Friday, September 23, 2011

Market Thoughts

The market rallying while silver and copper get raped makes no sense to us — we see it as Friday version of musical chairs. The bulls are trying to keep the range ($SPY August low 110.27 still hasn’t been breached) and traders are nervous that they will miss out on a potential rip due to weekend fiscal intervention headlines. That’s definitely a possibility but nothing we’d want to bet our money on (short or long)– especially if the recent past is any example.

We don’t think holding the lows now would be a good thing for the bulls — it would just extend the range-bound tape. We want a flush, new lows, and a cleansing. And most importantly we want the commodities to show strength first — they started the down-fall and we want them to start the rally, whenever that may be.

If you are an investor/swing-trader who got clipped this week — remember — the more you try to make it back the harder and more dangerous your trading will become. The market doesn’t care about your PnL. Get involved whenever there’s good risk/reward set-ups, whenever that may be, regardless of how much you have to “make up”.

Follow us on StockTwits and Twitter

Tuesday, September 20, 2011

Russell Divergence

We’ve been writing about the divergence between the Russell and the Nasdaq for a while now but wanted to put out a few figures out there:

The $QQQ is 2.19% over its 50SMA

The $SPY is 1.96% under its 50SMA

The $IWM is 5.96% under its 50SMA

Here’s an update of the chart we posted yesterday showing divergence between the Nasdaq and the Russell:

We have no idea what’s going on — is this some new paradigm in which small-cap stocks, financials, coals, oil stocks, and copper all sit dead in the water while momentum “decouples”? We don’t think so. One will soon revert to the other — that is either the laggards start to stabilize or the momentum stocks will start to fade. We’ve been through markets where tech/momo take the lead and commodities/more conservative sectors grundgingly follow but we can’t remember a time where copper (fresh new year lows again today) was an inverse indicator for the market.

For short-term traders it’s business as usual (we had six successful momentum daytrade alerts from our newsletter trigger in last two days) but it has been keeping us even more short-term than usual, constantly worrying about sudden reversals and death traps.

Monday, September 19, 2011

It is not the critic who counts....

Too long to tweet – what a fantastic quote.

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly; who errs and comes short again and again; because there is not effort without error and shortcomings; but who does actually strive to do the deed; who knows the great enthusiasm, the great devotion, who spends himself in a worthy cause, who at the best knows in the end the triumph of high achievement and who at the worst, if he fails, at least he fails while daring greatly. So that his place shall never be with those cold and timid souls who know neither victory nor defeat.” – Theodore Roosevelt

Which one is telling the truth?

The divergence between tech/consumer discretionary and almost everything else has been a recent theme for a while. When tech started rallying last week we were looking for basic materials to catch up (and didn’t have much luck there as very few broke-out of our set-ups). Here’s a nice little chart $AAPL overlaid with copper (via $JJC) to show you how surprising this divergence is becoming:

AAPL at year high while copper at year lows.

We’d be happy with a market led by tech/momo names but the other sectors still usually go in more or less the same direction. A real up-trend is not going to happen with a dying basic material/financial sector. So which one is telling the truth? Will the momentum names pull up the whole market or will the laggards anchor down the healthy sectors?