BigTrends

I just can't get my arms around this recent rally. The volume is weak and just getting weaker, the market is moving up on fumes and NOT institutional sponsorship. We generally find bull market moves are supported by big institutional players and stock moving into these hands. Volume reads are the ONLY WAY short of taking the phone calls from these institutions (fyi - I have yet to get a call from these guys telling me what they are doing).

Stocks rising on big volume, institutions are accumulating. Stocks dropping on big volume, we have distribution or selling. Simple enough, right? Stocks rising on low volume, or dropping on low volume...what's it mean? Lack of participation, but it cuts both ways.

I'm truly concerned about the complacency here coming into earnings season. Did the drop in June discount earnings and guidance? We'll soon find out, but safe to say that was not the case with a name like RIMM, who got hammered post-earnings. We'll get a nice sampling of earnings this week, but mind you the market is all about sentiment right now, and if it's not turning up the volume won't, either. We

So, was that THE bottom?  Last week the SPX touched 1010 on July 1, flirted with going lower but the oversold condition was too much to bear, and now we're back to levels last seen in very late June.

But as you may know we don't pick tops/bottoms, rather we ride trends just before they begin to accelerate. The market is moving fast and is filled with fear, hence the elevated levels of volatility.  We have not seen a concentrated effort by the bulls to push this market higher, and while Wednesday was a bull win it was not a landslide, and last look the market was still UNDER the 200 MA and the 50 MA.  Volume has been rather modest, I don't think the bears were seeing a strong move Wed and the buying was likely short-covering (let's not forget, bull markets can start from short-covering).

All in all the market is stuck in a range, some decent short setups are there but it looks to be a bit early as this buying frenzy continues on a bit longer.  The VIX hovers near 25, a recent area of support.

Seeing some bearish patterns here that signal some downside action ahead:

* Markets were jacked up end of month/quarter with commodities, tech and others marked up.  However, the heavy volume occurred earlier in the day when the selling was heaviest.

* The monthly close under 1060 was bearish as the candle that was created for the month was not able to exceed the critical 20 month moving average.

* Five distribution days (higher volume) in the last six is a sign that downside momentum is building.

* The VIX has formed a higher low on the daily chart and threatens to break higher and reach the 30 level once again.

* New highs have broken down and are not being exceeded.

* A plethora of secondaries were issued in September, bringing on more supply to a market not buying (price pressure).

* The anti-market trade, otherwise known as the US Dollar, seems to have put in a bottom.

* The reaction to bad news on the economic front is not shrugged off by traders.

These are just a few of the signs that I'm seeing here, there may be more.  Of course, any/all of these could just be fakeouts.  We'll have to watch the price/volume action to determine where the next path is.

In late July, I issued a trade alert (July 23) to buy some Sept calls on high-flying First Solar.  Specifically, we bought the Sept 200 calls at 3.38.  This order was sent moments before the start of my webinar, 11am EST.  I mentioned this trade a few times, and the stock was sitting around most of the day...but edged higher.  We were filled on this day.  The next day, the stock shot higher on the heels of a competitor's earnings.  This left a gap of course, but when the shorts are on the run this has a habit of going further.  We kept it going.  On Monday, the stock pushed into a resistance zone and that gave us more than a double on the calls.  We sold half for 7.72 (130% gain) and held the other half for free.  Earnings were to be out on Thursday (7.30) after the close, so the worst was that we would still make money on this if the reaction was bad.  Flash forward to Wed, and the stock is making a nice move but on LOWER volume...RED FLAG.  This told me that buyers were not interested here, so we decided to take the remainder off the board, and still managed a double (111%).  We were now completely out of the position in front of earnings.   Thursday's report was mixed, yet the stock couldn't hold water and tanked more than 11% to under 155.  The calls we held would be well underwater now.  This was a winning trade from the start and managed properly.  Sometimes it's ok to take earnings risk, other times it's better to take it off.   In this market, awareness, quickness and satisfaction need to be considered at all times.   See chart below.

I talk endlessly about volume and the importance of it as a predictor of price movement.  After all, we follow where the money is flowing and since liquidity drives the markets that is the best indicator out there.  Well, we have rallied recently on LOWER volume...yes, since March 6 we have not seen a day where the bulls claimed victory in the volume column.  Oh sure, the rally was large, widespread and long.  Certainly we cannot discount the size and scope and power, yet the same thing occurred in 1929, and a much LARGER decline ensued.  So, what would bigger volume mean?  With the trend down, probably not a bullish thing.  In fact, I would suspect more heading for the exits if that should occur...so watch the volume. 

The publicly traded stock of Warren Buffett's Berkshire Hathaway began trading options today.  Options on the class B shares are out of the gate and off to a great start.  As of now sentiment on Berkshire is seemingly bullish, 80% of the volume today is on the call side.

Anyone in the mood to buy a $275 AT THE MONEY Call?!?!?  Take a look at the December $2800 Strikes below (BVQLA)

Markets caught everyone by surprise this week, surging 3% or more but on rather average volume.  While the top of the range is still in reach (call it 944 at the extreme), we've seen some good action spread across many sectors.  It's this breadth that makes me consider the next move may be higher after a bit of a stall.  We are embarking on the beginning of summer, and after a 40% rally it would be rather strange to not see some kind of correction.  After all, those looking for a 'summer rally', which usually starts after July 4 will be out in full force soon.  The odds seem to favor some sort of pullback, the timing of which will only be known when there is a lack of buying interest.  The stories about underinvested fund managers permeate each trading day, which makes it more difficult for the market to actually go down.  The disbelievers of this rally find themselves behind and ultimately chasing higher prices.  This game has been played endlessly, the game of momentum.  Naturally, what goes up eventually comes down...but those signs are not there just yet.  Breakout past 950 on a close and the 1000 level on SPX will be a slamdunk.

After two lousy closes, and one distribution day the markets on the verge of a rollover.  While it may/may not be swift it seems this rally is long in the tooth.  Monday's rally showed a lack of firepower on volume, and most charts only ended at the top of a recent range.  Could it be the bank offerings have sapped much of the liquidity?  Quite possible.  We look very closely at moving averages, and the 10 MA is about 4 days away from crossing under the 20 MA.  Not a serious issue yet, but we're watching it.  Breadth was solid until the sellers got busy late in the day.  While some would say it was 'just a bout' of selling, the odds seem to favor some more pullback.  The VIX is outta control and flashing high levels of complacency.  A couple of good whacks will get people scratching their heads again wondering...hmm.

The May option expiration week is here, and there is some notable weakness at the start.  We've found the prevailing trend usually occurs during the expiration, where in this case that would be up.  Some profit-taking is going to happen of course, but an overbought market can stay that way for quite some time.  Volume has been lacking of late so we'll be watching how that manifests over the next few days. 

Markets are hovering near some resistance levels, and it's curious that many continue to call for a drop.  As we all know too well, calling a bottom is great for conversation but dangerous for your wealth.  I suppose a run on 900 on the SPX with good volume will do the trick