Rowdy Partygoers

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The bulls got quite rowdy as the trading session developed on Thursday, with plenty of stocks rising over 10%. Those big moves left noticeable gaps on a variety of daily charts, begging the question of whether they are common gaps that will get filled, or breakaway gaps out of areas of consolidation (I covered gap analysis in this post on Sunday). Actually, such as with the IYR, there is a case to be made for a short/intermediate-term exhaustion gap after the run up since the beginning of this month.

Along those lines, I noted in my market recap earlier that I would not be surprised to see the indices cool off a bit here, but then again many others share that view. The real issue is the manner in which that happens–Do we roll over and give all the gains back? Or do we come in slightly and/or go sideways, all the while permitting individual stocks to continue to act well?

Any way you slice it, if you are looking to put fresh capital to work on the long side here you are either going to have to either chase up stocks that have already powerfully broken out of bases, or look for those areas of the market poised to follow suit. Of course, there is the risk that they are simply laggards who will not participate in this broad market move. However, looking at a vast array of charts in the shipping industry, they do indeed look ready to join the party. Keep in mind we are still in earnings season, and a couple of the stocks presented below still have to report.

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I pointed out in this post the other night about the issue of whether Treasuries were raring to go another leg higher in their long-term bull market, or whether we would see signs of being on the other side of the mountain. On Tuesday, we saw an impressive bullish candle out of that consolidation, turning many constructive again on Treasuries. Two day later, though, those gains have been given back, and then some. To me, this is a message from the market that Treasuries are seeing signs of changing character. Money looks to be coming out of U.S. government bonds, and I am going to assign value to the misdirection we that saw this week.

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Many traders take issue with the idea of ever buying a stock that is already up 10-15% during the session. While I think the more important point of analysis is how the stock’s daily and weekly timeframes are shaping up, it is tough to talk someone into buying a stock that has already seen a huge move on a day like today.

So, here are a few stocks that I arrived at inside The PPT screens that are still viable, non-extended setups.

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All but the most agile of this morning’s faders jumping into inverse levered short instruments are being punished viciously by the market as this session is progressing. We are seeing some intense short squeezes across the board, delivering a homemade gluten-free, organic Whole Foods free-range farm produced Humble Pie to arrogant bears insisting that the market was incapable of rallying this much.

The S&P 500 is slightly above its declining 200 day moving average as I write this, but I expect that widely-watched reference point to be somewhat of a battleground for the rest of the session, as well as tomorrow. More importantly, I continue to monitor the health of individual setups underneath the surface as a better proxy for how healthy this market truly is. In addition to sinister, sexy short squeezes, I am seeing more tight bases and breakouts being permitted, which is obviously constructive for the bulls. Over the coming weeks, there is still more more to be done, despite the thrill of today’s session for bulls, as longer-term moving averages need to be negotiated.

We are all over the plays that are working well inside the best chat room community for traders in the world inside 12631, and no, we are not hindsight trading. Here are a few patterns and trades pointed out in recent days that are materializing well.

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Daytraders got an initial short entry this point on the gap up, as the SPY rallied right into the 200 day moving average for the first time in several months. Generally speaking, the first “touch” of a significant reference point offers a high probability day trading setup, even if it is counter to the intermediate-term trend. After the brief intraday dip, though, the bulls have resumed the move higher, as you can see on the second chart below on a 3-minute timeframe. So long as those morning lows hold, the bulls are holding serve in the aftermath of the gap up, and the presumption is that breakout and short squeeze plays will continue to work as the session develops.

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