle. Beyond that, though, in the current market I believe that many individual stocks and sectors are much more technically sound than they were in the middle of the summer. Bases have had months to form and many stocks have tightened up their patterns. Moreover, many of the leading stocks have not only broken out on strong volume, but have held those breakouts after the fact.
Despite the healthier nature of the current market, compared to that which we traded this summer, there is a bunch of economic data yet to be released tonight and tomorrow. Even if you know the actual data ahead of time, there is simply no way to know how the market will react to it. So, as I wrote last evening, we are dealing with several known unkowns as well. After consolidating just below the significant 1150 level for nearly ten trading days, one group of traders will surely fall into a trap. The reversal this morning has many calling for a bull trap.
However, with the false breakouts this summer still fresh in the minds of traders, combined with no real follow-through to the downside yet, the bears would be remiss to not consider that they may be trapping themselves.
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This could go on for awhile. What would tell you we had definately solidified above 1150?
When we hold the gaps up.
For most of this year, 1150 has been tough resistance. When we broke above it in March/April, we failed to hold it leading into the flash crash. I believe, as I said in my video, that 2010 is the year we resolve 1150 one way or the other. Either Tepper or Prechter will be proven correct. The 2004 model says that Tepper wins. The Black Swan theory says Prechter wins and 1150 is resistance.
IBankCoin: I came for The Fly, I stayed for chessNwine.
So true.
Yay Chess!
Yes, Chess is the man! Even handed and a great “no matter what the market does” trader. I have learned a ton.
Chess, that was a great discussion re: 1150…thanks! I’ve been trying to figure out how either scenario would occur. Figured I’d give it a shot:
1150 as Support:
1) Tepper model. A helicopter full of coin in every garage. “Extend and Pretend” replaces “In God We Trust” on US currency.
2) Real Growth eventually replaces “Growthiness” at some point. Say Whaaaaaat?
3) Deus Ex Machina
4) Fly elected POTUS. Bearshitters forced into internment camps at CNBC HQ watching reruns of Dennis Kneale on continuous loop.
1150 Resistance:
1) Teabagger “austerity” (LOFL) causes US GDP to contract. That man behind the curtain is discovered to be a transvestite. Financials implode when Uncle Ben’s POMO crack pipe is withdrawn. Jamie Dimon last seen on the Bowery.
2) Keynesians spend US into oblivian w/ stagnant/contracting real economy. Three people are left with private sector jobs – but still only one is paying taxes. TBT goes to zero before it goes nuclear BTFO and surpasses Dow in a 2012-esque “Death Cross” as Dow plumbs it’s way down to Prechtertown.
3) Trade spat blows up w/ China. China’s largest trading partner (WalMart), begins to only sell Indian made junk (never US made junk). Chinese start cutting up US T Bills and putting them in fortune cookies as retaliation. US citizens laugh as they begin using USD for toilet paper. Germans look on with that knowing smirk…
4) Fly elected POTUS, summons the Stay Puft Marshmellow Man.
I remain flexible to either outcome but I have a hard time believing Dow 1K. I’d buy it though if we ever got there. 😉
what’s your guess on the XLF? which way?
Baron,
I truly appreciate your readership. I must say, though, most of the questions you ask have been answered by prior posts. I went long GS and MS at the end of the day (see last post). So, I think XLF more likely to go up than down.
No doubt everything under the sun has broken out in the last month. But where does the “strong volume” you mention come from? I thought everyone and their dog was talking about how volume has been pathetic even after the summer holidays supposedly finished.
the broad mkt volume remains week for sure, but many individual stocks have seen an increase in buy volume are they have set up/broken out
Sold THQI (tiny loss) and bought DIG. Now holding DIG, FEED, OC, UYG, VXX, and cash (5%). Everyone have a good weekend!
Thanks for the wrap up. I also owe you thanks for BP. If you’re ever in Houston, beers are on me. What are your thoughts on its breakout?
Looks textbook to me. Lots of shorts could squeeze it much higher from here.