Jack Steiman, On Buying Weakness (SwingTradeOnline.com)
The market ran up to the 1111 S&P 500 resistance zone on Monday, and we also breached slightly the 2148 Nasdaq gap, but ultimately these levels proved to be too tough near-term for the bulls. So the bulls can't really celebrate because the massive resistance levels were again too tough, and the bears certainly can't be happy, because once again there was no follow through on the recent selling.
The market is spending a lot more time near the top of the range rather than the bottom of it. The longer that persists, the less likely it'll be that the bears will get what they want and more likely the bulls will dance again. You can't argue with the overall message as it's being repeated just about every day. Weakness gets bought. No sustainable selling. This message has to be taking its toll on the bears. You wonder when then just might give up and let things advance further.
There were pockets of the market that just didn't do all that well Monday given the overall market advance. The commodity stocks, despite the selling in the dollar, had a big reversal with many stocks down huge off their tops from green to bright red. That makes you wonder as that's a change of character. However, upon studying the charts of this group, there was still no technical damage done to their patterns.
The banks seemed to lag all day, and there seems to be a pattern forming there as those stocks are under performing on an almost daily basis. If they can hold on laterally for some time longer, that gives the bulls hope that it's just moving laterally to unwind to oversold which will then allow for another leg higher. It has to be watched closely as those stocks overall are not keeping up with the rest of the market overall.
There was a small window of clear complacency not seen in a long time Monday in the put/call ratio in the options market. The first three readings were under 0.60, which we haven't seen in quite some time. This level of complacency can be directly attributed to the failure to break out. Too many taking one side. After the third readings, the numbers came up some, but spent the entire day below 0.70, which isn't the best news for the bulls. It's probably just a one-day phenomenon, but this will have to be watched closely over the coming days to make sure this isn't a new pattern emerging, because if it is the market is in trouble.
The dollar fell from the start today, but did recover some as the day went along. The PowerShares US Dollar Index Bullish (UUP) is fighting with all its heart to stay above that critical 75 level where long-term support comes in. If that level were to be lost convincingly, the dollar would be in some desperate trouble it doesn't want to think about right now. It's not good for anyone except, it seems, the market. The market wants a weak dollar, but in time we don't want it too deep as citizens of this country. Watching our currency erode is no fun. What a dichotomy, each day, to want a good market but have to root for a weak dollar to get it.
Well here we are again near the top but pulling back. The overall action remains quite strong and clearly on the side of the bulls and against the bears. As long as complacency doesn't become a problem in the days and weeks ahead, we should be staying on the long side of things, picking off plays here and there. This is NOT a market to be aggressive with. An old story, I know, but that's reality. Nice and easy here. Buying weakness remains the best strategy.
Harry Boxer, On Six Charts to Watch (TheTechTrader.com)
Today we're going to go over the long side and talk about some stocks that are in very strong trends that look like they may want to continue.
China Automotive Systems Inc. (CAAS) has been in a tear since March when the stock was trading down around 2.00 level. It's gone all the way up to 17+, but over the last 6-7 sessions it has been consolidating. The consolidation appears bullish, with the volume coming down and the technicals holding up very well. It looks like this stock could be in an acceleration phase, where it spikes up into the low 20s.
Green Plains Renewable Energy (GPRE) continued strong on Monday. You'll notice this stock has finally moved out of its multi-month trading range, accelerated, pulled back, tested the moving average, and jumped on Friday. It certainly has a very strong pattern in place and a trend that indicates a move up towards the 15 1/2-16 zone maybe next.
SmartHeat Inc. (HEAT) has been on our favorite list for a while. After its spike up last week, in the last four days it's formed a rising flag that's a bullish pattern. It could accelerate out of that and move into the mid to high teens short-term and that's what we'll be looking for.
Revlon Inc. (REV) continues to act well. It consolidated in a tight 4-day flag, and Monday it started breaking out of that. We'll see if there's any kind of a follow through, but this could be a 20 stock short term.
Others on our list of longs today is Casella Waste Systems Inc. (CWST), a new stock on our watchlist, which broke out Monday on nearly 1.7 million shares, up from 3.23 to 4.05 or 23.85% and could see 6 1/2. Nova Measuring Instruments Ltd. (NVMI), another new stock, had the strongest volume in months, up from 46 cents to 3.60 and could see the 5.00 range.
We also discuss Agria Corp (GRO), Ion Geophysical Corp (IO), Network Engines Inc. (NENG), Kirkland's Inc. (KIRK), and Nanometrics Inc. (NANO), Origin Agritech Ltd (SEED), SIGA Technologies (SIGA), and Rino International Group (RINO).
Mike Paulenoff, On Possible Exhaustion Rollover (MPTrader.com)
Our chartwork today shows some potential weakness in the equity markets when compared to the dollar. Although the widespread perception is that the dollar is perpetually weak, the facts suggest otherwise recently: for the past three week -- and arguably back to October 21, the DXY daily dollar index has established a very stubborn support area between 75.00 and 74.70, which has repelled multiple selling "attacks" by dollar bears. Purely from a technical perspective, the series of lows could be tracing out a very important bottom, while the inversely related S&P 500 e-mini futures contract could be tracing out a series of "exhaustion rally peaks" concurrently.
From a Dow Theory vantage point, a comparison chart of the Dow Transports and the Dow Industrials shows that the action of the former is clearly lagging (weaker) than the action exhibited by the latter. In fact, while the DJIA climbed to a new, post-March recovery high on Monday, the DJTA did NOT and remains 2% below its Oct 21 high at 4,066.
More importantly, however, might be the development of a potential triple top formation on the Transports, each in the vicinity of 4055-4066, which represents very formidable two-month resistance. Not only are the Transports "negatively diverging" from the Industrials, an inability of the DJTA to "confirm" the DJIA at new recovery highs, followed by a decline that breaks 3923.80, will argue that the Transports are exhibiting an "exhaustion rollover" that could (usually does) pressure and lead the Industrials lower.
