Good evening StockBandits!
Last week we saw the SPY reach a big milestone with a streak of 14 consecutive positive closes, but as with all streaks, that came to an end. Thursday’s downside was a mere formality, whereas Friday’s selling was more of the legitimate variety. Along with option expiration came the most downside pressure we’ve seen in nearly a month, as the recent straight-up move finally ran into air thin enough that even short-covering didn’t take place.
So does Friday’s turn lower on big volume (which, by the way was largely options-related) mean that the end of the run has finally arrived? Does it mean that we just short aggressively and wait for the profits to roll in? Well, I don’t think it’s going to be that simple. It does point to some short-term exhaustion, which means in the next couple of days the market appears poised for at least a rest, and possibly some further corrective price action. After the move we’ve seen in the past few weeks, that would surprise very few. However, the nature of the advance needs to be considered before we can jump to any conclusions.
The nonstop fashion in which the market has moved indicates to me that it’s been largely driven by bears needing to cover short sales which are losing money. The day to day advances have been relatively quiet, which isn’t really characteristic of a runaway bull market. In those environments, you’ll tend to see at least an occasional 200-point daily advance, but lately they’ve been more of the 50-point variety. The biggest clue to me that this has largely been short covering is that the market has been unable to go down. Every minor bit of weakness is met with buying, which is out of desperation on the part of bears who perceive any and all weakness as a chance to exit and alleviate the pain. On the flip side, a bull-driven market tends to see profit-taking, but we’ve not seen that.
With that said, going forward there will be a new element to consider, which is the fact that new 52-week highs have been made, and that of course has the attention of the bulls. Knowing that the bears are on the ropes lately also builds the confidence of bulls, and many buyers will now expect the dips to each get bought. That of course may perpetuate the same kind of action we saw throughout 2009, which was a buy-all-dips market.
So the bottom line here is this: this market badly needs a rest, some selling, whatever you want to call it. But we can’t fully expect it to just dart south from here because the bulls aren’t likely to walk away quickly. Could be that we see a pretty good battle shape up, so be prepared for anything and toss any bias out the window!
Please leave your comments and/or questions below if you have any, I always enjoy the interaction.
Here is tonight’s video:
The Bandit Broadcast Video – Click to Watch!
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Video Stocks Discussed: VMC, ATK, HXM, HK, REGN, UTHR, CSIQ, DTG, AIG, AMSC, CAAS, CAGC, VSEA
Swing Trading Candidates:
VSEA bounced from support last week but in a sluggish fashion, and the stock still faces considerable technical overhead. A small rising trend line is just beneath current prices, and a break of that trend line will trigger a short sale for me at $29.15 as this one could roll back over toward key support upon such a break.
Bullish Watch:
CSIQ, ATK, DTG, LEA, CNAM, CIT, VMC, AIG, ROK
Bearish Watch:
AMSC, CAAS, FCX, PLL, HXM, CSKI, HK, REGN, VSEA, ADM, UTHR, FLR, SBAC, CAGC
The Hit List will be coming out soon with discussion on open positions and swing trade stops and targets, so be sure to watch for it.
