Grinding Up

We are now well off this morning’s lows, and the bulls have gotten above that 1153 level on the S&P 500 I discussed earlier. It is a tough grind, though, as the bears are looking for entries to reload shorts for a potential afternoon rout. I continue to watch this area closely, since it is proving to be a real battleground just above 1150.

Silver is down hard, while gold is coming in as well. Seeing the precious metals lose ground is, to my eye, important for the unraveling of the infamous fear trade we saw this summer, especially gold. So, to see gold down even though the market is down too is a slight net positive for bulls looking for divergences in their favor.

Finally, Apple continues to hold up exceptionally well considering how stretched the monthly chart is. The reaction to the Steve Jobs’ news has been tame, and the overall action remains constructive. This is most certainly another positive divergence to which bulls will point. Note the benign pullback to the 50 day moving average, above the August lows on the daily chart below.

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Looking at the market intraday, the issue is whether we can clear the post gap-down resistance from this morning. As I am writing this, the bulls have pushed above 1153 on the S&P 500, which proved to be a brick wall this morning and at noon. As the session progresses, look to see whether this level nows turns into support. There is an awful lot of room above for a huge gap fill from the open, so you can be sure the bears will reload some shorts by the end of the New York lunch hour.

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The market is currently well off of this morning’s lows, but still down convincingly across the board. There seems to be nowhere to hide with regard to stocks, as energy, financials, and industrials are leading the charge lower. When dealing with this type of price action, my experience has taught me that the best thing to do is usually step aside and let it play out. The market can turn on a dime, so shorting is not nearly as easy as it may seem at this juncture.

I also see that 1150 on the S&P 500 is still acting as price magnet, despite today’s broad range. Given today’s action, I think a close above there would be a very minor victory for the bulls. Gold, gold miners, Treasuries, and the Dollar continue to act as safe havens or as a “fear trade,” if you will. Those are still areas of the market and assets that you would look for to roll over if the bulls are going to make a dramatic comeback.

The good news for the bulls is that we have not broken down from the August lows, and are still well above them. Perhaps this will be the true double-bottom if we retest them this month, down at 1101-1120. Either way, everything seems to be as negative as can be out there–Including technicals, macro, sentiment, etc.. I do not see much gray area here, in the sense that we are either flopping around at a major bottom, or are on the cusp of a fresh leg lower.

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The relationship between the Euro and Swiss Franc should command your attention, as the pertinent issue for markets seems to be just how naughty things will get over in the euro zone. The “Swissie” is serving as the ultimate safe haven, and the weekly chart below of the currency pair shows an established and powerful downtrend over the past few years.

A few weeks ago, the pair experienced what appears to be an exhaustion of sellers as seen in the massive hammer candlestick below, as the Euro fell near parity. The fact that this is a weekly timeframe raises the stakes even more that we have already seen a washout in the Euro versus the Swissie, and by proxy a culmination in fear and the end of this downtrend. At the very least, if the lion’s share of the gains made by the Euro since making a temporary bottom in August continue to hold, that long-shadowed hammer will be looking more and more viable as a good low.

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I see that there was a big debate late last week on the back of news that cable network Starz Entertainment will end its deal to provide movies to Netflix. Despite Netflix selling off 8.64% on Friday, billionaire Mark Cuban came to the defense of Netflix, arguing that the Starz loss was basically no big deal in the long run.

To my eye, the arguments for both sides are essentially moot points relative to the short-to-intermediate term price action of NFLX. Looking as the weekly chart below, you can see just how advanced the potent uptrend had become. It was a glorious one, to be sure, but they never last forever. Now, the issue is not whether Netflix has put in a permanent top. Instead, the focus is on at least resetting the base count over the next few quarters. The idea is that all good news looking out over the next few months had already been properly priced in during the stock’s meteoric rise.

While the news about Starz may not be a major negative for Netflix in the grand scheme of things, it likely serves as an excuse to push the stock in the direction it appears to want to go now, which is down and sideways to fill out a chart that had simply become too good to be–and stay–true.

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I talked about Get Low (2010) the other week, which stars Bill Murray in a dark comedy with plenty of drama. Rushmore (1998) is a bit more light-hearted, and is an original comedy also starring Murray, as well as Jason Schwartzman as the memorable Max Fischer. I have included the first two parts of the film below, and they are required viewing. Check it out.

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[youtube:http://www.youtube.com/watch?v=9XCqtcFMomU 550 412]

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[youtube:http://www.youtube.com/watch?v=RIQ8u9ybk7o&feature=related 550 412]

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