Market Update: A Few Quick Points

Summary

As we know the market has been in a pattern of rallies and pullbacks since July. Each pullback has gotten larger as time has progressed, and due to the most recent pullback that sent the S&P from 1081.15 to 1019.95, more fear is starting to come into the market. The market has stalled near the 1080 level with more talks of a double top. However it looks as if INTC earnings have pushed the futures to new highs, don't be surprised to see the market up pretty significantly tomorrow on a gap higher. My action on the market is relatively neutral at the moment as there is too much risk to be going long, and also too much momentum and earnings surprises to make me want to go short. I do have to say I'm getting tired of the market only being up 20 points a day, I miss the volatility and the days whenever 200 points was the norm.

To comment on the chart above, the S&P is still finding resistance at the old trendline. The problem with this trendline is the slope is so steep that the market can still go higher each day and still be contained under it. So the only significance that this line holds is that it shows the upside should be limited. With that said, there is room for the S&P to reach 1083-1084 tomorrow and still be under this trendline.

Also a quick comment on recent market breadth. Up until today, for 6 days straight, the NYSE up volume had outpaced the down volume. The overall volume during the recent upside has been very light. The breadth ratio is also showing pretty significant divergence as prices have moved higher but the ratio remains in the .56-.60 range. The last peak on the ratio was seen at .74. However this divergence could also mean that the market still has room to run as there are plenty of buyers left on the sidelines.If the buyers do decide to come in over the next few days and we have a few strong days to the upside, the ratio could very well get above .70 as it has done in the past.

ProphetCharts

I posted this chart a few weeks ago noting that the 50% retracement (at 108.14) and gap fill was approaching on the SPY. This didn't make sense at the time because the 50% level on the cash index was at 1121, not 1080. Well I've recently found out that Prophet adjusts their prices for dividends. I believe stockcharts and other platforms may do the same thing. This is just something to keep in mind when using these platforms. Interestingly enough the 50% level is still serving as resistance as the recent highs on the SPY have been 108.03 on 09/23 and 108.03 on 10/12.

Lubrizol Short Call

I recently made a post stating that I believe that LZ looks like a good short candidate. The stock hasn't broken down like I had expected because the market has recovered, however I still believe upside is limited. Similar to the S&P, LZ is retesting a broken trendline with bearish divergence on all indicators. The black lines on the price chart represent a channel of resistance that has held since the 1970's. Everyone has different risk tolerances and different ways to play a position. I suggest either waiting for the market to give a clear signal that it has broken down or by building a position in this stock by starting with a fraction of a position and adding to the position at key resistance levels if price moves against you.

-MktMike
http://stockjockz.blogspot.com