Market Update

I’ve been slacking on the technical analysis side of this blog lately, mostly because putting all of the charts up here really is time consuming, and it’s far easier to just upload them to Chart.ly.  If you read this blog for the technical analysis aspect, or just the general market commentary, please make it a habit of checking in to Chart.ly regularly, most of my individual trading ideas and broader market commentary are posted there in real time.  You really are not getting a holistic view of my commentary without it.

Anyway, we are at a critical juncture in this market as we should soon find out whether this is a bear flag or just another dip in the rally to shake out the weak hands.  My cash position in the momentum book us +30% still as I’m not yet convinced the buyers are ready to squeeze this market.  The risk is to the downside here until many issues can recapture their 50 day moving averages.  Let’s take a look at the overall market.

The 20 and 50 day moving averages are going to be large resistance for this market.  If the 20 crosses down through the 50 that will signal an end to the move off the July lows and produce a test of the 200 day moving average.  We have already seen the market make a new 20 day low in the last week, the first since the July lows as well.  On the positive side, stochastics are rising from oversold levels and if we can crack the 50 day, I can see a major squeeze in this market similar to what happened in November.

On the 10 minute time frame, watch 110.50 as the major level of resistance and 109 as major support.  The first test of the 5 day moving average from above was successful which bodes well for a squeeze, but we need to see some follow through to the upside on good volume to get the bears scared and the bulls panicking that they need to get back in.  I will be one of them as my cash position is pretty high.

Use Goldman Sachs $GS as your guide to this market, if it runs back through that major level of resistance the squeeze could be on.  I continue to believe there is nothing fundamentally wrong with Goldman, it was sold due to fear of impending regulation and populist speak by the white house.  I don’t believe any significant legislation will be passed, and even if it is, Goldman will be fine.  The white house has shut its mouth for now, but could start talking again any time, so be aware of when the President is speaking.  If this major level in $GS fails for any one of a million reasons, it’s time to put shorts on.

The barbaric metal is behaving exactly the way I expected, we tested the bottom of the range and bounced hard.  I drew that descending triangle line in red but I don’t really believe that a break past that to the upside is going to get gold moving again, it’s just something to watch out for.  A few more weeks of consolidation is needed at these levels between 112 and 105 before we get some resolution in either direction.  I’ll play it either way.  I have been surprised at how hard the gold miners $GDX have been hit.  I made a bad call on materials a few weeks back and I’m still licking my wounds a little over it.  The miners have been a tricky trade, you need to buy on weakness, but this was the first time that weakness really turned to pain.  Stick with it, this trade isn’t over in my estimation.

Stay nimble and put together your watch list of stocks that are showing good relative strength.  If another rally does occur, it won’t be the old momentum names leading there way, there are new names that have grabbed the torch.  Here are just a few to look for: $MCD, $CMG, $ALGT, $LUV, $PRGO, $DV, $PEGA, $VRX, $HSP, $DMND, $ALXN, $NKTR.

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