Taking the Steps Down

______________________

The above 30-minute chart of the SPY stretches back to last week’s breakdown from that widely-watched symmetrical triangle. You can see that the move lower has essentially seen the market taking the steps down, although at times it sure has felt like an elevator with these morning gaps lower. Either way, the chart illustrates the essence of a downtrend on that particular timeframe.

Moreover, breadth is soundly bearish, and the Euro continues to weaken along with global risk appetite. Accordingly, discretion is the better part of valor in terms of resisting the urge to aggressively position for a bottom. Given the challenging market, capital preservation is a concept that I have discussed more than usual in 2011. It is easy to talk about those concepts in the abstract, but actually obeying them in practice presents its own set of challenges. For now, in this high level chess game of a market, I am focused on not making major blunders rather than playing  for a checkmate.

___________________

At least as far as this Thanksgiving holiday is concerned, there will be no bullish heroics. Last week’s symmetrical triangle breakdown was legitimate to the point where plenty of trapped longs relied on hope as a trading strategy, and they are accordingly paying the price today with no reprieve from Mr. Market. The Dow Jones Transportation Average had been holding out, just barely, as a possible bullish divergence from the rest of the market. However, the trannies are rolling over hard today, clearly losing the key 4,700 level. Moreover, the Monday morning gap lower on the Nasdaq Composite needs to be respected as being a possible breakaway gap from a multi-week consolidation/breakout attempt.

The market is still oversold by many indicators, so I am not eager about putting on any new shorts here. I am trying not to get overly bearish here, as we are still well above the October lows on the major indices, and sentiment is quickly becoming dejected again. 2011 has been a tricky year from start to apparently the finish. It is apropos that Thanksgiving will not be a bullish feast. Regarding Christmas and New Year’s, well, that remains to be seen and is frankly of little help to trapped longs right now.

Direct Vimeo Link Click Here

______________________

Despite the broader bearish picture with the AAPL chart, I still have to manage my short. Again, I normally reserve this type of play-by-play analysis of my trades for 12631 members, but since I have discussed this particular trade on iBC a bunch I am giving updates. I wrote a post yesterday where I noted that I locked in a nice gain on 1/2 of my short position. Today, I am moving my buy-cover stop-loss up to above $380.

Looking at a zoomed-out 30-minute chart, you can see that Apple is still in a downtrend. The bulls have their work cut out for them, but above $380 and I am willing to lock in the rest of my gains and revisit the short down the road. To learn more about 12631, click on the hyperlink for details about our service inside The PPT.

______________________

_________________________

I want to my ongoing analysis of the Euro as a proxy for risk appetite (or lack thereof) in this European headline-driven market. In particular, the Euro/Japanese Yen cross looks to be an excellent gauge of what is actually going on in the markets, versus what pundits think should or should not happen based on the monetary and fiscal policies here in American with The Fed, and by the ECB over in the EU. When the Yen is strong, the denotes an unwinding of the famous “carry trade” and overall risk aversion. With a weak Yen and strong Euro, however, risk appetite figures to be on the table in a major way. Now, more than ever, the movements in the Euro are being watched very closely.

Over the past week, the Euro/Yen cross has essentially gone dead. There seems to be a large group of market watchers looking for swift denise of the Euro, and while the late-October breakout quickly failed, the cross is still above its early-October lows. In essence, the Euro is in a holding pattern waiting on something to happen. We know the market tends to despise uncertainty, and adding to that is the fact that the Euro/Yen cross is about as uncertain to both bulls and bears as any chart you will see. Until we see a break of this tight range, traders are simply fighting over spare change.

_________________________