This tape has more gaps than a shopping mall!
Good morning and welcome back to center court. The Menagerie gathered at Hoofy's home last night for the NCAA championship and to feast on Daisy's delicious brownies. As the critters readied themselves for the big game and prepared to turn their attention from the hard tape to the hardwood, the chatter migrated towards their favorite topic. Relaxed and comfortable, the fabulous five bantered about the Minxy prospects going forward. The conversation went something like this:
Hoofy: Man, I've gotta tell ya, I haven't been this nervous in a long time! I mean, jeez, Syracuse in the finals! These freshman are playing beyond their years!
Boo: (already on his third brownie) Dude, Nick Collison is the least of your worries! There's a lot of trapped money in this market now and that's exactly the type of ammunition the bears need to really shake the tree. I don't care if the final screen was green, yesterday was a poor showing by the Minx!
Snapper: (wearing a vintage Sherman Douglas jersey) Boo, if you're celebrating that the market was only up marginally, you're the one who should be worried! The breadth was firmly positive, the macro tells, while off their best levels, were still equity positive. To top it off, the S&P "backed and filled" the opening gap and the gap from March 24, which is bullish. You're not reading it right. Yesterday really wasn't all that bad.
Sammy: You make some good points, Snaps, and everything you say is true -- if we hold. I agree with Boo, however, that a lot of new money got sucked into the rally and investors are assuming a best case scenario. That's potentially self-fulfilling, IF (big if) the geopolitical news flow continues to be friendly. If there's a burp, however, there's vacuum potential on the downside.
Daisy: (placing a bowl of chips on the table) But isn't most of the news being discounted? Look at last week's economic data; it was horrible, but portfolio managers chose to look through it. If Beeks was given a pardon, I would think corporate America would receive the same courtesy. And take your legs off the table, Boo, have a little respect!
Boo: (jumping to his feet) Ahh, but herein lies the problem, cowgirl. The action has fermented the mindset that it's alright to be long because bad news doesn't matter. How many traders do you think bought the market because it acted well? What happens if it starts to fail? I'll tell you what happens, they'll have lost their catalyst! That's why it's important to respect the price action but not defer to it.
Hoofy: I hear what you're saying, but that's part of your problem: You haven't respected the price action. Dorsey Wright does some fantastic work on the market mechanism and they've witnessed constructive action internally. Ever since the March low, we've taken two steps forward -- sometimes three steps forward -- and a half step back. You've been so busy looking for that half step, you've missed the bigger strides.
Sammy: To be fair Hoofy, the bigger picture is still quite bearish. I'd be careful with sounding the all clear siren as the trend is still down and the stochastics are in a red zone. Yes, they can pretzel twist for a bit, but I'm not so sure it's smooth sailing from here. The optimal buy point is when the market is oversold and sitting on support. We're much closer to being overbought and testing resistance.
Snapper: What levels are you watching on the downside?
Sammy: On the big board, S&P 873 was good support Friday, and if it gets through there, 860 fills the gap from last Wednesday. In techland, Nasdaq 1045 is a multiple bottom and if they get through there, Nasdaq 1020 is an area of congestion. I'd also monitor the 200-day moving averages, although I wouldn't defer to them -- there's false breakout potential involved.
Daisy: (walking over and sitting and Hoofy's lap) What I don't understand, fellas, is that you guys feel like you have to play every jiggle, every day. Think about it: If you initiate a trade too early, you're gonna paint yourself into a painful corner by the time you really need to step up. That will throw your entire s)">scale off and cost you money and opportunity -- the double whammy. If you're patient and disciplined enough to wait for the meaty pitches, they'll show themselves. You just can't be a junkie and get sucked into the noise. Now, if it's alright with you, I'd like to call an official time out and put this market talk to bed. We've got a night full of college hoops, great friends and my world-famous brownies. Everything else can wait for tomorrow.
Boo poured some peanut M&Ms into his paw, grabbed the remote and cranked up the surround sound. He knew, as they all did, that Daisy was right. It was time to turn it off and enjoy the down time. It's easy to say "we work to live, we don't live to work" but the difference between saying something and doing it is all the difference in the world. And in this world, tomorrow is promised to nobody.
Good luck today.
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