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MV Traffic Report: Buying Climax May Now Be in Rearview


Rain or shine, we review the day's biggest stock stories.


July is now officially over, and it was quite a month. The S&P 500 started the month lower but reversed on July13th, staging a 3-week 120 point rally and setting a new high for the year at 996. The rally was based on better-than-expected earnings reports (which we know weren't great) and Goldman Sachs (GS). The firm made many bullish calls during the month, the most famous being that the S&P would go to 1060 by year-end.

As we turn the calendar to August, a historically sleepy month, what will happen next? Today on the Buzz and Banter, Professor Jeff Cooper gave his thoughts.

"Next week is the first week of August and in my opinion the cycles point down hard.

"If I am correct, emphasis should be on shorting weakness rather than buying strength. Even if a top of some sort is being traced out, that does not rule out a foray above S&P 1000. I will not chase such a move.

"Although most of the usual suspects led the market higher yesterday, many did not make new swing highs. At most major highs, there is a divergence between the averages and individual stocks: all stocks run up together in a squeeze, sending the averages to a new high for the move. When the usual suspects falter, the market is vulnerable to a swifter-than-expected sell-off. Normal bull markets are characterized by rotational moves in sectors with some stocks advancing to new highs -- but not everything moving up together.

"If many of the stocks that made new highs, especially new 52-week highs, this week's close below last week's close it may indicate a buying climax."

Stocks that fit Cooper's criteria are: Amazon (AMZN), Goldman Sachs, and Baidu (BIDU). These all happen to be among the leaders since the March rally.

There's been a lot of talk about the 1929-1930 stock market rally in comparison to this market rally. In S&P Watch: Market Won't Fall Without a Fight, Smita Sadana touched on this topic.

A host of comparisons with 1929 have been circulating on trading desks. How did 146 days of 46% increase lead to a large decline?

In the same spirit, the media have been breathlessly comparing the present to July 1939 (Which Todd's note alluded to yesterday).

Click to enlarge

The reality is this: Media comparisons are irrelevant.

Click to enlarge

Click to read the rest of S&P Watch: Market Won't Fall Without a Fight.

I'm off to show my friends Nick, Josh, and Ryan a good time. They flew in from California this morning for their first trip to the Big Apple!

Have a great weekend!

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No positions in stocks mentioned.

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