Random Thoughts: Bulls and Bears Square Off in a Technical Tug-of-War
And it's too early for either side to claim victory.
Turnaround Tuesday has arrived with the bulls looking to pull a "21" at the world's wildest casino.
Between the 20 consecutive "up" Tuesdays and the longest winning streak in the Dow Jones Industrial Average (INDEXDJX:.DJI (without a three-day decline) since at 1900—yes, that streak is still intact—the voodoo that they do is alive and well.
The bears, for their part, are working on a trend-channel of their own, as shown in the chart below, and if they can whack-a-mole the bovine bravado below S&P (INDEXSP:.INX) 1650, they'll have their fifth "lower high," which is a stealth sign of distribution.
Yesterday morning, we got our anticipated probe lower (I nibbled on 15% of my short S&P exposure) before asset alligators arrived to sell bonds and buy stocks, closing the market on the best levels of the session.
One could argue that, given the S&P was more than 40 handles off of Tuesday's high print, a bounce was warranted given that bottoms are typically "points" while tops are "processes," but it's too early for either side to claim victory in this current tug-of-war.
Yes, there are two sides to the current ride; the bulls will argue that the government can effectively swallow hard and write off the toxic debt they've ingested, with or without Michael Clarke Duncan, while the bears will lay claim to the business cycle, knowing in their deepest innards that what goes around, comes around regardless of what the market has been brainwashed to believe. "Yeah, it's different this time," Boo the Bear will say while licking his wounds, "until it isn't."
(Click here to see larger version of chart)
Banks, breadth, leadership, and commodities remain viable tells, and levels include S&P 1635, 1640, and 1650 on the upside and S&P 1595-1600 on the downside. And of course, we've got a monster economic report due on tap Friday—a summer Friday, no less—which will start tongues wagging on whether the FED will taper, and when.
For what it's worth and so it's said, I continue to feel that a "free" market would be a much lower market, but that and $2.50 will get you on the subway as the market is far from free.
“Big Mike,” my bonus son’s goldfish, is evidently pregnant. I told him that his new Koi fish likely weren’t the culprit, in large part because they’re so shy.
The bulls will offer that bad data on Friday will equal more QE; the bears will argue that QE, or the hopes thereof, is the only thing holding up the tape—and follow with, "Hope isn't a viable investment vehicle."
I remain "respectfully short" with an eye on S&P 1600 as a first stop and will question my directional bias with a move above S&P 1650. In a perfect world, S&P 1635 (the neckline of the head and shoulder pattern that “works” to S&P 1595) would have capped yesterday’s rally, BUT if the world were perfect, chocolate and pizza would be good for you.
Yesterday, before the asset alligators arrived, the banks (INDEXDJX:BKX) underperformed to the downside, which was a shift from what we witnessed on the way up. This morning, of course, they’re out-performing to the upside. As go the piggies, so goes the poke, so we would be wise to pay attention to the price action, in a "respect but don't defer to" sorta way. Goldman (NYSE:GS), JPMorgan (NYSE:JPM) and Deutsche Bank (NYSE:DB) are my go-to proxies in that arena.
Ditto the high-beta realm; Green Mountain Coffee Roasters (NASDAQ:GMCR), Priceline (NASDAQ:PCLN), Salesforce.com (NYSE:CRM), VMware (NYSE:VMW), LinkedIn (NYSE:LNKD), Apple (NASDAQ:AAPL), F5 Networks (NASDAQ:FFIV), Tesla (NASDAQ:TSLA) and Netflix (NASDAQ:NFLX) were all dancing in red dye for the better part of the session. As they’re the ketchup proxies (read: fund managers looking for bang for their buck to alleviate their performance anxiety), they remain on my radar as well.
Gold has a LONG way to go before it's out of the technical woods. $1325 is support (there's no such thing as a triple bottom!) and $1500 is where it needs to clear for the gold buys to turn into windshield wipers.
My biggest concern on the short side isn't directional, it's timing. I am currently operating with September paper, which is getting a little tight for my liking. At a point, I plan to piece out of that exposure and (depending on time and price) leg into out-month paper that gives me a bit more time.
- Of course, the "time and price" referenced is everything, so we'll take this journey one stair-step at a time and detail our actions in real time on the Buzz & Banter (click here for a free two-week trial).
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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