A Bad Joke Teasing You

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This market is a bad joke directed at you, teasing you with potential breakouts in either direction. There simply is not enough conviction by bulls or bears yet to sustain a bonafide move out of the current consolidation we have been in for several weeks. The volatility index is once again holding strong above 30, and stocks faded rather quickly after decent open this morning. We are now firmly in the red across the board, although it is far from a bloodbath. In fact, most of my longs are in the green, as we are finding some diamonds in the rough inside the 12631 Trading Service. So, the picture is still quite mixed

Beyond stocks, the overall vibe is one of mild risk aversion. Updating the Euro/Yen cross form yesterday that I discussed, you can see the Euro weakening even more today, and losing a key reference area. Again, this tends to dampen risk appetite as a whole. In sum, a long/short strategy is working for me in this market. I am focused on keeping a tight lease on all trades in terms of timeframes and stops for now, until the current broad market consolidation resolves one way or the other.

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We are still working through a broader consolidation in equities, and the real issue is trying to discern whether we are about to see a second wave of the risk appetite that helped propel us off the October 4th lows. While we have broken out from the summer trading range, the VIX is still high and the market remains far more sensitive to headlines than last year at this time, when we were smoothly trending higher.

One particular currency cross that I have been watching is the Euro/Japanese Yen chart. Generally speaking, a strong Euro and weak Yen bodes well for risk assets, and vice versa for risk aversion. Currently, the Euro is probing support from October and earlier this month. I had previously profiled the failed inverse head and shoulders breakout on this chart as being a function of a continued volatile and headline-sensitive market. However, there is a big difference between needing more time to consolidate before breaking out, versus breaking down. Losing 104.70 would likely bring in more selling and throw a huge wrench in the “risk on” trade, in my view. Watch it closely.

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Even though the major indices are all flashing red today, the reason why the market feels so indecisive overall is because we are working through this triangle on the 30-minute chart of the SPY. Until this pattern resolves one way or the other, a long/short approach can and is working well, such as my FIRE long and AAPL short. Which side will eventually prevail out of this consolidation? I am keying on late-stage base names like AMZN CRM DECK LULU PCLN to see if they follow GMCR NFLX‘s breakdowns, or if we are simply transitioning into more of a stock picker’s market.

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After the overnight futures were hinting at a big gap up this morning, a more somber tone set in as we opened and have stayed in the red thus far. The VIX (volatility index) remains elevated above 30 and is on the move this morning, which is problematic for bulls looking to see the violent price swings abate. Most sectors I am seeing are basically in the red or flat so far, save consumer discretionary which appears to be the leader.

My BSFT and FIRE longs continue to act well. Both of those stocks are set up well technically and have terrific short squeeze potential. I am still short AAPL and am looking for a breach of $380 on the downside before shorting more. In sum, this market remains hell-bent on not making things easy for both bulls and bears. So, staying shifty and nimble is the name of the game.