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Yearly Archives: 2011
Making a Dent in 1150
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Since early-August, when the market ceased crashing, the absolute high has been 1230 on the S&P 500, and the precise low is 1074 on the cash market. 1150 is roughly the midpoint, and it is indeed an important multi-year–even multi-decade– reference point. If the maket has indeed put in a good low here, due to the abundance of sloppy charts I would expect a bullish scenario to play out with us spending a lot of time churning at 1150 before eventually breaking higher.
Going back to last year around this time, I made the following video walking you through the historical importance of the 1150 area.
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[youtube:http://www.youtube.com/watch?v=2bbs7jPsSRE 550 412] Comments »Inappropriate Red, Now?
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This morning we had what looked to be some expected profit-taking and mild pullbacks in the market after the initial spike higher right at the open. Since then, Fitch came out and downgraded Italy and Spain’s sovereign debt and the selling has picked up across the board. I locked in some nice gains inside 12631 in a few positions and am back to 100% cash, waiting to see how this pullback plays out. Keep in mind, as recently as Tuesday we were down at 1074 on the S&P 500. Currently, we are above 1150 and could easily come in some more while keeping the rally this week largely intact.
Healthcare and utilities are showing strong relative performance today, while financials, technology, and materials are all leading to the downside.
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Appropriate Red on My Screen
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I noted last night that I did not expect a morning gap higher to hold, and we are seeing stocks fade thus far today. The Nasdaq, where many high growth firms are housed, is underperforming the stodgy Dow Jones Industrial Average. Usually when this happens it is a sign that risk appetite is not at full force, and it is best to back off the action for now. As always, your timeframe is significant in that this short-term breather can easily be deemed constructive in terms of helping charts set up for higher prices down the road.
The S&P 500 still did not precisely touch its 50 day moving average (around 1177 and declining), and the presumption is that we will see at the very least a touch quite soon. One scenario that the bulls would favor is to see a few days of consolidating just under the moving average, preparing to rip higher though it. Scenarios aside, the bottom line is that the market is taking a break and that is being reflected by the lack of enticing trade setups underneath the surface. That can turn on a dime, as we saw with Tuesday’s stunning reversal, which is all the more reason to continuously scan charts and look for changes in market character.
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The First Time is Not Likely the Charm
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Heading into tomorrow morning’s jobs number, we have seen a 90 point move in the S&P 500 since the final hour of Tuesday’s trading session. The S&P has not come in direct contact with its sharply declining 50 day moving average since July 28th. A knee-jerk spike higher tomorrow morning as an initial reaction to the jobs number could easily see us testing that elusive 50 day m.a. up at 1180.
Simply put, when you go this long without so much as touching such a widely watched intermediate-term reference point on the daily chart, the first test of it in a virtual straight line is likely to offer up a high probably short-term short trade, probably lasting no more than a day or so. It is highly likely to take a lot of work to flatten out and then turn back up that 50 day moving average. To be sure, I would not short the second, third, or fourth touch of that reference point, but the first touch in a straight line morning gap higher is what short-term shorts want to see.
Also note that such a scenario playing out would actually be preferable for bulls looking for a multitude of loose and sloppy charts to firm up, in the hopes of eventually offering higher probability entry points for longer-term swings. There is a lot of work to be done for that to happen, but a back-and-forth tussle in a lower volatility environment than what we have seen over the past several months would be considered progress.
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