The market is overbought in the very near term and does present a bit of challenge for traders.  It is tempting to chase after stocks that have moved nicely over the past few trading sessions.  Do not chase stocks as they tend to shake you before they continue their run.  A pullback has become much more probable and would present added risk going long a stock that has moved nicely.  Tread carefully and buy near proper pivot points.

Sentiment has changed on a dime as the financial media continues to pump the great earnings reports.  Once again, stocks continue to show growth while the macro picture remains murky.  We aren’t economists but a recent piece in yahoo shows a completely different picture.  Here are a few highlights:

•    In America today, the average time needed to find a job has risen to a record 35.2 weeks.
•    More than 40 percent of Americans who actually are employed are now working in service jobs, which are often very low paying.
•    or the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.
•    This is what American workers now must compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.
•    Approximately 21 percent of all children in the United States are living below the poverty line in 2010 – the highest rate in 20 years.

Not a pretty picture for the majority of Americans.  Much like the early 30s the market rose despite horrific economic conditions.  Just because the economy may “look” bad, corporate America is still thriving (regardless of your opinion)

Overbought conditions can last much longer than you might expect.  We’ve been in this situation for more than a week and it can last longer, much longer.  But, now with many looking for a slight pull back we’ll be looking at signs of the health of the pullback.  Ideally, we’ll see 2-3 days of the market pulling back on lighter volume.  At the moment the market has flashed two days of distribution and any stalling and or distribution would certainly have this market under pressure.  Keep an eye on the stocks that have been breaking out and if they hold up.

The market aims to confuse, perhaps we take out June highs only to reverse.  Nothing at this juncture would surprise us here.  Right now, we have some nice charts, some would be MUCH nicer with handles of 3 weeks or longer.  Until then, always have a cut loss strategy!

Stocks Extend Gains as Volume Slips From Friday’s Levels

We did see a few leaders from the semiconductor sector take a few hits today.  These semiconductors have been leading the way and with a few of them taking hits it is something we have noticed.  We’ll keep an eye on these stocks as we move forward.  A few other leading stocks did show some bearish engulfing patterns, but volume wasn’t hot.  Today we didn’t bare witness to any real weakness, just a little bit of weakness.

We still remain in extreme overbought levels as many stocks still remain above key moving averages.  Most notably the number of stocks over their 20dma remains at 85%.  75% of stocks are over their 50dma indicating the market is elevated.  Perhaps the market can work off these levels, but something we’ll keep an eye on!

Financial stocks began the day in good spirits but many closing below their mid-points.  XLF was rejected at the 200dma closing near the lows with volume elevated on the day.  Normally, a rejection at the 200dma with increase trade is not a good signal.  But, given the recent move it isn’t out of the ordinary to see some pullback.  Look out if we are to continue the selling on increase trade.  Many financial stocks look like BAC, JPM, WFC, GS where demand was able to keep up with supply.  If financial stocks continue to act weak and break lower look for the broad market to move with them.

Moving onto another Electronic Traded Fund the RTH witnessed selling on the consumer confidence numbers.  University of Michigan will produce their final numbers on Friday and should point to fears about jobs.  For now, retail stocks continue to remain weak.  Even discount retailers showed weakness including ROST and DLTR.  The consumer is going to be under pressure until the jobs picture becomes clear from its muddy mess.

Taking gains here isn’t a bad thing as we have run up quite a bit from the July first lows.  Always remember to cut your losses as it is your best protection.  If we continue the weakness we’ll become a bit more defensive.  Until then, enjoy the action.

Volume Ends Mixed as Stocks Pause

stock symbol – % return since purchase – date of purchase

longs:

LCUT 138% 11/2/09
AKRX 28% 5/25/10
PWER 27% 7/7/10
RES 15% 7/13/10
JKS 11% 7/13/10

shorts:

SFD 12% 6/17/10
KSS 10% 5/13/10
NOV 7% 5/11/10
THO 5% 5/20/10

Top Current Holdings And Total Returns Since Purchase

Last night I talked about the needing to see POWER from this market.  There were a few stocks breaking out today on big volume, but they weren’t a plentiful bunch.  Volume was running higher than Wednesday for much of the day, but when 2 o’clock came around the volume compare was going to be a difficult challenge.  A slight sell-off from the day’s high helped volume get back what is lost, but we were unable to sustain the levels seen earlier in the day.  Often times these types of big gains are often shorts who are covering and panic out of their positions.  Any number of reasons could be given for example many were anticipating the ECB releasing the stress tests and expect good results.  Whatever the reason, volume wasn’t able to climb above the Bernanke crash created on Wednesday.  This could end up meaning absolutely nothing and we continue higher, but it is something to pay attention to.

In after-hours trading Amazon, Sandisk, Microsoft, and Bucyrus all traded lower after the bell.  Most notably, Amazon finished lower by 10.8% after missing their earnings and revenue.  Retail continues to be a weak spot in this economy and we do not have to look further than the weak job environment.  Consumers will only flock to the best and the very best and why Apple Computer continues to shine with revenue growth.  Bucyrus even climbed above its 200 day moving average today, but will find it difficult to stay above it tomorrow.  Tomorrow will be an interesting day for these stocks and will move the markets.

Chipotle Mexican Grill posted stellar earnings and saw its stock trade higher in after-hours trading.  Sadly, the stock dove through its 50dma and is indicated to open below the key moving average.  However, perhaps it can retake the 50dma with big volume and possibly set up in the future.  For now, this former leader is still suspect.

Since last Thursday we have had two big distribution days and one day of accumulation and we are right back where we started.  We’ll need to see accumulation from the indexes quite soon even though the big indexes:  NASDAQ and S&P 500 are above their 50dma.  The market always aims to fool, so be ready.  Cash is still king until we get a better picture of institutions getting back into this market.

Trade Slows As Stocks Soar

Another high volume failure at the 50dma for the major market averages, the second time in 4 days.  Even the mighty Apple Computer could not escape the wrath of the market where the stock finished at its lows and below its 50dma.  On a positive note, the silver lining was we were able to avoid taking out Tuesday’s low, but that is a small consolation prize.

Volume is now coming in on the downside and with big consequences.  The failure to get back above the 50dma is a large red flag for this market and one should be taking precaution.  I have pointed out the lack of POWER this market has had over the recent weeks like in a new uptrend.  Successful new uptrends are accompanied with big volume moves with broad leaders.  Stocks should be moving in groups,  not just single stocks from one industry.  Power is what we need to see to get long and so far we have yet to see POWER.

Cash still remains king, but if you have been long you might want to trim or cut your positions.  If you are on margin GET OFF.  This market is more suited for shorting than going long at this point.  Unless, of course we get our power.  We have plenty of short targets to take advantage of and with this market continuing to fail at important levels our probability of success grows.  This market isn’t about to cough up a solid uptrend just yet and for now the large trend remains down.

Remember, cash is king and now it appears shorting is a close second.  Always trade with a cut loss plan, it is the best insurance policy for your trading capital.

Remember, we are running a discount for our Platinum, Gold, and Silver memberships… are you ready to take advantage of this market? Time is running out.  Here is the coupon code:  A5AE5.

“Unusually Uncertain” Rips Through the Market Sending Stocks Lower in Fast Trade

Apple Computer was the most notable release and as usual it crushed estimates.  If you don’t know by now, this is how they play with earnings:  beat then guide lower than the street.  Quite a simple recipe for success!  However, looking at where the stock ended the day on its earnings in April the stock closed at 259.22 and in after-hours trading today it closed at 259.20.  In a span of a month in back to back “Best Quarter” ever the stock hasn’t moved more than two pennies.  I would think having back to back “Best Quarter” ever the stock would be much higher than where we see it today.  Value folks will say its a steal and those looking for price confirmation will say it is weak.  Thus, we have a market for the stock.  And with it coming under distribution as of late we’ll need to see the stock move higher with conviction.

The market shrugged off housing start data showing the lowest level since October of 2009.  It is no secret the housing market will remain in trouble until the supply and demand picture becomes more clear.  As long as prices stay high demand will simply not meet supply.  We saw this scenario play out as the tax credit expired.  But, the stock market has been able to shrug off negative data and today showed once again it simply isn’t looking at the housing market.

We certainly need to see some power from this market.  Perhaps we get the signal tomorrow or Thursday, but we need to see the institutions begin to operate in this market.  So far we have yet to see strong leadership with massive volume.  Are we close, sure, but we’ll need to see some power soon for this market to really show us some strong gains.  We are still below the major moving averages and a strong showing from the market to get above these levels will go a long way!

Remember, we are running a discount for our Platinum, Gold, and Silver memberships…if we roll over or blast higher are you ready to take advantage of it?  Here is the coupon code:  A5AE5.

The Market Stages a Big Reversal as Volume Jumps

Ignoring the earnings reports and the reactions to them in after-hours trading today wasn’t a positive day.  One glaring issue was the inability of the NASDAQ to clear 2200 which has acted as resistance in the past.  We briefly saw the index get above this level but was unable to sustain it going into the close.  Additionally, there weren’t too many big volume moves to the upside to show some strength.  The lack of strength in volume and leading stocks shows we can continue lower.  Even the tracking ETFs couldn’t muster even the slightest bit of volume.  Without strength this market will find it difficult to rebound just yet.

In after-hours trading there were quite a few disappoints.  Most notably is IBM missing revenues and the market not taking well to the news.  One might think if INTC had great earnings and saw a sell-off after gaping up perhaps the opposite may be true.  Not so, Google was hit hard after-hours and continued the trend on Friday.  IBM is not a leading stock, but is a large cap technology stock that has been leading since the July first bounce. In addition, another former leader that has broken down broke down further in after-hours.  Atheros Communications dropped almost seven percent this afternoon after reporting earnings.  Highlighting being long here is a risky endeavor.

Looking ahead to tomorrow will be earnings reports as well as housing data.  Housing starts and building permits are to report tomorrow and the market will certainly react to the news.  If you take a look at HOV KBH you can see the market certainly doesn’t believe the housing market is about to make a turn here any time soon. Trying to anticipate earnings will only get you in trouble and will only lead you to churn your account lower.  If you want to gamble go to Vegas, but in the stock market you need to put the odds in your favor.

Cash continues to be king in this environment and until we see power to the upside it will remain king.

Stocks Rebound From Friday’s Sell-off

stock symbol – percent return since purchase – purchase date

longs:

LCUT 123% 11/2/09
AKRX 17% 5/25/10

shorts:

SFD 14% 6/17/10
KSS 14% 5/13/10
NOV 13% 5/11/10
EXPE 11% 5/7/10
THO 10% 5/20/10
EBAY 7% 6/4/10

Top Current Holdings And Total Returns Since Purchase

It has been the big capitalization stocks helping this market move higher.  We can clearly see this by the lagging relative strength line the Russell 2000 is currently sporting.  Ideally, we’d like to see the small capitalization stocks lead the market higher rather than lag behind.  There are plenty of reasons as to why small caps are under-performing, but they do not do us any good exploring them.  The fact remains small caps are lagging and its not a great signal for this market.  If the market moves higher and small caps rip that’ll be a clue we are seeing a more powerful move.

After-hours the market was dealt good news from three stocks.  Goldman Sachs was able to settle with the SEC for ONLY $500,000,000.  BP was able to cap the leaking well, it is about time!  Finally, rumors Apple will not be recalling the iPhone 4 with the antenna issues.  While the Apple news is more of a rumor the stock jumped in after-hours trading as traders anticipated the move.  Tomorrow will be the big tell on how much strength is behind these names.  Any big volume selling will not be a good sign in these names.

An interesting development was the rapid rebound in the amount of Bulls from the AAII sentiment.  Bulls went from the low 20s to the high 30s almost to a 40 reading in under a week.  It is no question bulls jumped back on the bandwagon in a heart beat!  Does this signify a bottom is now in place, no it does as sentiment is a secondary indicator and should be used in conjunction with price and volume.

Volume has been lacking in a relative term.  Volume doesn’t always have to be above the 50dma.  It simply needs to be more than where the market stands in the current state.  Many people look to the 50 day volume average as a guide to measure the true strength of this market.  In February volume wasn’t tremendous, but a closer look you’ll see support days were volume came in and supported the market as well as rest days for the market.  It is all relative Einstein!

Remember, we are running a discount for our Platinum, Gold, and Silver memberships…if we roll over or blast higher are you ready to take advantage of it?  Here is the coupon code:  A5AE5.

The Market Shrugs off Economic News to Finish Flat

The market in the near-term is overbought, but this doesn’t mean we have to revert back to the lows.  It is possible we move lower here, but until we see a breakdown in price the market is simply resting.  The doji candles you see simply show an indecision by the market as it weighs earnings against a possible slow down.  Sentiment is quite negative as the most recent Investors Intelligence survey shows the lowest amount of Bulls since April of 2009.  Interestingly enough Bears didn’t rise as Bulls fell, but Bears do outnumber Bulls now.  Many will look to this as a sign this downtrend is over.  One thing to be careful about is that there isn’t a perfect “indicator” or “holy grail” in this market.  Anything is possible so rather than speculate on a possible move.

A negative reversal here would surely spur further selling, but do not try to anticipate a move.  Wait for price confirmation and then move with your conviction.  Simply anticipating will have you churning your account.

The market will now be turning its attention to JP Morgan and Google tomorrow.  JP Morgan will report earnings before the opening bell, options activity surrounded between 40 and 42.  The way both stocks have traded over the last few weeks suggests traders are quite optimistic about the earnings prospect.  However, like Intel, Alcoa, and C S X the earnings pop may be short-lived as great earnings reports have been sold.  This is why trying to get in front of earnings usually leads to many unprofitable trades!

Today was a mixed day, it would have been better if we had pulled back in light trade rather than bounce around finish near the open with volume running lower.  However, a strong move tomorrow with volume would certainly put this pause day to rest.

The positives continue to build in this market whether or not this sets off a big trend from here will be answered shortly.  Be prepared

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The Dow and NASDAQ Log 7th Straight Day of Gains as Volume Delcines