Buzz on the Street: Ugly Week for the S&P
Some of this week's most insightful and timely vibes.
Note: Some links may require Buzz subscriptions.
Monday, January 18, 2010
Markets closed for holiday.
Tuesday, January 19, 2010
Baidu smoke signals?
Here's an important headline regarding Baidu (BIDU). According to Businessweek, the company lost its Chief Technology Officer and Chief Operating Officer. Both executives resigned in less than two weeks.
Remember, this is Baidu's (BIDU) time to shine after Google (GOOG) announced it could completely withdraw from China altogether. Just something to keep on the radar.
Minyan Jeff Saut's Call of the Week
The solar eclipse came and went in "Neverland" between 11:06 a.m. and 2:00 p.m. last Friday with an attendant stock slide that should have stopped participants out of our remaining index recommendations. And, despite all the "Tinkerbell clapping," the SPX is virtually no higher now than it was after the "opening day" rally on January 4th. Moreover, the number of stocks above their 10-day moving averages (DMAs) continues to shrink, which is the type of action typically seen preceding a stock market correction.
Also, the 25-day put/call ratios are at levels consistent with short-term negative conditions, while Friday's close left the SPX below its recent reaction lows, not to mention below its 10-DMA. Then there is "Dr. Copper," the metal with a Ph.D. in economics, which recently recorded a 12-month rolling rate of return in excess of 150%. Historically such a "copper cropper" has marked a "trading top" in copper and telegraphed caution for the equity markets. All of this raises the question, "Is this the week participants quit clapping their hands and Tinkerbell falls back to earth?"
Wednesday, January 20, 2010
Eyes of the World
This is some sloppy chop, eh? A snapshot of the S&P demonstrates that point in kind, akin to a modern day Charles Dickens novel. It's the best of tapes and the worst of tapes, depending of course whether you've been agile enough-or interested in-fading the prevalent short-term market moves.
While Friday's freaky symmetry stands out in my mind's eye, yesterday's rally was tied to traders "getting ahead" of Massachusetts election. We spied that early on the Buzz while noting at the irony of it all. While I understand the perceived implications for regulation and health care, I'm hard pressed to make the case that gridlock is "good."
Heck, I've been schooled to believe uncertainty is outright negative but perhaps those were simpler, truer days.
Be that as it may, perception is reality, the knee-jerk was higher and we enter our all-of-a-sudden Hump with a handful of questions rattling around our keppe. For instance:
While the specter of "fiscal responsibility" seemingly drove the tape higher, will that reality, should it come to pass, really bode well for the market? There are many words to describe public (and quasi-public) policy but "responsibility", given the current social mood, has to do with blame , not praise.
- While the dollar rallied on the notion that the printing press may take a sabbatical, what will be the structural reaction to a stronger greenback? If we begin to factor in the percolating issues in the Euro (Greece, among others) and note the technically constructive double bottom followed by a higher low, we must resolve this question with a forward-looking lens.
- If China is widely perceived to be the dog that wags the stateside tail, what will be the implications of their efforts to curb bank lending? In a proactive effort to stem speculative bubbles-it's a novel approach, I know, but perhaps Washington can observe and learn-they're cracking down on the massive lending spree and stepping up efforts to monitor their banks.
- What are earnings telling us? Following a massive rally that began almost a full year ago, conventional wisdom dictates that the baton must be passed from the steady hand of the government to clammy paws of corporate America. We've seen crossed signals thus far; strong earnings from Intel (INTC) followed by not-good-enough news from JP Morgan (JPM); better guidance by IBM (IBM), followed by the reality check in Bank America (BAC) and Morgan Stanley (MS). Remember Minyans, news that is good (but not great) is sold in an overbought market while news that is bad (but not horrible) is bought in an oversold tape. More important, and as you know, the reaction to the news will be entirely more important than the news itself.
I've got an early morning conference call so lemme hop; I'll see YOU on the other side of the opening bell. Good luck Minyans; be the ball.
Position in S&P
Hang Seng Index
Check out the Hang Seng Index, which last quarter recorded a TD Sequential 13 sell signal and in December a monthly TD sell setup. The weekly chart this week may record a bearish price flip.
CLICK TO ENLARGE
The interesting thing to note about this chart is that the TDST Up level was qualified back in the second quarter of 2007. This alerted us to the fact the Hang Seng would likely go on to complete the full TD Sequential countdown.
The worrisome part is the monthly chart, which shows a qualified break of a TDST Down level. This means that following the completion of the TD sell setup last month, the corrective move down for the Hang Seng could be quite severe.
Thursday, January 21, 2010
Failed Setups Lead to Fast Moves
Under the heading of failed set ups leading to fast moves, Freeport McMoran (FCX) is a text book example.
Yesterday, despite gold and the market getting walloped, FCX tailed up from its 50 day moving average leaving a Lizard buy setup--a new 10 day low with the open and close near the top of the days range.
When FCX snapped the low of Wednesday's tail it accelerated to the downside.
See daily below.
Click to enlarge
Friday, January 22, 2010
Cause for a pause?
Ironically, in this 3.7% decline in the SP-500, a couple of indicators are already knocking on the door of oversold conditions.
Here's a chart of the McClellan Oscillator.
Click to enlarge
When it's gone in the -200 range in a very short time, the market has had a tendency to bounce but note that the bounce didn't last for a long time – The many other indicators that I follow like percentage of stocks above 40-day MA and various other Oscillators (that are only meaningful in their quantification of oversold conditions) are yet to flash oversold.
So, while we do not have the perfect storm brewing yet as I shared on Oct 28th, in the very short term, if the market follows the same pattern, based on these readings, the market decline can pause.
Minyan Mailbag: On Stops
On XME, where would you set stops?
- Minyan P. M.
Hi Minyan P. M.,
Thanks for your note. Stops are an excellent way of curbing losses (or taking profits) when the trade doesn't work out (or when it does move in our favor) – but stops are often neglected.
There are many ways to define stops in XME; one way can be a breach of today's low (50.1). Or with a small position size here are the next technical targets (a possibility given the lack of fully oversold conditions). I usually have a pre-determine position size adjusting for beta and set the stops as a percentage of that position size.
Beside this, in my opinion, the single biggest factor that influences a trade is position size. As long as positions are managed with a reasonable size, a trader has some control over the trade (and not vice-versa)!
Click here to enlarge
Position in XME
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