Death by a Thousand Gaps

______________________________

This morning saw yet another opening gap at the bell, this time in the bulls’ favor. As you can see above on an intraday chart of the SPY, we have since seen a fairly textbook gap fill, as the market decides where it wants to go next. While at this point I consider it more constructive to see those gaps get filled in order to fill out already-sloppy charts, I still have a hard time getting enthusiastic about longs with the S&P 500 back below the 1220-1230 area into the summer trading range. Moreover, the Nasdaq Composite Index continues to noticeably lag the other benchmarks, which is particularly troubling given how many high growth names are housed in the Nazzy.

The main issue that I see with the market here is the lack of strong-handed bulls willing to step up to the plate and buy with conviction. Without buyers of size stepping up to follow-through even the best of setups, we will see more of the same. Of course, that can change at any moment, but for now it is what it is. Beyond that, if you monitor social media, you will notice more and more traders becoming apathetic to this market. We are not dealing with a situation where people are scared, but rather one where traders are just about ready to take their ball and go home. After all, there are only so many times you can try to catch every single move in the market before you are taught an expensive lesson in humility.

Comments »

______________________________

Over on “The Reformed Broker” blog, Downtown Josh Brown (@ReformedBroker) provides cogent analysis of the performance of McDonald’s stock within the context of its business model and products, complete with his trademark wit:

The financial media seems to be highly taken with the fact that McDonalds is breaking new all-time highs and has had yet another huge year versus the flat broader market.  $MCD is up 120% in the last five years while the S&P 500 is down 20% over the same time frame.  The business of poisoning people around the globe with dirt cheap pseudo-food supplied by the factory-farming cartel has never been better.  Really exciting for mankind.

Over the past several weeks, I had been looking for a reason to get involved with McDonald’s on the short side, largely because of its extended monthly chart. I had a profitable short MCD trade inside 12631 last month, but it was rather quick in duration, given my respect for the overall trend higher. As you can see below on the monthly chart, the angle of ascent has become quite steep during the stock’s nearly nine-year long bull run that began amidst lawsuits from obese teens and the documentary, Super Size Me, in 2004, where Morgan Spurlock eats only McDonald’s cuisine for one month in order to show the audience the negative effects on his health.

At this point, despite the apparent parabolic nature of the price action, the move higher still seems orderly, and there has been no indication of a blow-off type move in volume. Hence, I am in no rush to put on the big contrarian short with any sort of conviction yet. There are plenty of steadfast McDonald’s bulls looking for that seemingly inevitable move through $100 for the “Hundred-Dollar Roll.” That said, I am on watch for signs of buyers’ exhaustion in the coming weeks. As an example of how steep the climb has been, it has been over two years since the stock has so much as tested its 20 period monthly moving average.

Apart from the potential short, from a broader perspective there is something else at play here. We know that many of the high growth leaders since 2009, such as AAPL AMZN CRM DECK GMCR NFLX PCLN have all been flashing ominous signs of late with relative and absolute weakness on sloppy charts. So, the issue then becomes whether those leaders are going to pull the entire equity market down with them, or if instead we see a rotation to more value-oriented, larger cap names. You could make the agreement that McDonald’s is the poser child for that type of mega-cap Dow stock where fund managers would look to rotate. If that is the case, then McDonald’s would be attempting to save the world with its stock price, while killing it with its food.

______________________________

 

 

Comments »

Direct Vimeo Link Click Here

 

Comments »

http://www.youtube.com/watch?v=BRQMlXh4f-M&feature=related

Comments »

____________________________

The selling has been steady, without much fear and panic, since just after yesterday afternoon’s FOMC announcement. The five-minute chart of the SPY, below, stretches back out to that announcement, and denotes the trend (on this timeframe) lower. The bulls are trying to stabilize things intraday, but with the steady move lower you can be sure the bears are going to try to push the envelope before they start covering. Also note that the VIX (usually inverse relationship to equities) is starting to pick up steam higher, after previously diverging lower, which might very well mean that fear is coming back into the market after the steady selling.

____________________________

Comments »

_____________________

This, too, shall pass…but not before the bearish prognostications of one Kyle Bass may come to fruition, regarding massive defaults and restructuring in Europe. Should that happen, though, the interesting thing is that there is no guaranteed reaction that we will see here in the U.S. stock market. Throughout modern history, we have seen other countries go belly-up before, without America completely crashing. Of course, this time may be different, and complacency kills in the market. Thus, I want to talk a bit about how macroeconomic views can possibly jive with technical analysis, since there is usually latent or patent tension between members of the two schools.

For stock traders, listening to what the market is telling us matters most. If you see potential bullish setups fail, it is not because technical analysis has ceased to work properly, it is because the market is telling you it is not healthy enough to sustain breakouts. And you should listen to that. Similarly, if the Kyle Bass scenario plays out in Europe, it would certainly make for dramatic headlines and news flow. However, if your stocks are failing to breakdown out of potentially bearish patterns, then you had better seriously consider covering your shorts, as the market is telling you that it is not going to cooperate with the bearish thesis.

Currently, stocks are threatening a major breakdown from a two-week consolidation in sympathy with the cratering Euro, rendering the Kyle Bass moment relevant for us stock traders. In addition to being the latest financial media star, Mr. Bass is relevant to the market, as per its message through price action. And we are all stuck in this moment with him.

Comments »