Change of Sentiment

We thought that the bulls would try to put up more of a defense today but so far the bears are winning the day.

In last night's newsletter we put in a few support longs (BRCM ATI WLT and a few gold names) but none of them have triggered at this point. We also put in three shorts and all triggered and worked well.

SOHU target trade short to 64

We had wanted OXY and COG to bounce for a day and were surprised how easily they cut through support. OXY was listed as a short at 66

COG short 34

As opposed to previous pull-backs since the March bottom we are now under the 20 SMA on many sectors we follow -- this means that support buying has become more high-risk than in the last few months.

It's only 1:20 PM as we write this and today's close will be important but thus far the message is clear that the market for dip-buyers has changed and more caution is needed.

We still like gold stocks on important daily points as they started the sell-off before the SPX and are quite over-sold.

Update: One support long finally triggered, ATI 38.

Good day for our selections as all selections worked: 2 shorts, 1 target trade, 1 buy on support.

SPX gap filled

SPX gap from May 29 now has been filled and possibly the market will try to stabilize around this number short-term. If it can't then next stop is the 200 SMA/support around 910 and then major support at 880.

Trannies (represented here by the ETF) were holding under 62 resistance and a break-out through that level would have been very bullish. Instead today Trannies pulled away and broke down. This is the most bearish action we've seen in a while and think that the up-side now has been capped. The break-out level on the SPX that was touched on late last week (and which seemed questionable) now seems to be a distant memory.

The picture of indecision

Compare the long wicks on the last six trading days of the SPX compared to what came before -- the picture of a battle between the bears and bulls. As we've written in the newsletter in the last few days -- sentiment/momentum is not sufficient any longer for a meaningful break-out as the up-trend has waned. This means that the only thing that will move the market out of the range is significant fundamental news. As long as this tight range continues we're shorting resistance and buying support.

Market Talk

There's still 90 minutes to go before the close but we have our SPX break-out and commodity stocks are going bonkers. But we expected better action and volume for this break-out and can't help but to be disappointed.

A lot of tech is still red with GOOG AMZN BIDU BRCM SOHU all negative as we write this. What kind of break-out is this? Not to mention IYR has been negative all day, and GS has been going in and out of the red zone all day.

A low-volume commodity led rally without tech participating is not a healthy break-out.

A couple of things would get us more bullish: a strong close today, and most importantly, tech participating tomorrow.

But for now all we can say is Meh.

Market Talk

The effect of the 10 year auction results today show how focused the market is right now on the bond market. This is probably the most important thing (along with USD attempts to rally) holding the market down.

We didn't get duped by the market gap-up this morning to break-out levels. Why? Because of what we wrote last night in our newsletter in regards of a break-out in the SPX:

"Key factors that have to confirm will be volume (which has been lacking lately) and breadth ( you don't want the SPX to break-out without the financials/REITS participating)."

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Today both conditions failed miserably. Sit tight, chill, get a drink. This isn't the time to make any bets until we get a more clear direction.

Market Notes

The SPX seems tired with some of our lead "tell" stocks such as AAPL GOOG BIDU acting exhausted. We're in a tight consolidation pattern in the S&P 500 (still in the same zone as the SPX chart we put up yesterday) and our game plan here is to take it easy until we get a better edge.

Our thinking is that we're not going to be leaving this range without some kind of fundamental news as technically the major indices look like they're low on juice.

As we wrote last week we seem to be entering a more difficult market (at least personally speaking for our own PnL). Expect more of the same until the range breaks (923-952). A break-out of SPX 952 would probably take it to 1000. A break-down of 923 would take it down to the 20/200 SMA around 915 and if those did not hold, then the 50 SMA around 880. Consolidation over SMAs and under resistance is considered bullish.

Conclusion: sit tight until we break the range -- after that most likely there will be better opportunities.

Market Talk

Very impressive come-back and the consolidation looks good here for a trip to 1000. One wild card is the USD which has been trying to make a stand since last week. If that occurs, we could see a more significant pull-back, but until then enjoy this rip-roaring bull trend.

Charts

We've come a long way since the 666 bottom but as you can see bulls are still completely in control with all trends intact.    Of course even a few, long high-volume red candles could change that but until that time comes, stay long.    

However, as we mentioned in the previous post we think that the next 20% is going to be much more difficult than the last 20% and we'll be expanding our scans to look at more sectors than just our usual favorites (i.e. beyond just commodities).    We like tech a lot and are going to get busy trying to find decent tech set-ups this weekend. 

Treasuries are hanging on to support - not quite over but they have to bounce soon or trend will continue down. 

The S&P is currently working its way through resistance and if that goes then 100 and 107 next stops. 

We've enjoyed the run in commodities but if they stall we'll be looking for a rotation into tech. 

Ag-Chems were the first commodity group to run into resistance -- working it off now. 

Trannies right under resistance and and the 200 SMA. 

We can see IYR run up to the 200 SMA and then 40.

Gold taking a breather.   Sideways action would behoove any possible break-out in gold. 

Gold miners also consolidating. 

Next resistance 90 on DIA.

XLF coasting under the 200 SMA with resistance at 13 and support at 11.5. 

Murky out there

We have a tough time making money on days like today.  Why?  Because the movement seemed random, technicals weren't really respected (stocks would go through sup/res lines like they were invisible), and usual correlations were not respected (USD was firm/gold was killed,  but treasuries were down?)

Our guess is that the easy tape we've seen in the last few months is going to give away to more confused and choppy action.   Oil from $35 to $70 was a much easier move than it will be from $70-$140.   We're going to hit a mountain of supply as commodities reach more fair pricing and rates inch up.      

So what to do?  Even though the bull trend is still intact, we think that we'll be returning more to a stock picker's market rather than just buy any commodity and watch it rip higher.    

It could still be early for this call but we strongly believe that this will be the beginning of the next period in the market.     As always, time will tell.    

Foggy

It's foggy out there today in market land as USD has firmed up, oil is holding flat, gold is down, and traders are trying to jostle for position.       

Don't get caught up in the noise -- take it easy today until some kind of clear direction emerges.

We'll post up some charts this weekend. 

Free Newsletter

We discussed how we buy support in today's newsletter.    It's free and if you want it just write to us at  info AT highchartpatterns  DOT COM   and we'll be happy to mail it to you.   Please put Support in Subject Line. 

More Trades

Some good opportunities from our newsletter last night.   Here are all the alerts that triggered after the open (we also lost many that gapped above).   Some were easier than others, but all worked. 

SPG 55 worked very well. 

POT dipped to our 118 buy spot. 

JRCC 24. 

FCL 31.

We were looking for a trade on DIA at 86 -- it gapped above but then pulled back within a nickel of our spot.

BNI 74 was smooth.

ANR 29 worked. 

Hard to take credit when everything melts up -- enjoy it while it lasts. 

More inflation Talk

Good article in Seeking Alpha today  if you're interested in adjusting your portfolio for inflation (and it seems like traders have done exactly this all month long):

With inflation worries starting to surface and the US Dollar resuming its fall, many investment advisors have advocated the iShares Barclays TIPS Bond Fund (TIP). This ETF invests in Treasury Inflation Protected Securities, treasury bonds which promise to completely protect against inflation by calculating the coupon payment on inflation-adjusted principal.

The TIP is a smartly designed fund with an attractive expense ratio and plenty of liquidity. But it has one fatal flaw: TIPs haven't been tested in truly inflationary times, and are thus a much riskier investment than most people think.

The protective value of TIPs rests on an accurate calculation of inflation. Critics have long accused the CPI of underestimating the true value of inflation. Much like the unemployment figures, the CPI numbers have beenopenly massaged over time to look more benign. They aren't falsified per se, the index's parameters are simply changed in a way that produces overly conservative figures.

TIPs were first issued in 1997, smack in the middle of the "great moderation". They weren't tested in the 1970's. We don't know if the US government will pay them back honestly and in full. It may simply be easier and cheaper to lower the CPI numbers, leaving TIPs holders exposed. This excellent Bloomberg story describes how poorly TIPs performed in early 2008, right when pre-crisis inflation hit its peak.

The pressure on the US government to fiddle the inflation numbers will be overwhelming the next time inflation rears its head. The Fed wants to keep rates low to support growth. The Treasury wants to keep rates low to avoid raising its borrowing costs, both through higher interest payments and higher TIPs payouts. Every government in the world fudges their inflation numbers, and history has shown that the worst fudging comes in times of the worst inflation. With the US fiscal situation looking more and more dire, investors cannot rely on the flawed CPI to protect them.

Better, safer alternatives exist. The SPDR DB International Government Inflation-Protected Bond Fund (WIP) invests in inflation protected securities from a variety of non-US issuers. WIPs holdings are better credit risks, and their geographic diversity minimizes the chance that any one particular government will hurt your returns.

The ProShares Ultra Short 20+ Year Treasury (TBT) shorts the long end of the US treasury curve . Unlike the CPI rate, long term treasury rates are set by the market. (Although the federal reserve has recently tried to artificially support prices with quantitative easing, its policy has clearly failed.) As inflationary expectations rise investors will demand more yield for long term treasuries, causing prices to fall and TBT to rise.

Investors with more risk tolerance may want to invest directly in commodities, which are usually big winners in inflationary environments. Top picks would include the SPDR Gold Shares Trust (GLD), the Powershares DB Commodity Index (DBC), and the Powershares DB Agriculture (DBA). If you absolutely must invest in TIP, make it a small part of an inflation proof portfolio that includes exposure to international government bonds and commodities.

Disclosure: Author owns TBT.

Good opportunities

We always tell new traders that trading is harder than it looks, but what you always need, whether you are new at the game or a grizzled veteran, are opportunities.   And providing trading opportunities is what  HCPG is all about:

Here are some of the triggers just from the last two days:

SOHU buy 60 worked great:

As did SNDA 56 alert:

Our two previous buy points in RGLD:

In PCU yesterday on the break of the triangle:

Two buy points this month in NEM

Trend line break yesterday in MEE at 22

Our GDX buy point earlier this month on the break of the base:

BIDU 255 yesterday buy point:

AEM two buy points this month:

And we put this freebie in the newsletter last night pointing out the bottoming action -- great follow through today:

TBT holders don't be piggish

A month ago we wrote a post called "Commodity Rip" and discussed how commodity stocks were showing clear leadership. We highlighted XME at 34 (now 37 ), OIH at 94 (now 104 ), USO under 30 (now 35 ), and made a note on the weakness of treasuries with TLT at 97 (now 91 ). It's been one hell of a move.

The trend in the commodity stocks is still intact, but TBT holders might want to take some off the table as treasuries look like they've put in at least a short-term bottom.

Dealing with a psycho market

Accept the fact that we're range-bound and until SPY breaks 88 on the down-side or breaks through the 200 SMA and resistance (93-94) on the up-side there will be a lot of backing and filling.    

So what to do:

If you're a swing trader then buy the dips, sell the resistance in order to avoid being whip-sawed around and forget about break-out trading until the range is broken down/up.

And if you're a day-trader like us then it's business as usual (we got some decent day-trade

 moves on AAPL, VMW, CLF today from last night's newsletter).       

So stop whining, man-up, and be patient until we move out of this channel. 

Dip Buyers Win Again

Just when things could have gotten exciting on a break of SPY 88 -- dip buyers stepped in and thus far have won the day.     

 

  We wrote in our newsletter this weekend: 

"Strategy for strong market: If we break minor resistance 90 convincingly we'll try some longs.  Strategy for weak market:  through 88 and we could be in for a trip to the 50 sma and we'll be looking short."    

SPY Talk

Clear range is setting up in the market with support at around 88 (875 on the S&P) -- if that goes then watch for a move to the 50SMA-- and major resistance on the SPY at 93-94 (and 200 SMA). Within that range we have now a c lear minor resistance at 90; a high-volume close above 90 could rally us back to resistance zone in a hurry.

No predictions as to which direction this small range (88-90) will break but we'd prefer a move down to the 50SMA to give this potential March bottom a broader base and more backing and filling.



Point A is the trend-line that we broke and keep visiting from the other side. Point B is support, and Point C is resistance.

Get your lawn chair out

We're stuck in this range in the SPY with the floor being 88 support, and the ceiling previous highs and 200 SMA around 93-94. Until that is resolved, be prepared for choppy, trend-less action.

Day Traders get their day

It's not 1 PM yet so too early to call it but thus far it looks like a reversal day. Consolidation near resistance is actually good for the bullish case -- as long as the pull-back doesn't gain momentum towards 88. Let's see how it looks at 4 PM.



These are ALL the stocks that triggered from last night's newsletter, losers and winners.


ACI 18 worked well if you were fast.


CLF 25.


CNX 40.5


GNK 21


JRCC 24


MEE 21.4


Best set-up of the day goes to base and break 1 point under daily spot on MON (91 base and break under 92 daily spot).


NEM 44.75


PCU 20


TBSI 10.5 didn't work. We don't like trading sub-$20 stocks and regret putting this one on the letter.


VMW 29 excellent set-up for a big size/close stop trade (as opposed to wider stop/fewer shares trades we recommend on commodities).