Known Unknowns

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MARKET WRAP UP 09/29/10

In another day of consolidation just below the significant 1150 level, the S&P 500 finished down 0.26% to 1144. While breadth was far from inspiring, even the most ardent bear could not deny the underlying strength seen in many individual issues, as well as broadly in the energy sector. The argument could be made that the weakness in the broad indices masked the true strength seen today, as we saw many breakouts and pockets of momentum continue to flourish.

At the same time, we are coming up on the end of the third quarter, and have a slew of economic data that will be released to close out this week. As usual, the actual data itself is not as important as the reaction to it by the market. Regardless, the amount of variables at play creates an abundance of known unknowns. The bulls have dominated the month of September, and they have earned the benefit of the doubt at this point, as the S&P 500 continues to operate above all major moving averages. Thus, my portfolio remains net long.

The bears may very well be on the cusp of a major reversal, as the market has been unable to stay above 1150 long enough to drink a cup of coffee. However, the assortment of potentially bearish hanging man candles printed yesterday saw no real confirmation to the downside today, given the benign pullback. Therefore, we are simply going to need to see more evidence of a change in trend before a bearish bias can be assumed.

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Since my entry into $NANO at $13.65, the stock has exploded. I supposed I could adhere to a broad rule to let all winners run, but the stock is up roughly 11% today alone. Thus, I will not be a pig in Mr. Wu’s pen in Deadwood, Dakota Territory. I sold out of $NANO.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 62%

• LONG: 54% ($ATPG $CRZO $CSTR $GNK $HMIN $PAY $TIE)
• SHORT: 8% ($QID)

CASH: 38%

I bought a full position in $CRZO, based on the chart below. The stock was one of my top setups last Sunday evening, and I believe it is as close to an ideal setup as there is. Regardless of this particular outcome, understand that I will take this setup every day of the week, so long as the broad market is acting reasonably well.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 66%

• LONG: 58% ($ATPG $CRZO $CSTR $GNK $HMIN $NANO $PAY $TIE)
• SHORT: 8% ($QID)

CASH: 34%

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I made two trades, thus far today:

• I sold out of $VMW.
• I sold 1/2 of $HMIN.

All trades are timestamped in The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 58%

• LONG: 50% ($ATPG $CSTR $GNK $HMIN $NANO $PAY $TIE)
• SHORT: 8% ($QID)

CASH: 42%

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MARKET WRAP UP 09/28/10

Throughout the month of September, aggressive bulls have been, by far, the type of traders who have been rewarded the best by Mr. Market. Thus, when we saw a sharp selloff this morning, including some flash crashy action in $AAPL, it should have come as no surprise to see the bulls come in to buy the dip. With the S&P 500 closing the session up 0.49% to 1147, those aggressive dip-buyers are going to need to be disappointed at least a few times before they throw in the towel if the market rolls over.

Despite the reversal higher today, the bulls still must contend with the serious resistance at 1150. Thus, the tension continues to build at this juncture. As I noted throughout the day, we printed several hanging man candlesticks across the leading indices, sectors and stocks. However, that fact alone is not reason enough to turn bearish. As sloppy as today was, we are still digesting the gains made during last Friday’s rally.

The temptation on a day like today is to overtrade. With all of the progress they have made over the past month, the bulls still have the short term initiative. Rather than extrapolate too much from today’s action, I elected to simply hold my positions and make no changes to my portfolio, until there is a market move with more staying power than that which we saw today.

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The market recovered nicely from the wicked dumping we saw this morning in $AAPL. Into the close, I still believe the daily candles that are on the verge of printing should be respected as possible indications of a correction. However, I made no changes to my portfolio today, as I believe situations like this are designed for traders to trap themselves by jumping to conclusions too soon. If, indeed, today’s assortment of hanging man candles are the beginning of bearish reversals, then that fact will become obvious in the next few days.

The bull case is that today marked a mere consolidation. To support this notion, take a look at the currency pair which is arguably the best gauge of risk appetite in the world: the Aussie Dollar versus the Japanese Yen. This looks to be a bullish setup, and if the Aussie breaks out I would expect all economically sensitive risk assets to flourish, namely equities and commodity related stocks.

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