Bulls Took Support Back
The market ripped higher yesterday led by
tech and energy stocks. Volume was unimpressive during the rally that
occurred amid no significant news. But no matter what reason the market
had for going higher, the bulls took back lost support.
As I mentioned at the start of the week; the likelihood
that commodities rally in the near term is
high. As a result, that strength
will drag the rest of the market higher and potentially into new highs. I
also mentioned
yesterday that the strength in both
financials and technology indicated a bottom was forming.
The brief breakdown through 1332 support fooled me; but the quick
reclamation by the bulls yesterday did not surprise me at all. The bears
cannot put together a string of losses, and it has been that way for
months.
At some point, the bears will get the trend back. But until they
take out important support levels (1250) we really cannot be overly
bearish. As a result, we have to be bullish (or in cash, which is no
fun).
The challenge with being bullish right now, as many of you are
rapidly discovering, is that the bulls are not exactly in a hurry to make
higher highs. The lack of momentum from the bulls has resulted in a few
sharp declines as well as some losses in the TradeMaster
portfolio since I have favored the long side of the trade nearly
exclusively.
With the move above 1332
yesterday, the bulls took SPX back into its 1358/1332 trading range. And
again, as was the case earlier this month, we are anxiously awaiting a
break-out from that range in the hope that it will be the start of a
short term trend.
The bull’s job this week is simple - they need to keep the market
above 1332 support.
As long as support is held by the bulls this week, the chances are
high that not only will SPX test 1358 again, but it is likely headed to
new highs following the would be bear trap on Monday/Tuesday.
A bear trap starts when a stock blows through a support zone. The
break of support causes more traders to sell and also to sell short. But
at this point sellers are the weak hands – they just do not know it.
Savvy buyers are actually pouring into the stock. Then, the stock quickly
reverses and moves higher. The increased buying pressure takes the stock
back above lost support. And in the process also causes those who went
short to cover. That covering raises the stock again and gets the
attention of momentum traders who proceed to bid it up even higher.
A near perfect bear trap occurred in oil this week as it fell to
$95. Oil needed to hold $97, but it moved sharply lower when that support
was lost – and the trap was set. In the same day oil rallied back up to
$97 and the following day (yesterday) rallied back to
$100.
Watch
List
The TradeMaster Daily
Stock Alerts watch list is
bullish again - and this time it's on technology and smallcaps. To
receive daily alerts each day before the market opens and for a full list
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