I am seeing some breakout plays start to work slightly better, which is definitely an opportunity for the bulls to pounce, provided they conquer their prior performance anxiety. In addition to the charts below, there is impressive short squeeze action in BONT DDS LULU.
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We are faced with a familiar scenario this morning, in that the market has attempted a sustained rally over the past seven weeks but has essentially failed at every juncture. After the very weak futures last evening improved to allow a modestly weak open, the dip-buyers arrived and are trying to get some momentum going. Psychologically, the virtual straight line down action since early May has caused the prior buy-on-every-dip crowd to start to use any little bit of intraday strength to lighten up. Moreover, the uncertainty of the situation in Europe may be a good excuse for bulls to hold off on making bold bets here. Thus, it has taken several attempts to jumpstart the dip-buyers’ cars.
There are not many clear leadership groups right now, but that is to be expected as the market first attempts to stabilize for more than an intraday bounce. With that said, I should point out that the biotech (IBB is the ETF) have caught my eye this morning, with BIIB leading the way after an impressive breakout from a long, tight base.
After dominating the action in late 2010 and early 2011, the bulls suddenly have a case of performance anxiety. Like everyone else nowadays,though, it can be cured quickly with a little blue pill.
Comments »[youtube:http://www.youtube.com/watch?v=nTDRd0Z0O4o 550 412]
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In a bull market correction, a move below the rising 200 day moving average is usually a gift to patient longs looking for an entry. Ironically, this gift usually has many worried that is is a Trojan Horse, since bearish sentiment usually comes with price “breaking its 200 day moving average,” as the headline will usually read. In reality, the more significant technical aspect is the slope of that widely-watched reference point, with a rising 200 day moving average giving the presumption to the bulls, and vice versa for bears.
In the case of the steels, the daily chart of the SLX (ETF for the steel sector) below shows a clear corrective phase since the middle of February. The most recent leg down has been accompanied by a plunge below the rising 200 day moving average. With last Thursday’s hammer candlestick, followed by Friday’s inside day, I will be looking at the sector for a long trade this week. To be sure, we could see a battle in this area in the coming weeks or even months, as happened last summer in the broad market. That said, the first plunge below can usually be seen as a washout offering a nice setup for a reversal.
Note also the weekly chart showing us that the SLX has pulled in to a significant price area from last year. Here again, I will be looking for the bulls to step up and defend this level.
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The wholesale food firms have been consolidating in a quiet, orderly manner, exhibiting relative outperformance over the past several weeks. SPTN and SYY exemplify this on their charts below. Click on image for the full size view of The PPT readout.
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After my update on the long-term view of the OIH last week in this post, I also wanted to follow-up on a post that I wrote in April about the IWM (actively traded ETF for the Russell 2000 small cap dominated Index). In that post, I noted that the IWM was running in a steep angle of ascent on the monthly chart directly into its 2007 highs. I posited that the small caps would, at the very least, take a back seat to the larger cap stocks as we got closer to summer. Just as with the OIH, price has memory, particularly when we are talking about a chart running in a virtual straight line right up to multi-year resistance.
Presently, as you can see on an updated monthly chart of the IWM, the small caps have pulled in along with the broad market in a rather sharp manner since May 2nd. While bullish sentiment has understandably abated (see this post), and as many daily charts have broken down, this monthly chart nonetheless reveals an entirely constructive pullback from the first test of multi-year highs. Note that the IWM could fall down towards the $70-$75 zone from here and all it would amount to is a test of a simple support trendline dating back to the March 2009 lows.
In other words, this type of price action is to be expected and is not indicative of any type of multi-year inflection point. Again, as this chart reveals, the latest bull market that began in March 2009 has seen one major, sustained, multi-quarter correction, that being in 2010. Contrast that with the previous bull market from 2002-2007. Note how many multi-month pullbacks (bullish) we saw there before we eventually saw the major inflection point in 2007 (bearish). Again, the highest probability scenario remains that this latest correction is yet another intermediate-term pause in a bull market.
While a meaningful leg higher above the 1370 highs on the S&P 500 is not likely to be imminent, to infer that we are in a bear market because of that fact amounts to a false dichotomy. In order for me to turn long-term bearish on this chart and the market, I would need to see the IWM breach the rising support trendline, likely consolidate around or below it, and then head lower.
As you can see, the bears have their work cut out for them.
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One of James Woods’ best performances was in the overlooked late summer of 1992 film, Diggstown. Woods plays a “good con man” in lieu of just another small-time hustler putting on the con of his life in sleepy, southern, boxing and gambling crazed Diggstown. The clip below features a nice compilation of some of the best scenes from the film. It is definitely worth checking out. Louis Gossett Jr., Bruce Dern, Oliver Platt, and a young Heather Graham all deliver great performances as well.
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[youtube:http://www.youtube.com/watch?v=Lxtoj1Op-CA 550 412] Comments »
