Climate Check July 8

  • Posted by
  • on July 9th, 2011

So I didn’t get this out on Friday afternoon as promised…gonna cut myself some slack as Friday afternoons are more of a winding down than cranking up so this may become a Saturday morning thing.  In any case, Friday was an interesting day in which almost every trader(other than shorts stopped out on Thursday) was relieved to see a shakeup in the recent one way train.

My breadth stats changed a little, but not a lot…take a look:

1) Thursday leaves behind a tough day to overcome, as I still show 59% of my universe with 7/7 as their 21 day high.  The longer a large plurality fails to overcome that peak, the less likely we are to resume the uptrend.  The most dangerous setup would be for the $SPX to exceed that 1356 level and have less than 1/4 of the underlying stocks to do the same.

2) There is now little room for relative weakness in breadth.  $SPX rose 4 points on the week but the % above 10 Day MA dropped from 97% to 88%.  Still high, but worth watching if it falls back below 75% or so.  More importantly, the % above 50 Day MA(previously exploding) is now only 72% vs. 69% a week ago.  A rise above Thursday’s close of 1353 without an accompanying expansion of this # above that day’s 78% would be concerning.

Both sides can take something from Friday’s action; bulls can claim victory with the impressive comeback, but bears at least stopped the runaway train and there won’t be a chance for happy talk on jobs for weeks.  Last night’s scans show 95 buyables and 10 shortables, a contraction in both which often happens as lengthy swings crash into poor risk:rewards and the remaining rocks get turned over.  $NTAP & $QCOM are newcomers to my long list & $EOG & $VMED to the potential shorts.  That said, I’d rather just trade the index when breadth gets above 90% or below 10%; traders seem more likely to close positions than open, so relative strength/weakness becomes fleeting.

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