Getting Their Act Together

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After stumbling at various points throughout the session, the bulls looks to be getting their act together here. On the 5-minute chart of the SPY above, we can see that some strong buyers have emerged to push us up over the morning highs. Currently, we are trying to turn this morning’s resistance into current support, which would certainly bode well for the bulls regarding a strong finish to today’s session.

At this point, I do not see much of a reason to go ahead and aggressively fight this bounce via shorting. As I wrote last evening, with the bulls holding 1300 on the S&P 500 yesterday, they had at least bought themselves some more time before the bears could claim any kind of major victory.

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After an impressive reaction to STLD‘s earning last evening, the steel names continue to shine even as the broad market is flattening out a bit. To be sure, just about all of the steel names had been hit pretty hard over the past few weeks. Thus, in looking for “pin action” plays off of STLD, I look for two qualities:

1. Strong price performance relative to other steels.
2. “Clean” charts that are not running directly into near-term moving averages, etc.

To my eye, the two cleanest charts of steel stocks that are performing the best are AKS and SID, with X also performing well albeit with a sloppier chart than the other two. Note that X and AKS both report earnings on 04/26.

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[youtube:http://www.youtube.com/watch?v=ocV5bGHdYag&feature=related 550 412] ______________

In my estimation, either the value stock that everyone loves to torture themselves with is in the capitulation stage after a long downtrend, or it is heading to zero. At the risk of not being sufficiently dramatic, I am inclined go with the former scenario. Either way, I am starting to think that the market really believes this firm is a subsidiary of Don Corleone’s Genco Olive Oil company.

The stock is holding $8 thus far today, which marked precise support back in December, 2008. If the bulls cannot hold this level, then a test of the crash 2008 lows below $7 appears to be the next stop. Again, this heavy volume wipeout is actually good news for patient observers looking to get long this stock, since a steep downtrend tends to end in this manner.

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So long as we continue to hold the 1300-1332 range on the S&P 500, the presumption is that a stock picker’s market will be magnified. Thus far today, we have some hot pockets of momentum, namely in the steels (after STLD‘s impressive earnings last evening), as well as with the foreign internet firms such as DANG QIHU REDF SIFY YOKU. Some of the agricultural names have been sold hard of late, and are seeing oversold bounces, namely AGU MON MOS POT.

As I write this, I see that the broad market bounce is losing a bit of steam. Just as 1332 acted as a price magnet at the upper end of the range, I expect 1300 to similarly attract price for the time being, until we get a definitive break either way. Hence, continuing to focus on stocks that are actually working, as opposed to being overly patient with laggards, remains the focal point of my strategy at this juncture.

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As traders, we often become frustrated after putting in the necessary work to identify high probability setups, only to see the market not accommodate us by following through and hitting our price triggers. Today was a pretty good example of that phenomenon, as there were quite a few enticing setups walking into this week. However, an exogenous event like the Standard & Poor’s downgrade threw a wet blanket on those setups, at least for today.

Looking over how many of those setups fared, I think you will find that the selling was not quite as damaging as it seemed this morning. Indeed, most of those trading ideas that I pointed out to 12631 members yesterday (Don’t forget, Free Trial All This Week to 12631 for PPT Members Only) saw no heavy selling volume today, and their favorable chart patterns are still intact.

While today may have been a good day to take a wait-and-see approach and hold off on making aggressive buys, considering most of those setups held up exceptionally well, I think we come back tomorrow and look for the bulls to take another shot at those trades. With the 1300 level on the S&P 500 holding true, the bulls have at least earned a mulligan.

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