Welcome the Red Into Your Morning Bed

 

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For now, I am welcoming the price action this morning. Generally speaking, V-shaped moves do not suit my style particularly well, and I am happy to see things cool off a bit. If we are going to make a major higher low before another leg up, then this will be the last bit of patience required before loading up the truck with longs. However, and I cannot stress this enough, complacently assuming that we make a higher low is a huge mistake and has cost traders enough capital over the year to start several stock exchanges across all of the third-world countries on the planet. Thus, critical spectating is still my main task. Also note that a consequence of the market rising in a virtual straight line recently is that we can fall quickly into that air pocket.

Again, if you have already become heavily long then respecting protective stop-losses should not be disregarded now simply because many traders are so sure that we have bottomed. In reality, even if we have truly bottomed, we can still go back down and probe the lower end of the multi-month trading range again before turning higher. For heavy longs, that would entail a massive amount of pain from these levels.

I am currently looking at 1200 as being the first major line in the sand on the downside.

 

 

 

 

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Earlier on Sunday, iBankCoin Financial News reported that Kinder Morgan Energy Partners paid a sizable premium to buy El Paso Corporation in a massive $38 Billion deal. Over the past several months, I noted here and here of the strong relative technical performance of the oil and gas pipeline plays. When you combine the persistent underlying bid to the group as a whole, on top of the now legitimate consolidation taking place in a major way, it is hard not to look at other viable pipeline plays. You are talking about huge dividend yields and a lower beta way to play energy than watching ATPG swing 50% every few days.

Below, note how orderly the weekly charts are, as the pipelines plays have worked through a multi-month consolidation, particularly in comparison to the huge volatility taking place in the broad market since the summer. If you are looking for pin action off the El Paso news as the sharks circle the pipeline plays, then I am most impressed with BPL MMP SXL (the latter after a consolidation).

Members of The PPT and 12631 click here to view the entire group sorted by PPT Hybrid Score.

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If you can appreciate excellent acting, then you simply must check out Leaving Las Vegas (1995), in which Nicolas Cage delivers a home run performance as a bonafide alcoholic Hollywood screenwriter who moves to Las Vegas to drown himself in his personal and professional sorrows. Although there have been countless films about drunks over the years, few, if any, are as memorable as Cage’s performance in this one. Elizabeth Shue received an Academy Award nomination for Best Actress in her portrayal as Cage’s hooker love interest, while Cage himself took home the Oscar for Best Actor.

The film is a classic character study and a must-see.

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[youtube:http://www.youtube.com/watch?v=uh8DtqGxeIw 550 412]

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[youtube:http://www.youtube.com/watch?v=KryX_QRz2io&feature=related 550 412]

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Direct Vimeo Link Click Here

 

Tickers Mentioned: $CIEN $CRNT $CSCO $EGHT $JNPR $QQQ $SONS $SPY $TLAB

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To be able to marry impressive growth with strong buy volume and price action in stocks is a nice, convenient bonus for swing traders. Inside The PPT, I created a screen called, “Bull Market Beasts,” where I monitor stocks with extraordinary fundamentals of “growth firms,” with respect to profit margin, return on equity, as well as quarterly earnings and revenue growth. Member of The PPT and 12631 can click here to view and save that screen.

Looking over the screen after this past week, I see several of the most impressive growing firms that happened to have seen strong buying volume during the recent rally. What that tells me is that buyers of size see real value at these levels. Also note that a common gripe with the rally over rough the past two weeks has been the overall lack of broad market volume. To my eye, this reinforces the idea that the big money is selective in where it is going, but you had better pay attention to which names are getting the action. If this is, in fact, a major market bottom, then you can be sure traders will soon be scrambling to find the best of the best for the next leg higher, and I guarantee you will see many new faces that are leading the charge from last year’s rally off the bottom.

A few that jump off the current list: BSFT CPE KLAC. By now, you probably know my stance on the market is that I will not become aggressively long until we consolidate and/or make a higher low as charts across the board firm up. That logic also applies to these names, in that I am looking for a respite before getting involved. The market might cooperate with that scenario or it might keep going vertical. I have no control over that. What I do have control over is where I pick quality entry points to deploy capital.

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You can see the difference between being short versus heavy cash when the market melts up like this in a V-shaped manner from a false breakdown. I am 20% long and the rest is in cash, with no interest in shorting yet. At the end of the day, I am at my best when I stay true to my style of trading the technicals and picking my spots. This has not been the kind of tape for me to get aggressive in quite some time. Hopefully, charts will firm up next week and the action will settle down, although I know I am not alone in that thought.

Back with more analysis later. Enjoy the weekend.

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