Feel the Churn, Baby

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MARKET WRAP UP 01/25/11

The dip-buyers showed some more resilience, as the S&P 500 went out on the highs today, up 0.03% to 1291. Despite the strong finish, the action was rather scattered and quite random today, as we saw several intraday whipsaws and an overall lack of leadership. In front of the State of the Union Address tonight, as well as an announcement from The Fed tomorrow, market players are predictably trying to game these macro/headline news stories.

From my vantage point, however, the bearish divergences in the small cap and transportation stocks relative to the senior indices are much more concerning. While many of the high beta names in the materials/energy complex that have been crushed the past few days may be ripe for a bounce, I am not seeing anywhere close to the amount of quality long swing trade setups that I would expect to find in a healthy market. Instead, I see some beaten down names that could see a quick relief rally.

It is often said in the poker world that good players frequently fold the best the hand. The reasoning behind that aphorism is derived from the idea that a good poker player is fully aware that, while he may indeed be holding the best hand, the risk/reward simply is not there to justify making a big bet based on that assumption. In other words, having the discipline to see the subtleties when deciding to take risk is crucial to avoid taking the big loss.

Applied to the current stock market, the bulls could easily deliver another explosive move higher in the coming days. However, with all of the churning at key support levels in many of the leading indices and sectors, combined with those bearish divergences mentioned above, I believe it is correct to fold my hand and wait for a better spot to risk capital.

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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 have been reading of late (click on links):

• Check out this great new site with very talented young traders, “Young Guns Trading”
• @daytrend, Vic’s new tool for traders
• “The Goat,” @gtotoy, with his daily $SPY read
• Derek’s always thoughtful analysis on a new market climate
• The @HCPG crew on the precious metals down here
• Vj’s unique take on $POT
• @traderstewie with some new setups to watch
• @Position_Trader with his solid watchlist

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 “Recommended Links.”

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MARKET WRAP UP 01/24/11

The bulls bounced back from some of the weakness last week, as the S&P 500 closed up 0.58% to 1290. Interestingly, in what could be construed as a warning sign for bulls, the S&P noticeably underperformed both the Dow Jones Industrial Average and Nasdaq Composite Index. Moreover, other key names that have often telegraphed the true direction of the market, such as FCX, failed to put in much of a bounce at all despite suffering significant technical damage over the past few sessions. Nonetheless, AAPL and some of the stodgier mega cap firms in the Dow ultimately paved the way higher for bulls.

When traders talk about conducting objective analysis in determining their market posture, it is often a task easier said than done. In the archives of iBankCoin, you will see that I turned bullish on the market at various points throughout last summer when the S&P plunged to the 1010-1040 area. The reason why I dusted off and put on my contrarian hat was because of the glaring bullish divergences in the historically market-leading Dow Jones Transportation Average and small cap led Russell 2000 Index. Consistent with that analysis, we have now arrived at a point in time, several quarters later, where we see a relatively unscathed daily chart of the S&P 500 at odds with weakening dailies of the trannies and small caps.

When you combine the above bearish divergences with the increasingly common occurrence of breakdowns from bases (e.g., the cloud-computing names, and precious metal miners), I see reason for great caution here. While today’s price action is a good reminder that some underlying weakness is not enough to immediately become aggressively short, I believe it to be good enough reason to place the goal of capital preservation as a higher priority for now than capital appreciation.

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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 have been reading of late (click on links):

• @daytrend, Vic’s new tool for traders
• “The Goat,” @gtotoy, with his $SPY read going forward
• The @HCPG crew on adjusting strategy for this changing market
• Vj’s take on the small caps in the $IWM
• Maribeth gives her daily watchlist and market posture
• @Position_Trader with his chart of the day
• @daytrend, Vic’s new tool for traders
• @zortrades on the “Acceptance Stage”

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 “Recommended Links.”

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{Below, you will find one of the first videos that I made this past November for members of 12631–A premium service affiliated with The PPT. Click here for details}

As the broad market appears to be weakening from within after a strong 4-5 month bull run, I thought now would be an appropriate time to really hone in on some basic tenets of the trend trader who respects the prevailing price action.

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[youtube:http://www.youtube.com/watch?v=Cpx7jX7oYEU 550 412]

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…it means Genco Shipping sleeps with the fishes.

To those who consider GNK to be a great value play, as well as best in breed with respect to the shippers, the price action must seem downright ghastly. As the weekly chart illustrates below, we just saw a breakdown out of the bearish descending triangle dating back to November of 2009. Unless this is a false breakdown, a test of key support dating back to early 2009 in the $10/$11 range cannot be ruled out. Despite the fact that I expected shippers to outperform at various points throughout the year, I will not disrespect price action this powerful.

Moreover, with respect to my previous post about China being at a critical juncture, further weakness in the shippers adds fuel to the bearish China thesis.

Bottom-callers Beware.

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