Thursday, January 28, 2010

S&P Seems Likely to Break 1085

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The "action" this morning is poor; especially coming off a night where S&P futures surged based on... a speech.  I am a bit surprised the S&P was not run up closer to resistance i.e. S&P 1110 but certainly that adds another arrow to the quiver of "the action stinks".

S&P 1085 remains the line in the sand, and the reflexive bounce yesterday off those levels made a lot of sense.  S&P 1110 (50 day moving average) and 1115 (the previous low) are the 2 top side targets - we're in a new range for now and it's still white noise.  Rome was not burnt down in a day; it will take a few attempts if the eventual fate is to break S&P 1085.. 




I looked at countless charts last night to see what was holding this market up i.e. areas of strength, and aside from Apple (AAPL) there are only 3 areas I could find (a) almost anyting healthcare (b) oil-gas pipeline stocks (not sure why - maybe their yield?) and (c) about 10-12 small to medium sized regional banks.  I assume the last group is due to (a) the first real potential reform of the oligarchs and (b) incredibly favorable deals many of these banks are getting when the FDIC takes over failing banks and hands over assets to their peers.  This was exactly the reason we bought Regions Financial (RF) over a year ago - but the market was not ready to accept this logic at the time.  In many deals the FDIC is handing over these assets and accepting 80%+ of the future losses; talk about handing out free money to the banks - more socializing losses.

But those 3 legs are not much of a stool to stand on.  In my pockets of interest I only have a handful of stocks I would be interested in as the vast majority of stocks I like are breaking down technically.  Just a month ago I ran a screen of stocks over the 20, 50, and 200 day moving average and over $300M in market cap - there were over 2000.  Now its around 400.  (of those who have any real volume)  I'm effectively tabled on the long side except for a few specific situations until the charts firm.  Our stop losses have done their job and we've been liquidated on almost the whole long portfolio - a lot of "minor" positions with only a handful that matter anymore.  I have placed a few limit short orders in individual equities as well, but I was hoping to see more of a bounce in the S&P 500 so my targets would jump 3-5% higher to provide lower risk entry points.  No such luck.  So all we have is an enormous amount of cash and some index puts to hedge off our long exposure - until we exit this small range.

Unless your time frame is much shorter than mine, it is not a place to make long entries - unless they are based on a timeline of a few hours - 48/72 hours.  You have to be quick and fast ... in and out... there will eventually be a bounce (at which time I expect the Chinese and commodity stocks to rally hard) but catching these falling knives is best left to those who wear a few layers of gloves.  Or have 6 hands.... like a (vampire) squid for example.  On the plus side, unlike much of 2009 this market feels much more traditional and normal in behavior... I hope it continues.

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