Breadth Doing Its Best to Hang On

• Posted by Derek
• on August 25th, 2011

Under the hood, I see enough evidence of a low to allow for strength in coming days.  The damage was(is) devastating, and I’m not expecting breakout-style leadership at this point….OK stocks like $SINA & $CTRP show just how fleeting relative strength can be in a bear.  But a plurality of stocks are now receding from lows on my “Trend” score; the ideal time to buy them is when trend momentum is higher than the prior day but price advertises selling.  Days like today.

Through this morning’s weakness, for the first time in weeks, I have more bull candidates(19) than bear(11).  These are still paltry numbers, and scattered across sectors.  It’s likely that $MOS joining $CF as a healthy candidate is strictly an ag story, but at least there are some economic implications there if the move broadens.  I also put more belief that healthier stocks like $LVS & $BEN could lead a move than $AAPL given its unique industry role, not to mention circumstances.  It really is make or break time, as weakness from what is now a 14 day consolidation would likely lead to new lows.

Granted, even a solid rally will need to be sold…both the (falling)50 Day MA and break of the lows from early August loom overhead.  But they’re up around 1250 on $SPX, nearly 8% higher than current levels.  A market that can’t go lower must go higher, even if only to draw in more buyers to victimize later.  Europe is still a disaster, but getting through this week unharmed would put a big piece of evidence in the bull case for the next month or so.

For now, my position is a Sep/Oct calendar call spread for a slight bullish tilt and the ability to accept price risk if the shorter-frame sets up the way I’d like.  The $BAC led spike towards the 20 Day MA put a dent in that idea for today, and tomorrow is the big bad event in Jackson Hole.  I can’t tell whether people expect any tricks from the Bernank or not, though the crushing of $GLD tells me expectations may be low.  Most important is getting through the event without moving towards the recent lows, an outcome with which I’m more comfortable as this week’s evidence has unfolded.  ”Less bad” may not be the ultimate reason to get long, but if one is prone to chasing it 5% higher then the end of this week offers a pretty well defined setup with Tuesday’s $SPY “earthquake low” of 114.36 as a logical stop.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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