Chewing on Some Big Red

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MARKET WRAP UP 08/11/10

Starting with the futures tanking last evening, the bears delivered a sound thrashing from bell to bell today, with the S&P 500 closing down 2.82% to 1089. Actually, the bears have extended their supremacy into the after hours, as the $CSCO earnings and conference call helped to push the futures down as low as 1073. Regardless of the reasons, the simple fact is that today was a very ugly day for bulls. Breadth was horrible, and volume was the heaviest that we have seen in weeks. Perhaps what was most bearish was that the bulls could manage no intraday rallies longer than a few minutes, and they were laughably weak ones not just in terms of time but also price.

Despite the hearty victory for the bears today, the broader technical picture remains mixed. Starting with the updated and annotated daily chart of the S&P 500, we can see the bulls are hanging on for dear life just above the 50 day moving average.

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Continuing with my theme of relative weakness in the Nasdaq Composite and Russell 2000 (small cap stocks), we can see how much damage was done to their charts today. If the bulls are going to prevent a retest of the July lows, they had better get their act together soon.

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The relative strength in the Dow Jones Transportation Average took a huge blow today, as the updated daily chart illustrates below. Again, a quick recovery by the bulls is essential.

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By far, the healthiest chart remains the emerging markets ETF, $EEM. Despite the selloff today, the ETF is at a key prior resistance level. Again, as with the charts above, if the bulls can rise to the occasion, this will have been a strong buying opportunity.

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The widely watched financials suffered an ugly gap lower on their daily ETF chart. However, all is not lost yet, as there is plenty of support below. The financials could still be forming the right shoulder of an inverted head and shoulders bottom.

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In sum, the steep uptrend since July 1st has now been broken. However, that the does not automatically mean we will see a fresh leg down to new lows. I know that can be frustrating to some of you who come here looking for easy answers. However, the market does not offer easy answers very often. Accordingly, you will find a bit more analysis in my work.

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If you were caught leaning heavily long today, it is important to keep your head. Days like today feature overly medicated midgets running around screaming about their bearish prognostications. As far as I am concerned, these types of lilliputians should be forced to use a bidet, in full public view, ON PRINCIPLE, rather than having the privilege of using the same public restroom that I do.

The technical picture is a mixed bag here. I will go into more depth in my market wrap up tonight, but the S&P is holding its 50 day moving average, while the small caps have suffered more serious damage.

Either way, panicking is not the way to go here. Riding the emotional roller coaster in the stock market is a waste of both time and energy. The same people who are pounding their chests today somehow, magically, disappear when they are wrong the other 95% of the time.

I will keep posting, and will continue to stick with my trading philosophy.

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NOTE: A healthy way to blow off steam:

[youtube:http://www.youtube.com/watch?v=vZ6GGDpxYzw&feature=related 450 300]

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While not a perfect, tick for tick proxy of the equity markets, the Dollar/Yen relationship has been a pretty good gauge of risk appetite. As an example, look at the huge spike in the Yen on the May 6th Flash Crash, as the risk friendly Yen carry trade was quickly reversed.

Today, I am seeing the makings of a bullish reversal hammer on the daily Dollar/Yen chart. If this print holds true, and we see confirmation to the upside, it should be a bullish omen for equities. Just as a strong Yen is enough to discourage risk appetite, a weaker Yen puts the carry trade back on center stage.

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The updated, intraday $SPY daily chart below pretty much sums up what is happening today. Whether you considered it a triangle or a wedge, it is now broken. The issue is whether this is a shake out that helps to alleviate overbought conditions, as well as to create some healthy fear before we move higher. Alternatively, this could be the shot across the bow, presaging yet another leg down in the broad market.

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I will obey my stop losses, until I get a better idea of how much momo the bears really have here. Thus, I stopped out of my $LSCC 1/2 position, and elected to sell of out of my $GNK and $BX positions.

All trades are timestamped inside The PPT.

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EQUITIES: 32%

• LONG: 32% ($BZ $OVTI $ISLN $RDWR $CMI)

OTHER INSTRUMENTS: 8%

• $TBT

CASH: 60%

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MARKET WRAP UP 08/10/10

To almost no one’s surprise, “Fed Day” comprised of some nasty intraday swings, yet did very little in terms of clarifying the next big market move. Despite the morning selloff down to 1111, the S&P 500 managed a post-Fed announcement rally to finish down 0.60% to 1121. More importantly, the pattern of higher highs and higher lows since July 1st remains in tact, despite the choppy price action. However, breadth was weak, as healthcare and consumer staples were the only major sectors in the green, indicating the overall lack of willingness of traders to aggressively trade the Fed Day with conviction. Volume was also predictably heavier than yesterday, as the news driven day was the genesis for the wild price swings.

With eight closes in the red over the past eleven trading sessions, the broad market indecision continues. One would think that the bears should have been able to at least break and hold below 1100, given all of the red days of late. However, the bulls have proved resilient, as evidenced by the still intact uptrend on the updated and annotated daily chart of the S&P 500, seen below.

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Updating a few of my broad market “tells,” I see some more consolidation before $GS, $FCX and $IBM can move higher.

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The summer doldrums have no shame this year. Eventually, we will get a market that is more fun and easier to trade. Until that happens, equities remain stuck in the middle with you.

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[youtube:http://www.youtube.com/watch?v=kPgFnRdTcKE 450 300]

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(Warning–Violent)

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

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I bought a full position in $TBT.

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TOTAL PORTFOLIO:

EQUITIES: 52%

• LONG: 52% ($BZ $OVTI $ISLN $GNK $LSCC $RDWR $BX $CMI)

OTHER INSTRUMENTS: 8%

• $TBT

CASH: 40%

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