Back on Offense? Short-term is looking for wealth accumulation ideas (Huprich)

Weekly Technical Commentary (Raymond James)

Back on Offense ...

by Art Huprich, Raymond James
Thursday Morning 09/02

Short-term is looking for wealth accumulation ideas.

I think there was some relief brought to Wall Street Tuesday night, in the form of President Obama saying it was “now time to turn to pressing problems at home ... addressing the weak economy ... tax cuts.” When this was coupled with “new month dollars” and a lot of skepticism, as defined by the BULL-BEAR figures highlighted yesterday, the “kindle” that was in place (bullish divergence between new lows and market indices, defending of support by stock market indices, bearish sentiment, a move above a “previous price peak,” violation of downtrend line) , ignited. At the final bell the DJIA gained 255 points; the NASDAQ rallied 63 points.

On the NYSE, volume contracted to 1.19 billion shares. However, advancing volume equated to 95% of total volume, implying that yesterday’s move was predominately a function of short covering, which isn’t a bad thing as this is how many rallies begin, following a punishing downtrend ala 8/9/10-8/27/10. There were 2,237 net advancing issues. There were 234 new 52 week highs, a significant increase and bullish on a short-term basis. In putting this number in perspective, it is the highest reading since 295 new 52-week highs was registered on 8/9/10, when the DJIA closed at 10698.75. I like the fact that while the DJIA is 429 points from a significant short-term resistance point (10698.75 is strong short-term resistance for the DJIA – lower levels of resistance are listed below), the new 52-week high reading isn’t that far from a previous peak reading.

The big loser yesterday was the U.S. Fixed Income market as “asset allocators” were/are shifting some dollars away from bonds and towards stocks. Short-term, this makes sense and is consistent with the short-term bearish technical structure of the U.S. Fixed Income market; please refer to my report dated 8/30/10. Given what was a parabolic pattern exhibited by the iShares Barclays 20+ Year Treasury Bond Fund (TLT/$106), I think the TLT can move back towards support between $102.66 and $101. On an intermediate-term basis, I still don’t believe a “bond bubble” exists but, more likely, a parabolic move in the number of people who think a bond bubble exists.

As a short-term guidepost, in discerning resistance points that are below the 8/9/10 price peaks, here are some retracement levels (resistance) to watch for, based on the decline that occurred between 8/9/10 and 8/27/10: DJIA - 50% retracement ~10328, 62% retracement ~10421. SPX - 50% retracement ~1084, 62% retracement = 1095. When it comes to hedging, reducing, or selling technically and/or fundamentally broken positions, please use these resistance points accordingly.

For an intermediate-term perspective, here is my “Hindenburg.” In other words, a close at 587 or below by the Russell 2000 (RUT) is my intermediate-term “stop-loss point.” Please see the following chart. .

Until then, the intermediate-term trend and now short-term trend is neutral but closer to the lower end of the range, defined by the April and June peaks and the July-August low points. Please trade and invest on a 3- to 6-month basis, accordingly.

Chart courtesy of Thomson Reuters

( Note: As highlighted in my 8/27/10 report, regarding the Hindenburg Omen – per an article in the 8/26/10 edition of the Wall Street Journal, “Indeed significant stock market declines have followed the indicator just 25% of the time.” From this writer’s perspective, this also means that in 75% of the cases, a significant stock market decline failed to occur.

Copyright (c) Raymond James