TheSlayer's Market Thoughts

SPY August 8 2013

For those who watch the market closely, Thursday August 8, 2013 was the same story we've been seeing recently. Market moved lower off the open, found support above recent lows, and then spent the rest of the day grinding higher. The close was toward the top of the day's range, but the morning highs at the open were never bettered. Yesterday's lows held, which was the most important outcome. Both Bulls and Bears are frustrated by days like this.

The market appears to be attracted to the value area of about 1690 on the futures, give or take a few points each day. When this has happened before during this rally, lulling everyone to sleep, it invariably has resolved to the upside with some weird, out-of-the-blue take-off. So far, obviously, we haven't seen that.

The failure to recover 1700 on the futures is interesting but not a worry at this point for Bulls. The below chart of the futures shows that the market is forming another rising wedge. Last time, as you can see, that resolved to the upside. What you look for as a resolution is one of those out of nowhere parabolic take-offs. You certainly don't want to ride one of those short if you can help it.

S&P 500 Emini Futures August 8, 2013

So far, if you are trading, the proper play has been to buy the dips and sell the rips. That seems like a reasonable strategy to continue until it stops working. Still Bullish, but that doesn't mean we won't continue seeing these little corrections that can be a bit scary if you are on the wrong side of the trade.

A Curiosity From the Past

Saw an interesting chart that somebody posted in a Youtube video in November, 2010. It's kind of eerie how this guys - whoever he is - plotted everything out back then.




You know the old saying - a stopped clock is right twice a day - but this guy was spot on about what has happened to date. I don't know who he is, but kudos to him. Credit where credit is due, dude. Incidentally, his plot suggests the top of this drive higher is going to be around 1820 in "late spring 2014" - which, actually, sounds quite possible and almost, dare I say it, probable.

You may view the video here.

SPY daily chart August 7 2013

Wednesday, August 7 2013 saw a continuation of the pullback from the all-time highs set last week. SPY was weak early and relatively strong late, closing near the top of the day's range. The day's gains were particularly impressive given the sell-off of the Nikkei 225 last night, though that seemed more based on the unexpected strength in USD/JPY than anything going on in US markets.

Today, SPY quickly headed down to the bottom channel trendline that we've been following for months, and then abruptly reversed to the upside. That is initial confirmation that the old uptrend channel remains of use.

It was a tricky day to trade in some ways, but it followed the pullback pattern we have seen so often during this rally: weak early, strong late, with an abrupt low and reversal in the early/middle part of the day. There was never a hint of panic selling, and indicators like the VIX did not show undue uncertainty. Short-term traders were in control.

The day's trading formed a Morning Doji Star. This is a Bullish reversal pattern. It suggests that sellers exhausted themselves on the trip to the lows, and then Bulls reasserted control. We could get confirmation tomorrow if the market is reasonably strong. If the pattern is confirmed, the low is in for now and would be today's low at 1680.75 on the futures.

A couple of possible Bearish formations in development deserve mention simply because we must be ready for anything. One is that the several days we spent above 1700 may be the start of an Island Reversal Pattern. This would be Bearish. That pattern will be quickly eliminated, though, on any significant move higher from here.

Another possible pattern is a head and shoulder pattern, formed the same way, with the top of the head above 1700. Anything is possible, but it is unlikely that a six-month Bull Market is going to end on a three-day top, especially given the lack of any fear in the market today. However, if we are unable to get past the mid-1690s on the futures in any reasonable time frame, that pattern might come into play for real.

If you've been watching the markets closely this year, you'd likely agree that today's sell-off seemed like business as usual, a perfunctory rinse to clean out weak hands. It could develop into more selling, but during this rally, the flushes that saw a quick reversal like this have been met with more buying.

The key is a break above 1690 on the futures, which was the pre-market morning high. Resiliency above that most likely portends another test of the all-time highs above 1700.

The fears du jour were the usual ones about the Fed tapering. That is always a possibility, and who knows, the Fed may have cut back their buying already for all we know. It is interesting that the Fed Governors seem to be engaged in an organized attempt to beat down expectations of POMO (Permanent Open Market Operations). This may be due to their realization that the market would tank if word came out unexpectedly that the Fed is tapering or even ending QE, so they are giving these warnings to try to blunt or even sterilize the blow when it does happen.

A report after the close tomorrow will provide some insight on where the Fed is at right now, and its imminent release may freeze trading late in the day. However, the Mantra among some that is developing that the Fed is going to start tapering in September seems to be based on facts in only a very tenuous fashion. Please note, though, that September is traditionally the weakest month of the year for the market.

SAN daily chart on August 7, 2013

Haven't updated my chart for Banco Santander recently, so here we go.

As you will know if you've been following me, I like SAN for a variety of reasons (which you may or may not agree with). I was talking up SAN several months ago, and since then it has dipped but then recovered nicely. It was a nice buying opportunity, and if you got in at the right time, you could have copped the hefty quarterly dividend. Here is my last update, you can do a label search for the others.

It is a banking play - and banks have been hot. It is a European play - and Europe seems to be coming along, though perhaps not in spectacular fashion so far. Some things just take time, and SAN is a cornerstone of European finance. It's pretty close to being too big to fail - and there's really no danger of that in any event. It also is a South American play, as a good fraction of SAN's earnings come from there. Finally, it is a dividend play, paying a very nice dividend, especially if you take the scrip shares instead of a cash payment.

My main point in this update is that, if you look at the chart above, you'll see that SAN has just crossed the 200 day moving average with authority. This is usually considered by technicians such as me to be Bullish. I don't pay too much attention to picky fundamentals (they are reflected in the chart), but my understanding is that Europe has pushed through some banking law changes that should help SAN. Also, SAN simply is recovering on its own, and it's not as if Spain is going to sink into the Atlantic. Spain will recover. It's only a matter of time - though it could be a long time, who knows.

The 8's for SAN look doable on this run, though anything is possible. Still lots of uncertainty in European markets.

This play is best for a retirement account because you get a hefty dividend which is promised to continue at least through the end of this year, with no hint so far of any cut thereafter, either. That's trickiest aspect of this play, you should do your due diligence before committing to this. SAN is a classic buy-and-hold position play, though you could also trade it if you are quick on your feet.

The trading session on August 5, 2013 was extremely quiet. The tempo was slow, and the moves were measured. Buyers were unwilling to take the market higher, but sellers were not strong enough to bring it lower. SPY closed in the middle of its daily range.

Last month, we noted that we thought that the SPY might make a lunge over 1700, then be exhausted and fall back. That remains a distinct possibility, especially given the day's indecisive trading. Being all cash, we are waiting for a direction. We are in buy the dip mode should the market weaken.

Just because we expect a pullback does not mean we are suddenly becoming Bearish in the intermediate term. Should the market drop, we would buy when it looks safe to do so. There are larger forces in play that are keeping this market rising that are likely to frustrate anyone looking for a sudden move back to the 1500s. Below is a chart and a video from Rick Santelli of CNBC that pretty much sums up our view of why the market is rising, and why that is likely to continue for the time being.




Courtesy of wallstreetexaminer.com.

Here is Rick Santelli of CNBC explaining the chart.