Climate Check July 21

  • Posted by
  • on July 21st, 2011

That double shake and bake to $ES_F 1316 overnight was deadly for the bear case.  I’m still old-fashioned and like to track the NY session, and was hoping today would bring an early probe there to set up some great buys.  More often than not of late, important levels seem to be tested in Asian & European sessions with the US along for the ride.  So the setup was overnight, but a healthy resolution nonetheless.  Now that we’ve exploded higher, an end of day message of strength again comes late for traders but of importance to investors.  Entry and exit is very personal to one’s own timeframe, but what we can’t do is ignore vital information from breadth or the $SPX.

We’ve actually gone through the 1335-1339 region mentioned yesterday and the breadth % I had mentioned as at least a temporary ceiling.  I think what happened last night was great, and confirms the change in climate for the market…but what really matters is when and where we enter in search of profits.  To this point, $SPY and $DIA and $QQQ have raced ahead of the typical stock, and a truly healthy market will see stocks pushing higher while the indices digest the price advance.  Right now, it’s been mostly just a death blow to bears as my list of unhealthy stocks has shrunk alongside rotation but no expansion yet in healthy ones.  As @gtotoy often says, buy support/sell resistance, rinse and repeat.  Now that the climate has improved, I expect dynamic support & resistance to play more of a role than the horizontal lines of recent days/weeks.

A multi-month trading range indeed, one who’s now approaching the upper end.  However, unlike the late June moved that failed, this move 1) started from a higher low, 2) has the support of a rising 20 day VWAP, and 3) is only 3 DAYS OLD.  In need of better participation, yes.  In need of a multi-day rest, not really.  It cared not about poor reactions to $INTC & $QCOM last night, and it will take its own path regardless of what $MSFT does tonight.  A healthy index with lagging stocks means a lot of cheapies could get swept up into the ride, so it’s best to accept the tailwind and wait for new setups to emerge on quiet days.

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.

blog comments powered by Disqus
Derek Hernquest Blog