Tuesday, October 21, 2014

Time for A Retest

Today at midday, the broad U.S. indices are rallying strong with the SPY up 1.56% and the QQQs up almost 2%.

CNBC's Bob Pisani gave several "reasons" for the rally, some being that there's a belief the Fed will remain dovish, that ebola fears are waning with no news of it spreading, and rumors out overnight that the ECB "might consider" new stimulus.

From my view, the violent nature of price action in the indices the last few weeks signals that this will not result in another V bottom as has been the case during this 66 month bull run.

A sell off like we saw last week showed some forced liquidation.  So the lack of that selling pressure this week produces these big gap ups and gains we've seen so far this week.

Now if this rally is for real and we're off to the races again, I would expect oil to rebound as well.  But oil is sitting mostly flat on the day.  This leads me to believe this is a reflex rally, and some sort of retest of last week's action will occur.

So with that I'm going long the inverse ETFs - namely SQQQ and SPXU.

Here's a chart of the SPY - click to enlarge.

Monday, October 20, 2014

Time To Be Nimble

The recent market volatility the last few weeks has many traders wondering if this is the beginning of a market top, or possibly just a reaction to global news flow.

We've had everything from the Russia/Ukraine issue, to the end of QE3 in the U.S this month, to ISIS terrorists in the Middle East, to a sudden drop in the price of oil, and now EBOLA fears.

There's been a lot for the market to digest, and up until mid September the general market indices had held up reasonably well, aside from the weakness in the smaller cap Russell indexes.  And now we're into earnings reporting season.

The energy complex has been destroyed.  The sharp drop in the price of oil makes one wonder if it's signalling coming weakness in the global economy.  The Eurozone is a mess, with Draghi continuing to try and jawbone that stimulus is coming, all the while Merkel sits back and rejects the idea.

What to make of all this?  For me, I care most about the price and volume action in the market leaders.  There have been some failed breakouts recently, while other leading sectors like the biotechs and select restaurant stocks are sitting in constructive bases.

So for now, until we see the market volatility settle down some, and see a valid follow through day in the indices, it's time to do less.  It's a trader's market.  If you're adept at getting in and out of positions quickly, you are probably loving this volatility.

But others should probably wait for a clearer picture to develop.

Here's a chart showing what could be the beginning of a head and shoulder top. Or it could be just another pullback to shake out weak hands.  What I'll be watching with close interest is to see how the S&P 500 acts when it gets up to the 1950 to 1990 range of overhead resistance.

Some names of note in the aforementioned groups that are holding up well:  RCPT, ENTA, AMAG, LOCO, PLKI, DNKN, SONC, TXRH

Click on chart to enlarge.