Before I walk ye faithful through my current take on the markets, allow me to say that, as always, it is a pleasure and honor to be filling in for the venerable Sam Collins when he is away from the fray for a few days.
As a 15-year veteran in this business of trading and managing money, I have come across a wide variety of markets, from dull to choppy to outright violent. When I look at the market at present, I see a tape that is by most historic measures getting long in the tooth, but not one that looks to be in imminent danger of collapsing like some of the doomsayers are proclaiming.
I believe when markets capitulated in early 2009, a new secular bull market rose out of the ashes. I discussed this in more detail on Monday in my Beat the Bell column, but my main point is that after a dormant 10 years for the stock market (i.e., the lost decade), if history is any guidance as far as duration of secular bear markets goes, then it was likely time for the bear to go back into hibernation.
The confirmation from a price action point of view came in the spring of last year, when the S&P 500 finally cracked above its all-time highs that had acted as resistance since the year 2000.
At present, the cyclical bull market (it’s important to differentiate between cyclical and secular markets) off the 2009 lows is almost exactly five years old, and as I said above, that is getting very stretched in terms of duration as far as cyclical bull markets go.
More near term however, in the time frame of a few weeks to a few months, the broader U.S. stock market doesn’t seem quite ready to roll over yet.
One way in which cyclical bull markets end is when the number of 52-week highs on the New York Stock Exchange show clear divergence (lower) for several months, while the price of the broader stock indices, particularly the Dow Jones Industrial Average and the S&P 500, continue to rise. While there currently is such negative divergence between 52-week highs and price in the S&P 500, it is not yet the case on the NYSE, which has a broader measure, and thus, in my mind carries more importance.
In terms of Thursday’s price action, while it was no bueno pretty much across the board, commodities, particularly gold, perked up and continued their relative outperformance versus equities year to date. Gold, gold miners, and the like saw nice bids, and so that is where I am finding my defensive plays on the long side these days.
For example, take a look at the chart of Barrick Gold (ABX), which earlier this week tested the black breakout line and since proceeded to bounce. Technically, ABX, as well as many other gold mining stocks, look good to bounce higher. (See the Trade of the Day.)
While Thursday was somewhat of an interesting albeit ugly day, the small-cap Russell 2000 index showed relative strength versus the Dow Jones Industrial Average and the Nasdaq Composite. A nasty and more meaningful sell-off day would have seen small caps lead us to the downside.
For the S&P 500, after breaking its 21-day moving average on Thursday (my near-term support/resistance gauge), it closed the day right around lateral support, i.e., retesting its previous breakout area near 1,850. If this level gives, then better support comes in at the rising 50-day moving average (yellow line) around 1,830.
One step and one day at a time usually wins this game.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.