Monday, October 04, 2010

Market Talk

Updated chart. Copper stalled at resistance, looking for pullback to at least first trend-line (yellow).   We'd only be buyers of a pull-back to the trend-line at this point and would not engage in any potential breakout trades.

On Friday we wrote "Note the change in the angle of descent -- usually a sign that a short-term bottom is near."  Watch for this to unfold this week and to repeat what we said on Friday, if you're heavy long in commodities, not a bad idea to take some off the table.

If we do get a bounce in the USD then of course it will be a good test of our favorite commodities.  As we noted in our newsletter this weekend there are a lot of names in the sector that are setting up but many are extended -- any pullback and base here would make them much stronger.

We haven't had a sell-off across all sectors for a while -- the pattern has been one of rotation.   We'll see if today will be any different and whether any money rotates back into tech.  We will also be watching less dollar sensitive sectors such as financials (we're long GS swing which we would take off in any strong breadth selloff).   The bulls aren't going to feel any fear until we get a broad sell-off across the board with no rotation.

The following two charts exemplify the rotation that we saw coming in September.

The Nasdaq hasn't done anything in 10 trading sessions.   Will money rotate back into it now as the USD finds its footing?   Our guess is no -- tech is dead in the water until at least earnings season.

Meanwhile look at the move in the drillers in the last 10 trading sessions.   Text book rotation. 


We have no interest in tech names at these levels as we still find them much too extended for good risk-reward.   However if there is a sell-off in tech we would be looking at some support spots in the near future, for a trade.

We plan to go in more defensive mode this week and wait for earnings season to make any aggressive longer-term bets.