Properly Repositioned

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Last February, I wrote a piece arguing that ATML was essentially priced for perfection for the foreseeable future. It had one final and brief pop the next day after earnings, but was quickly red the following day. Most traders were quite bullish on stocks back then, believing that just buying every dip was the key to success in market capitalism. Fast forward to the present, and many of those same traders are hunkered down for a deep recession or a depression and the accompanying bear market.

Despite the massive shift in sentiment, the monthly chart of Atmel tells us that price is still holding well above its multi-year breakout point from a tedious narrowing channel from 2002-2010. Although considerably below its 2000 dot-com highs, the past six months have actually been highly constructive for the stock’s very long-term proposition. Note the inevitable test of the rising 20 month moving average is upon is as well.

Atmel is clearly no longer priced for perfection. In fact, it may be properly priced for the bargain bin.

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Darden Restaurants, owner of the Red Lobster chain, is sporting a chart that is pretty commonplace with what I am seeing on a daily timeframe here. Note the high volume dramatic low set earlier the month, followed by a lower volume high volume over the past few sessions complete with an inverted hammer from Friday and upside follow-through today. There can be no doubt that the bears have owned the action since late-July, but this common “W”shaped bottom is becoming ubiquitous and puts the bulls in the best position they have been in a while to regain the initiative.

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If you look through countless daily charts today, you will see what could easily be double, or “W”-shaped bottoms. You can also see steep, powerful downtrends that have destroyed the capital of longs eager to pick a bottom over the past several weeks. Even if we are headed into a bear market, for which the jury is still out, steep downtrends are still prone to aggressive counter-trend rallies. So, the idea that every single mini-bounce is to be sold can only last for so long. Basically, something has got to give, with the friction of us holding well above those 1101 lows on the S&P 500, versus the selling pressure and overhead supply we have seen accompany each bounce.

I noted this morning that the SPY 30-minute chart was flirting with a breakout from a falling channel. Indeed, we have now broken out from the channel. If you are looking to be a bull or a bear, you can find evidence to support your claim. That said, I put on a few small tester long positions today and may add more.

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As you can see on a 30-minute chart of the SPY dating back over the past ten sessions or so, we have been working through a grinding falling channel since last Thursday massive gap down. Today, the bulls are flirting with a breakout from the channel, which would indeed be significant and likely hold further upside. However, this market has been a huge lush of late–Drunk, sloppy, and flirting and with bulls and bears alike.

Accordingly, a strong finish had better be high up on the bulls’ list of priorities in light of the weak closes we have seen them give us heretofore.

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Reader “alf44” points out a CNBC segment from Monday with noted technician John Roque, in which Roque offers a bearish outlooks on equities. In particular, he argues that Freeport McMoRan, as an excellent proxy for copper and economic activity, is poised to head much lower from current levels. You can watch the video by clicking here.

Regular readers of mine know that I continually analyze Freeport due to its excellent track record since 2008 of being a market leader and a true “tell.” I rarely trade the stock, but will not hesitate to make a bold call when I see fit, such as in this video that I made last January regard Freeport’s monthly “dark cloud cover” pattern.

At this time, it is tough to make a bold call. As you can see on the current monthly chart below, all was well for the past several months, with Freeport consolidating in a relative healthy way. The month of August, however, has now created a nebulous situation with a nasty-looking bearish marubozu. Price is hugging a simple support trendline dating back to its 2008 lows, after being rejected from prior all-time highs back in January. All of the short/intermediate-term support levels on the daily and weekly charts have been lost, so this truly is the last stand for the bulls if they are going to defy Roque’s bearish call.

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