Mornin’

______________________

This morning’s stock market price action is turning into a tasty breakfast for bears. While the indices and many stocks initially were only slightly down, the selling pressure is picking up as I write this. After yesterday’s negative reaction to the FOMC announcement, the bears are surely going to give their best collective shot to press us down here.

The Euro remains under pressure, while the Dollar and bonds are in the green. Being a stock trader, I usually focus solely on stocks. However, the Euro/Dollar relationship looks to be weighing heavily on global risk appetite lately, which is why I continue to monitor it. Bulls are pointing at a less threatening VIX as a bullish divergence than what we have seen in recent months, although that could simply denote that fear has yet to hit the bulls.

With the S&P 500 now back inside, once again, the sloppy summer trading range of roughly 1120-1220/30, I am putting all new longs on hold. I am still using a heavy cash position as a buttress against this type of indecision in the market. Our CRM short inside 12631 is still working very well. Coming into this week, the bulls had an opportunity to pounce on improving charts. However, a slew of attractive setups in a market that has not yet proven itself is insufficient for me to dive in head-first to the market via a heavily long strategy. Instead, I chose to wait for confirmation. Clearly, we have not seen follow-through to the upside this week.

Accordingly, we are essentially back to square one in deciphering where this market wants to two day from now, let alone two weeks.

____________________________

Back on October 1st of this year, I highlighted the weekly descending triangle that was starting to become apparent on the Shanghai Composite. In particular, I noted:

In a brilliant misdirection scheme that only Keyser Soze could pull off, it may very well be that the issues in Europe and Washington D.C. are nothing more than red herrings that distract us from the real danger: A hard landing in China. We know that the Shanghai Composite has displayed all of the characteristics of a secular bear market since crashing in 2008 after an exuberant stock bubble. At issue now is whether we see a retest of those major lows down at 1,664…(O)n the weekly chart of the Shanghai..2,300 is an absolute monster of a key level to watch.

Presently, the Shanghai breached that key 2,300 area. Perhaps what I wrote back then is the case after all, as noted China bears James Chanos and Hugh Hendry have implied all along. In essence, Europe may be the great distraction from the damage sustained in China. Either way, from a stock trader’s perspective, the bulls had better pray that this move is a mere false breakdown. Otherwise, those 2008/2009 lows will suddenly seem not so far away for galvanized China bears to attack. It is also hard to imagine U.S. stocks being able to manage any type of upside if the Shanghai breakdown proves true.

Thus, China merits your close attention.

____________________________

Direct Vimeo Link Click Here

AND THAT’S-A-THAT 

________________________

1230’s gone. And we couldn’t go nuthin’ about it. They whacked it. And that’s-a-that.

We are back inside the sloppy, multi-month trading range currently, so at the very least the bulls need much more time to regroup. Beyond that, you can bank on bears licking their chops to give this market a run at breaking down tomorrow and in the coming days.

________________________

____________________

On days when The Fed makes an official announcement, you usually see more intense price action than what we are seeing today. That said, we saw a quick move lower after the headlines crossed this afternoon. Once again, the S&P 500 is flirting with that key 1230 level, this time around as support. The macro, inter-market correlations are largely intact, which is also likely putting pressure on equities too. In particular, bonds and the Dollar continue to be strong, while the Euro and precious metals are notably weak. The bulls, however, are pointing to a lower VIX as being a bullish divergence.

As a result of these continued mixed signals, I have been a spectator today. I already have a few trades on, running that long/short strategy, but I need to see the technical picture clear up a bit more before I make any further moves. I am still focused on cutting losses quickly and being open to both potential longed and shorts. As I write this, I see we marginally breached 1230. The bears want a psychologically-important close below that level, to be sure.

Get your popcorn ready…