Test of Bear Manhood

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MARKET WRAP UP 09/23/10

With the market well on its way to another day of benign consolidation, the bears summoned the intestinal fortitude to push stocks convincingly down during the final hour and twenty minutes of the trading session. After the bulls so valiantly defended the key 1131 level yesterday, they clearly lost it today as the S&P 500 closed down 0.83% to 1124. The recent underperforming areas of the market, which have made me reticent to categorize this rally as a sustained uptrend, looked awful today. Those weak sectors include the financials, transportation stocks, not to mention the huge gap down that we saw in the real estate stocks. Moreover, we saw an abundance of “gravestone doji” candles on many extended charts today, which usually indicates, at a minimum, a short term exhaustion in buying (A gravestone doji is simply a candle denoting indecision, with a clear high in price before making a low near both the open and close).

The key issue right now is whether the bears can successfully press their shorts after today’s breach of 1131. They now have the short-term initiative, and the bulls are back in the familiar role of trying to save the financials from becoming a falling knife that fatally stabs their dreams of a bonafide rally above 1200 on the S&P. The price action today also begs the question of whether Monday’s huge rally was actually a trap to lure in eager bulls. In my view, after the past few days of consolidation, the coming days should give some well-defined answers to whether the bulls or bears will dominate the next big market move.

Regardless, today’s price action forced me to take on some bearish hedges, namely going long the $QID (ultrashort $QQQQ) as a way to exploit any coming weakness in the extended technology names, including $AAPL. My trading philosophy aims to be in touch with what actually is, rather than what I would like to see. To be sure, a sustained rally into 2011 would be fun and relatively easy to trade. After today, however, we are back inside the multi-month trading range on the S&P, and must also contend with weakness in other major sectors and indices.

The bears did more than just growl today, and I am going to respect that fact.

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[youtube:http://www.youtube.com/watch?v=LG_f1GzmwHo&feature=related 450 300]r

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The sublime harmony of mathematical precision (S.H.O.M.P) in The PPT is telling me to take a look at the ultrashort $QQQQ ETF, $QID. A good chunk of the “Q'”s centers around $AAPL“s performance, and based on the daily chart below, I am going to go long the $QID to position for an $AAPL pullback, as well as a broad selloff in technology.

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Please note that I am not calling a major top to Apple here, nor to this rally. I am simply making a multi-day bet that this steep angle, seen above, is more likely to fail in the short term than continue higher. I may very well look to go aggressively long Apple into Christmas. For now, though, I am on the other side of the trade.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 52%

• LONG: 44% ($ATPG $CSTR $HMIN $NANO $TIE $VMW)
• SHORT: 8% ($QID)

CASH: 48%

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For all of you intraday scalpers out there, the pussified bots are coming for you, and your bullshit buy and sell stops…

Just sit tight for now and let the market come to you.

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[youtube:http://www.youtube.com/watch?v=a3HkTX-0xHY 450 300]r

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In case you missed it, a few nights ago I wrote a post devoted entirely to the emerging long setup in $CSTR. Today, the stock impressively bounced off of the 200 day moving average, and also filled the gap dating back to last April. About an hour ago, I bought a 1/2 starter (noted in The PPT). I just added 1/4 more, as the Redbox parent company looks ready to, at the very least, attack the upper end of its multi-month falling channel.

My original buy was at $40.06, and I just added ad $40.84 (again, timestamped in The PPT). I see that the stock is exploding as we speak, so keep that in mind if you are trying to swing trade it.

I also sold out of my $BTU position, as I did not like the candles the stock has been printing over the past few days.

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TOTAL PORTFOLIO:

EQUITIES: 44%

• LONG: 44% ($ATPG $CSTR $HMIN $NANO $TIE $VMW)

CASH: 56%

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I bought a 1/2 starter in $NANO, as per the chart below. I also took on 1/4 more of $TIE, and now have a full position in the name as it breaks out of it downtrend line.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 46%

• LONG: 46% ($ATPG $BTU $HMIN $NANO $TIE $VMW)

CASH: 54%

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MARKET WRAP UP 09/22/10

With the ball in their court today, the bears had every opportunity to inflict technical damage to this extended market. Instead, the resilient bulls properly defended the 1131 level on the S&P 500, with the key index closing down 0.48% to 1134. As you would expect to see during a benign consolidation day, many stocks took breathers, while the leaders continued to thrive, namely $AAPL, $NFLX, $FCX and $LVS. However, technically speaking, today did mark a distribution day for the Nasdaq Composite Index, as selling volume ticked up from yesterday. Nonetheless, the $AAPL bulls are making it awfully difficult for the bears to dig in their claws on the short side.

In addition to the weakness in non-Apple Computer technology, the financials led to the downside as well. Thus, despite not showing much conviction today, the bears may very well get a few more cracks at pushing down this market. Even if we do break 1131, though, the bulls have plenty of cushion below, including all of the major moving averages.

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