Heating Up

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The squeeze is still on, frustrating a great many who have been looking to put shorts back on into this rally. For those bears who “shorted the breakdown” on Tuesday and continue to hold them, you can see how cold Mr. Market can be when you complacently assume that a real move is about to, or is currently, taking place. Due to the fact that many charts fell apart in such a steep manner over the past few months, there is plenty of room above to continue to drift higher and squeeze more frustrated bears without really making too big of a dent in those downtrends (VECO and charts like that come to mind).

As per my post a few nights ago, I am not focused on gauging sentiment so much as focusing on the price action. I am still not seeing many high quality setups, but action like this is a very good starting point. I have been playing a few longs, but am locking in partial gains along the way. I expect there to be a day of reckoning relatively soon, when we see the bears step back up to the plate to prevent the bulls form turning this entire market around on an intermediate-term basis. It will only be at that point where we see the true test of mettle of the bulls. If the bulls truly are turning the tide for more than a few days, we should see more and more set ups over the next week or so. If not, then you can see the continued importance of keeping capital intact until the odds offer a better spot to get involved in an aggressive way.

The charts of the major banks are still in well-established downtrends and are highly suspect, despite rallying today. Even if they have bottomed for good, I expect quite a bit of turbulence before crossing over into a fresh uptrend. Bottoming is a process, and the further along a chart is in that process the higher up it should go on your watchlist for a potential breakout.

Huntington Bancshares is a regional bank that has ceased trending lower for quite some time now, and instead has been basing for several months. In other words, the fight is on between bulls and bears in a rather tight price range. If the financials have bottomed, then I want to be in the strongest relative performers. Above $5.25-$5.30 with strong buy volume would entice me to play HBAN for a breakout from this base.

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As you can see on the daily chart of the SPY below, the market has not so much as even touched its 50 day moving average since late-July. That fact illustrates just how steep the summer swoon truly was, given that after two months of sideways action the 50 day moving average is still sloping down to try to meet up with current price.

First and foremost, the 20 day moving average is just above. However, the point of this post is to note that the market can continue to drift higher as the bears back off here, without it having much long-term consequence. In other words, now that the notion of a crash or 2008-style panic/forced selling has abated, the market is back to filling gaps. In addition to filling gaps, the presumption is that the 50 day moving average could easily be tested here, if only for a retrace and brief touch.

With the 50 day m.a. still sharply declining, swing trading for more than a day or two from the long side remains a tricky proposition.

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This price action is obviously much more constructive for the bulls than it has been in quite some time. The sudden price swings have calmed down, and we are seeing some upside moves begin to stick. From Tuesday’s failed breakdown came yesterday upside follow-through. However, now the heavy lifting really starts for the bulls. If they are going to transform this market into a swingable one for the next few weeks or even months, then many, many charts need more time to set up properly. I am still seeing way too many loose and sloppy patterns out there for me to seriously consider aggressively allocating high levels of capital here. Of course, your strategy here is going to depend on your style. Consistent with my approach, I will wait for a better spot to get more involved.  In the meantime, I am playing a few things here and there with shorter-than-usual timeframes.

A good example of the type of situation that the current market presents can be found in the precious metals miners (I have been long GDXJ since yesterday). Note that the chart is far from a high probability swing trading setup. However, it does present a bounce opportunity given the deeply oversold condition along with the hammer and confirmation yesterday. These types of trades carry a higher risk of volatility and failure than a normal breakout from a tight base in an established uptrend, which is all the more reason why I am not being too aggressive with capital allocation and timeframes.

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[youtube:http://www.youtube.com/watch?v=0A7tLVIsuNw 550 412] ________________________

Here is a freebie for you guys courtesy of The PPT Seasonality feature. Intercontinental Exchange, Inc. has a perfect 6 and 0 record in terms of finishing the month of October higher, for an average return in the month of roughly 8.50%. As we do in 12631, we take The PPT one step further, looking at the chart. As you can see below, ICE looks to have formed a bullish consolidation amidst tightly wound moving average on the daily chart. Such a period of compression is likely to give way to an explosion, as one side emerges victorious form a hard-fought battle between bulls and bears. Judging from both seasonality and the technicals, the bulls have an edge here. Also note how the stock clearly outperformed the market since the summer crash, especially in September–A clear sign of relative strength.

Seasonality

Month Avg % Return Total # Months # Months UP # Months DOWN January -1.949 6 3 (50%) 3 (50%) February 5.887 6 4 (66.67%) 2 (33.33%) March 6.572 6 4 (66.67%) 2 (33.33%) April 7.516 6 5 (83.33%) 1 (16.67%) May 0.697 6 3 (50%) 3 (50%) June -0.8 6 4 (66.67%) 2 (33.33%) July -5.454 6 2 (33.33%) 4 (66.67%) August -3.879 6 1 (16.67%) 5 (83.33%) September 4.653 6 5 (83.33%) 1 (16.67%) October 8.499 6 6 (100%) 0 (0%) November 0.181 5 2 (40%) 3 (60%) December 10.092 6 6 (100%) 0 (0%)

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