More Bittersweet than SEMIsweet

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MARKET WRAP UP 02/07/11

The bulls opened today’s session with a rather vigorous morning push, before the action dulled down a bit into the closing bell. With the S&P 500 finishing up 0.62% to 1319, the broad market is converting even the most ardent of perma-bears these days. While some of the commodities saw notable intraday reversals–namely copper–the regional banks led us higher. Moreover, AAPL and GS gave the bulls plenty of ammunition to continue buying even the most of extended charts in various corners of the market.

Going forward, the crucial issue hinges on how much longer the broad market can continue to move higher despite glaring underlying divergences, coupled with a lack of proliferation of high probability long setups.

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I have no position in ATML, and seeing as I almost never play earnings, I will stay away even though they report tomorrow. However, I must say that I have to wonder how many buyers are left right here, right now. The above monthly chart shows a stock that makes the phrase “going parabolic” look like the understatement of the year, with the stock residing outside of the upper monthly BB for the past several months. Yes, I am aware of all of the awesome fundamental arguments about the firm. However, I have to wonder what the company can actually say tomorrow that will cause a huge upside surprise.

Today, the stock is printing a bearish engulfing candle on heavy volume. For those of you that are inclined to gamble on earnings, I thought I’d throw the idea out there of taking a bearish position on this, as the risk/reward for bears looks favorable.

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Plenty of excellent sites out there include more macro commentary in their links, namely Downtown Josh Brown and Abnormal Returns. I thought I’d share a “Traders Only” collection. Here are the traders that I am reading today (click on links):

• Must follow trader Joey, aka @DownTownTrader, is over on the Stocktwits Network now
• @szaman updates his blog with some actionable setups
• @vjland likes letter X here
• “The Goat,” @gtotoy, with his excellent SPY read going forward
• @traderstewie with some new long setups to watch
• @TrendRida with a great piece about iPhone-related semis
• @daytrend, Vic’s intraday market stats

There are plenty of other key sources that I check everyday, so be sure to look on the right hand side of your screen for my Blogroll.

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As you know, I have been discussing the notable divergences in the transportation stocks relative to the senior indices for over two weeks now, with the IYT pinned below its 50 day moving averge while the S&P 500 sits at fresh 52 weeks highs. Headed into this week, I have urged all members of the 12631 Trading Group (a premium service available only to members of The PPT), to closely watch Union Pacific Corporation. I believe this key railroad company has a daily chart that best exemplifies the essence of the current divergence.

Will we see another leg lower in this correction, or is it already over? Should this pattern break down, I expect the next leg will be swift and painful. Regardless, I believe that a resolution is coming this week, one way or the other, and will have broad market implications.

I should also add that CSX should be watched closely too, as it accounts for roughly 7% of the IYT–Hat Tip: @gtotoy

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These days, XOM trades like a small biotech grenade blowing the arms off of short sellers. Clearly, value investors are starting to be rewarded handsomely for picking up shares last summer, when the oil behemoth was trading around $55. However, fast-foward a few quarters later and we are talking about a stock that pretty much sums up my thoughts on commodities and commodity-related stocks at this point: Not at a major top, but likely at an intermediate-term one.

On my annotated zoomed out monthly chart below, note how steep the angle of ascent in XOM‘s recent breakout has now become. Also note that this is the first time since 2007 that Exxon has pierced its upper monthly Bollinger Band. Indeed, Exxon has spent what little of February we have seen completely outside of its upper monthly BB.

In other words, when I see this many traders trying to “ride the momo” in ExxonMobil, I can’t help but think that someone is being hustled, and it sure as hell will not be me.

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