Stock #Market Recap 09/20/11 {Video}

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The market continue sot be challenging due to the ephemeral nature of any semblance of trend. We still remain in a broad rising channel since early August, the bold bears are becoming increasingly antsy by the day as their bear flag/rising wedge thesis morphs into a more neutral pattern. I am cutting laggards while being methodical with my winners, with nearly 70% cash at my disposal for when the market can leave its emotional baggage in the dust.

This type of a market reminds me of a tough no-limit poker game (a legitimate live poker game, not the con known as online poker). No-limit poker differs from limit, or structured betting, not only in the sense that you can go all-in at any time and bet as you see fit, but also because it is much more of a trapping game. Clearly, this type of market is filled with traps and requires much more thinking through things than a trending market. And by traps, I mean for both longs and shorts.

In my experience, the key to being successful a tough n0-limit poker filled with traps everywhere is to play extra cautiously and wait for an ideal spot to pounce. I know that advice sounds like it could work for any market, but in a trending market you should not be nearly as cautious as you should now. So, while there are opportunities, I am focusing on not getting too high or too low here about the market until the channel is broken in either direction.

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This is a rally centered around technology stocks, airlines, consumer discretionary, and precious metal miners. At the opposite end of the spectrum, the industrial material complex is decidedly not in rally mode. If you keep that in mind, you can at least hone in on the areas of the market that are working. Without question, I suspect the increasingly protectionist Chinese command economy may be one of the root causes of the weakness, in addition to a burning Europe, of course.

As I write this, I see that Freeport McMoRan is losing yesterday’s lows and giving the bears fodder to call today’s rally a complete phony. I wrote yesterday that I thought copper had ceased being an accurate leading market indicator. I want to precisely lay out why I am saying that:

Given the fact that it had not led us equities down over the summer, and in fact had held its May lows even when the S&P 500 was, for all intents and purposes, crashing. Well, now copper is losing its May lows. Again, you have to ask yourself whether this is the mark of a fresh leg lower, or whether copper was simply the “last man standing,” and needed to be taken out back and shot to give some closure to the summer correction.  

I suspect it is the latter scenario. It’s your money and your decision, and the market will be the final arbiter.

Double-click on the chart below of copper futures to see what I am talking about re: holding the May lows during the summer crash and only now losing them.

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Bonds are up, and some European banks are still tanking, such as BNP Paribas. However, equities here in America are holding the lion’s share of their gains from this morning, which has many market participants scratching their heads. The simple answer is that the market is going to do what it wants to do, regardless of what many say “must” happen if the turmoil continues in Europe.

Looking at a 10-minute chart of the SPY below, you can see we consolidated the gains in an orderly manner, and are now threatening an afternoon breakout. Also check out KGN, a small-cap gold miner with loads of potential for momentum traders here. I still maintain that the miners will outperform the metals, and if that thesis comes to fruition I expect the high beta miners to get their freak on.

We live in a crazy world with a crazy market, but it doesn’t have to be ugly. If you focus on price action, it can be fairly sexy. Let’s see whether the sexiness is merely a product of beer goggles, or whether it is the real deal in the coming days and weeks.

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I don’t know about you, but for me there are simply too many headlines and too much discussion about policy and potential monetary and fiscal policy moves around the world to keep up. From a swing trading perspective, that is all the more reason to focus on the price action in multiple timeframes as best I can. After all, data and policy is just that, and it is what market players do with it that determines stock prices. Seeing as the summer lows have yet to be beached and a fair amount of individual stocks seem to be performing better by the day, I am sticking with my strategy for this market to methodically layer back into stocks with technically sound charts.

As I noted last week, the precious metal miners are outperforming the metals themselves, and I expect that trend to continue. Other than that, there are some quality long setups out there and we are killing it inside the 12631 chat room. The great thing about running a top shelf premium service is that even when I discuss an idea that goes on to explode but I had not taken the trade, I get to see my members celebrate the win. That is most certainly the case with @TonyRago nailing the REXX move that I discussed here. Come check us out in 12631.

If you are looking for some hot intraday action, keep an eye on PSUN for a trashy short squeeze.