Listen to Those Knocks at the Door

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I have been discussing the idea that the retail and transportation sectors are notably knocking at the very top of their respective multi-month trading ranges, probing breakouts. The energy and materials stocks have charts that have potential to squeeze higher, although I suspect copper first needs to firm up in order for that to happen. Regarding stocks as a whole, in this type of a situation where the market seems as though it is essentially even money to break out or roll over, I try to isolate the few setups that fit my criteria for a quality setup. If the broad market permits them to breakout with energy, then I will become more of a believer. As you might imagine, if they are too lethargic or outright fail, then that is a signal for me to continue to stay largely defensive.

The three charts below meet the criteria for that litmus test. EXPO has seen strong buy volume to support its solid price action. GME has the potential to break above its consolidation above all moving averages, especially on the back of ATVI breaking out on strong volume on Thursday. Finally, I am currently long JOSB, and charted it earlier this week as one of the better-looking retail plays.

In sum, put your ego aside and let the market tell you where your focus should be. While quite a few stocks and sectors are knocking for a major breakout, exactly what kind of character is on the other side of the door remains to be seen.

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One of the biggest reasons why I was largely in cash throughout the summer and early-autumn was not simply because the market was, net-net, going sideways, but rather due to the “violent indecision,” as I termed it. It is not always what the market does that is dispositive, but rather how it does it that matters most. With loose and sloppy chart patterns and intraday swings of 2-3% in the major indices commonplace, it makes it next to impossible for swing traders to capture high probability entry points on the way to profitable trades.

Although the intraday swings remain more herky-jerky than usual, they have calmed down slightly. The bulls are looking for the violent indecision to become less so in the coming days, and today is a decent start. The plunging price of copper remains problematic for the bull case, as does a lack of bonafide leadership in equities. Nonetheless, things can change in a hurry, and I still see a bunch of charts that can go either way.

The one thing that I can assure you is that nightly homework is required here now more than ever, in order to capture the essence of whether the market is. in fact, changing character here in favor of the bulls.

Finally, while I am not a huge fan of technical analysis on leveraged instruments, the VIX is looking tired after a multi-day run here. If volatility is on the cusp of moving lower, despite whatever headlines there are, that should bode well for the bulls. Watch this potential bear flag closely.

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Days before Mr. Einhorn presented his GMCR short thesis in detail, yours truly penned this post alerting you to the stock’s weakening technicals. Now, it is time for an update. As you can see below, the monthly analog to Netflix remains intact. It does not need to follow the same course per se, but there are enough technical similarities (namely late-stage base breakdowns from similar uptrends) to warrant your attention.

That said, on the third chart below you can see that for traders with shorter-term timeframes, now is not the time to put on shorts. The zoomed-out daily chart shows that price found support this morning at a key level dating back to April, and today’s candle is almost entirely below the lower Bollinger Band. Green Mountain is short-term oversold and, while it can become more oversold, bears should wait for a better spot to initiate short positions which should continue to prove fruitful over the next several weeks and months.

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There is not much trading for me to do with the market seemingly on edge for every bit of news that comes out. As I have been discussing, we are still coming to terms with the upper end of our multi-month trading range of 1120-1220 S&P 500. If the bears are going to make a dent here, then pushing us back below 1200 and then 1170 are the goals. Thus, I am watching those levels closely. Individually, the cupboard is still bare in terms of high quality long swing setups. A few days of the action quieting down can change that, but for now the market appears to be too anxious for any type of sustainable move.

Copper continues to roll over, and the yearly lows look to be retested. Although copper has been a bit trickier than usual this year in terms of being a “tell,” you can be sure that equity bulls will be watching whether those 52-week lows in JJC will hold. Indeed, it may become a self-fulfilling prophecy to the downside. I also continue to watch silver as well. A bonafide break below $30 on SLV, as opposed to the headfake we saw earlier this week, should really get the ball rolling to the downside.

Overall, there are too many mixed messages for now. The market is being jerked in several different directions all at once, which makes trading any type of trend to be a riskier than usual proposition.

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[youtube:http://www.youtube.com/watch?v=xDbe0WD-aMI 550 412]

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