Sweating the Big Line

 

_____________________

A familiar theme across many charts in 2011 has been the breakout and quick throwback to retest the move in short order, as opposed to breaking out and never looking back in the form of breakaway gaps. The all-important transportation stocks are doing just that, and so far so good, despite today’s nasty broad market sell-off. 4,700 remains crucial for the Dow Jones Transportation Average, and the rising 20-day moving average is coming up to touch price. Note also this represents the upper limits of the prior multi-month trading range. The trannies had been making progress in recent weeks after lagging for much of 2011, until firm resistance was found up at 5,000. A constructive scenario going forward would be several weeks of back-and-forth between 4,700 and 5,000 before breaking out, whereas a break below 4,700 would have to force extreme caution on the part of traders.

_____________________

Comments »

______________________

It is funny how headlines can flash across the screens just as the market is nearing completion of a technical pattern. Case in point: Earlier I posted an intraday chart of the SPY forming a descending triangle. Just as price approached the nadir, a rumor flashed about the Greece vote on a bailout being dead on arrival. The market interpreted this as bullish for equities, and we were up and off to the races out of that descending triangle. Of course, another bit of news can come out now, knowing this market, and it will be interpreted as very bearish. So, headline risk is still at front and center.

As we work through the final ninety minutes of trading, I am looking at this morning’s highs as being a key reference point for bulls to conquer if they want to run this market higher into the bell to fill the opening gap lower. You can see below that we are currently knocking on the door at those morning highs.

I would also be remiss if I did not point out the continued relative strength in many of the retail stocks, namely BWS DSW and especially ULTA. I will be looking to build a deeper watchlist should they remain strong.

______________________

Comments »

________________________________

Comments »

___________________________

The “island top” formation on the daily chart of Apple has been discussed in other areas of the financial blogosphere for the better part of a week. After a prior move higher, when a gap up occurs that is then followed by a cluster of candles essentially going sideways, a subsequent high volume gap lower below the cluster raises the specter of a rare but powerful topping formation. The “island,” consisting of the cluster of those candles, may very well become deserted, never to be occupied again, or something to that effect.

I have previously discussed the idea that the monthly chart of Apple leaves it quite prone to late-stage base failure since its 2009 bear market bottom. Note that is not the same as calling a generational top to Apple. Instead, a multi-month period of resetting the base count may be all that is needed. Nonetheless, the rising price channel on the monthly, as you can see on the second chart below, continues to look ominous.

Beyond the textbook island top reversal pattern at play, just looking up the elements of that formation on your iPhone is insufficient. In this case, as usual, the market is making it tough for all parties involved. The island top has in no way been negated, yet the bears have not commenced the penalty phase. Instead, the jury is still out on this consolidation, not unlike what we briefly saw in silver last spring after the initial leg lower, followed by the eventual roll over which was much more potent. $390 is a big level of support for Apple, within the context of this consolidation and island top, and below it I think there is a high probability short setup.

The Apple bulls, or “fanboys” en parlance, have done an excellent job of defending this stock the whole way up, not just in terms of witty banter but with respect to price action. Like all things in life, though, the only permanent thing is impermanence. Let’s see if they can pull the virtual rabbit out of the “app” one more time.

___________________________

___________________________

Comments »

________________

Last night’s video recap centered around the idea of managing risk even as intermediate-term technicals seemingly improved, out of respect for the potential of selling to beget more selling. With the second gap down in a row in as many days, this time even more prominent, the selling has intensified more than I would like to have seen after the recent rally. Wild price swings and increasing volatility tend to favor the bears rather than the bulls, due to the loud disagreement amongst market participants. Bulls wanted an orderly, quiet pullback or period of sideways action after the recent rally. Obviously, that didn’t happen, and we are back in an increasingly nebulous situation, as has been commonplace in this market for many times in 2011.

Despite the increased selling pressure, the S&P 500 is merely pulling back to test its rising 20-day moving average. So, the bulls have an opportunity to step up and defend not only that reference point, but also the top end of that multi-month trading range of 1120-1220 out of which we had recently broke.

________________

Comments »

Direct Vimeo Link Click Here

 

Comments »