Archive of July 2010
Going up?
Lots of the breadth indicators we follow have improved significantly over the past week, but this one sums it up the best. After stalling out since the correction began at the beginning of May, we're moving higher once again:
After the kind of move we've seen the past few trading days we are due for some consolidation. Don't let it scare you. The bulls once again have the upper hand and will continue to do so while the markets remain above last week's lows.
Russell 2K reclaims 20, 50, and 200 day moving averages
Great day for small cap growth stocks today with a number of large breakouts to fresh highs. The Russell 2K growth index (IWO) has now reclaimed all it's primary moving averages. The S&P has yet to climb over the 200 day hurdle, but after numerous failed attempts we are finally above the 50 day moving average.
There is some major resistance not too far from here (roughly 74 for IWO, and 113 for SPY) and it would be premature to call this a new uptrend before overcoming these levels. The charts do look promising though, if only we could see some legitimate accumulation volume! The phrases "up day" and "on higher volume" haven't been playmates for a long long time...
The breadth charts we follow aren't updated until later in the day, but we have a feeling we'll see a meaningful improvement from last week after today's action.
With today's close above last week's highs, we have removed the second 1/3 of our hedge position and await further gains before we remove it completely.
Taser for a trade
After five months of drifting lower with little buying interest to be seen, Taser (ticker TASR) finally is making moves off its latest quarter. We love to see big candles like this on heavy volume, especially when buying interest carries through to the close. Even better if it happens on a day when the rest of the market is in the shitter. Revenue growth is negative, earnings estimates have been coming down recently, and growth expectations this year are weak, so this isn't our typical long candidate. However, growth expectations for next year look great (current ests are for 0.02 per share this year, and 0.21 next year) and it's hard to ignore today's action.
If you're looking for a gamble with a decent risk/reward payoff, consider opening a small position with a stop below 3.70. That's 0.63 below today's close for a 15% loss so size the position accordingly.
Another market temper tantrum
Bernanke spoke, but the market wanted action. Now investors are showing their disapproval by kicking and screaming on the floor. We've seen a lot of these little temper tantrums over the past two months, but we haven't made any progress to the downside. We are nearly 15% off the highs of the rally, with the Fed still fully stimulative, and a stable -- though highly elevated -- jobless rate.
Sentiment went extreme two weeks ago, registering roughly 25% bulls to bears. Although extreme readings like these do not suggest the ultimate low has been reached, they do suggest that selling is overdone for the time being and major new lows are unlikely to be reached without first rebalancing the teams. The snapback to 50% is simply because being a bear became fashionable, and many of the polled AAII investors pride themselves on their independent thought. This was a rare print, very close to the lows seen prior to the only two big rallies of the last bear market.
A few breadth measures such as the NYSE Adv-Dec index and the NYSE High-Low index continue to hold up well despite the market's woes.
The number of NYSE stocks hitting new highs has been gradually climbing higher as well, despite the market hitting fresh lows (granted these are very low levels though):
Although the next few weeks will be volatile and we may see new lows, we believe it is time to start lightening up on the hedge. It has served us well over the past two months but this correction appears to have run its course for the time being. There is far less risk in the market now than there was in the six months preceding the correction. We're taking a third off now, with the next third to be removed on a breakout above last week's highs, and the final third to be removed as the market regains the 200 day moving average.
Irony
Goldman gets away with a $550m slap on the wrist within hours of the "sweeping" financial reform bill being passed by congress. All bark and no bite. So much for progress...