Today offered some excellent follow up strength after yesterday’s big rally.

However, there is still significant resistance above from the 40 & 50-Day MA’s in the ST, and from all the weekly trends that have yet to be challenged, and from all but the 200-Month MA on the longer trends.

In addition, the volume of these two consecutive rally days doesn’t come close to the volume of the 3 rally days off of the 11,000 level in the DOW starting on 7/16.  It appears that the area between 11,750 - 12,000 on the DOW will present some stiff resistance based on the down volume that broke through these levels on the way down.

Still very cautious and prepared to sell, or enter shorts, on a high volume reversal to the downside once again if these resistance levels are not cleared on increasing strength.

Coach BD

Even though today was a good day for the markets in general, it certainly wasn’t exceptional, or displayed any real conviction in the form of strong volume.

The DOW and S&P traded on average volume and the NAZ was just above average.  And although all of the averages closed above their respective 20-Day MA’s, neither the DOW or S&P closed significantly above that trend resistance level.  Only the NAZ showed a more bullish trend, opening above the 20-Day and closing the day at the top its range.

However, when we look at the longer trends, none of the averages have yet encountered the longer trend overhead resistance on either a weekly or monthly view.  Both the DOW and S&P are well below All of the Weekly trend-lines and the NAZ is just 16 points above its 200-Week MA.

There is clearly much hard work ahead before this market can turn itself back to the upside on all of the down-sloping trend periods.

We may have made at least a near term bottom recently but as we trudge higher we need to see increasing volume as the averages move up, NOT decreasing volume.  Watch the volume trends closely if the averages continue to move higher in the ST.

Coach BD

Just experienced our first good shake since moving here in 1996… 5.8 about 20 Miles east of our office in Hermosa Beach. Shook for about a minute, and then our building near the beach felt like a boat floating on calm seas for another minute or two.  Pretty weird feeling.  Our building is built on sand so the liquefaction effect produces wave like effects during a quake.

Got our adrenaline going pretty good… Yikes…!

Coach BD

We are not anticipating any action today as the markets continue to seek out some direction.

Coach BD

After a second straight day of huge short covering and a correction in the Oil market, tomorrow should be very interesting…

With lowered guidance from GOOG and MSFT, it would appear we may be due for a little selling, maybe a lot of selling, and perhaps some ST Short covering in Oil and other commodities heading into the weekend and expiration.

Even though volume was very strong today, most of the advances over the past two days have been driven by the recovery, and short covering, in Financials. If not tomorrow, we expect that some reality will return to the markets next week.

We are now looking at possible short positions in USO and perhaps one or two of the big Ag stocks… We like POT, MOS and AGU for evaluation initially.

Things may be very exciting tomorrow.

Coach BD

Close…

Though the averages closed the day near their highs on above average volume, the volume was still lower than yesterday’s and these big up moves recently have usually been followed by more selling. With expiration this Friday it would be very unusual for the averages, in this environment, to rally strongly into expiration.

Lots of talk about short covering but none of the averages have made any serious attempts to challenge any of the ST resistance trends…yet.

Coach BD

*

Midday…

The markets are rallying nicely, however, the volume has fallen off significantly since the DOW crossed 11,100. Watch for a reversal over the next hour, or, if the market really has some legs then the volume should pick up if the DOW trades above 11,150.

Caution is still advised.

Coach BD

There is till too much volatility to consider entering an Income Trade for expiration.  Our favorite, GOOG, had another $20 swing today which is not the kind of action we want to see so we can feel confident of the outcome.

It is starting to feel like we may be near a spike in the VIX and some very heavy selling.  All of the rallies are having trouble late in the day so we shall see how these last few minutes go…

Coach BD

Status quo…

No new lows but accelerated selling during the last two hours and worst in the last half hour.  The volume was lower than the last two days and the VIX was up again today but only mirrored the action of the market without any unusual upward movement.

The implication is that there appears to be mostly complacency and a continuation of the downward trend without any clear signal of anything other than that.  We’ve now been hovering in this area of the DOW between ~11,150 - ~11,450 for the last 7 or 8 days with several above average volume days.

This mostly sideways action may continue until the averages intersect with the down-sloping 20-Day MA’s and then we could see a strong break.  Without a spike downward with an accompanying spike in volatility before that intersection, this current action would suggest a break downward to new lows at that point.

Continuing to trim positions, sell premium ATM, or close OTM, and adding downside protection for ST income and risk reduction.

Coach BD

It was beginning to look like we may get a decent reversal with good volume when the market suddenly broke out at around 3PM…  But by 3:40 all of the averages rolled over fairly steeply into the close with DOW volume increasing significantly.

The bright spot, technology, the NAZ and QQQQ’s did rollover, but on much lower volume and all closed the day in upper half of their ranges.  The DOW and S&P closes were actually pretty flat, which could set up for a ST rally back up into resistance of the now steeply falling 20-Day MA’s. 

The averages are now fairly far away from this trend-line and generally there will be pressure, in either direction, to move the averages closer to this trend-line… (or whatever trend-line is the dominant trend of the period, which right now appears to be the 20-Day MA.

Beginning last week, as we noted, and continuing this week we are paring back most of our larger positions and hedging the rest more tightly. 

We are generally going to be looking for good Short, Earnings and Income trades over the next month or two and hope to see some nice capitulation selling or a convincing reversal before we start evaluating LT Long entries once again, though I’m sure we’ll find a few that have already been hammered adequately to begin looking at them as LT possibilities.

Coach BD  

It looks like we may be closer to a commodity rollover, including Oil, than many have been predicting.  All the big AG stocks took big hits today and we will be looking at possible short entries in a few of these.

The best candidates presently look like POT, AGU and MOS.  Those have been holding up a bit better than some of the others so far and a break downward may be nearing.

We are also looking for a reversal in Oil sometime soon, especially with refiners getting hammered and inventories rising.  USO actually made a 52-Week High today, but on unimpressive volume as short sellers began covering positions late in the day.  Look for a break below $110, and then below $105 on big volume, which could trigger the long overdue correction in these out-of-control Oil prices.

Everything else is just ugly as the VIX continues to rise but nothing near any panic selling yet.

Coach BD