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MV Crime Report: Market to Break Out of Its Holding Pattern?


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

This week we've had 3 very similar trading sessions: News knocks the market down in the morning, but it finishes with a late afternoon rally that leaves it unchanged on the day. Monday, it was poor new home sales data; yesterday, it was a weak consumer confidence number; today, it was a weak durable goods number and a bad bond auction.

For the day, the S&P 500 traded in a tight trading range between 968 and 977 before closing down -0.45%, to 975.

Speaking of the trading range, it's been very tight this week generally, moving between 982 and 968. Over the past few months, when the market has stalled like this, explosive moves have often followed. In June, we saw a down move to 875; this month, we saw the move to our current high of 982.

If the S&P is going to break this range, it's going to need to find catalysts to bring out buyers or sellers -- which means earnings or economic data. But the market's reaction to these 2 this week have so far been muted.

On the Buzz and Banter, Professor Quint Tatro gave his view on why the market could have strength here.

"The market is dipping today and is long overdue. If you are thinking it is the start of some ridiculous descent that will have us all re-entering the bunker and storing up the spam, you may want to think again. Despite what you may believe about the economy, the tape has now notched a +7% move for the year, which is leaving most managers in the dust. Heck, it hasn't left me in the dust, and even I can feel the anxiety to want to have better returns. Sure, this is a dangerous edge to play, but we have to be aware of it, and respect it while it lasts. It is what will keep a bid under this market for some time.

"Unless you are managing a few billion, odds are you can move quick and don't have to be subject to a macro view or a contrarian perspective. Play what you see setting up, set your stop and let the action take care of itself."

Performance anxiety can work in the short term, but this economy isn't that strong. I would pay attention to developments in Asia: If you blinked last night, you missed China going down 5% on fears the government might tamp down liquidity. Our markets shrugged off this news (Professor Branden Rife did an excellent job of covering this) -- but it's starting to look like China's great wall may be beginning to crumble.

Today on the Buzz and Banter, Professor James Kostorhryz gave his strategy.

"I may increase my net short overnight position today IF the market closes weak (e.g. below 968 on the S&P 500). In my view, weakness on the close in the US today will likely trigger further selling in Asia tomorrow, which will in turn probably cause Europe to reverse today's gains. The US market is unlikely to escape a downside gap in such a scenario.

"Prime candidate for increasing my bear positions: Russa ETF (RSX) shorts and/or puts. The Russian economy is a leveraged derivative of crude oil. Increased cautiousness on China (due to perceived need to tighten credit) will continue to pressure crude oil and could spark a very sharp sell-off in the Russian market.

"If the market does not close weak, none of the above applies."

The market closed strong, so Professor Kostorhryz didn't add to his short position. That being said, I still believe he has the right idea here: Russia and crude oil levered to China could be shorts off the news. Definitely something to keep an eye on.

Heads up on earnings tomorrow: Exxon Mobil (XOM), Kellog (K), Mastercard (MA), Dryships (DRYS), First Solar (FSLR), Disney (DIS).

Have a great night!
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No positions in stocks mentioned.

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