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Have We Reached a Trading Top? by | This entry was posted on Wednesday, July 14th, 2010 and filed under Stock Market   1 Comment »


We had another green day in the markets today.  Technically, the S&P 500 closed slightly red, but the last minute surge put the the Dow Jones and Nasdaq in the green.  After dropping at the open, we worked our way higher towards lunchtime.  Near the middle of the day, we started to downtrend into the final hour.  The final hour is typically met with high frequency traders taking over and creating volatile action.  Today was surely no different.

Intel (INTC) reported great earning last night and semiconductors are performing well because of it, but the market struggled to continue the rally today.  Granted, the bears could not do much either.  One main question is whether we are due for a pullback or are we reaching a top in this new trading range? Personally, after reviewing the charts, I feel we could have some consolidation up ahead and if we stay about 1075 in the S&P 500, it would be considered healthy.  1075 is currently the 20-day moving average and our current level is just above the 50-day moving average.  Our next resistance is the 200-day moving average, around 1112, which is not likely to be easy.

FREE LEVEL 2 QUOTES WHILE YOU TRADE

JPMorgan (JPM ) is reporting earnings in the morning and we are ripe for a sell-the-news reaction still.  Due to this, I am watching my longs and trimming into strength.  In the live-chat, we have been taking profits in Entropic Communications (ENTR), Orexigen Therapeutics (OREX), Gastar Exploration (GST), and Orient Paper (ONP) rather than adding more long exposure.  My stop losses are now tighter, just in case we are greeted with a selloff.   This will help ensure I maximize my profits, in the event of a selloff, by protecting from downside risk.

REQUEST FREE CHART ANALYSIS HERE

The minutes from the Fed’s June meeting reminded us that our economy is not strong, nor should we expect that to change anytime soon.  Further economic pressure would increase the chances of another stimulus, per the discussion at the meeting.  The good news is that a stimulus is not completely off the table.  The bad news is that our economy is not strong so we might need another stimulus.  Regardless of how you and I will choose to look at it, the real question is how will the markets look at this?  Will it be in a positive or negative light?  Personally, I look at it in a very negative sentiment, but I believe the markets would look at it in a positive light.  This goes to show you that there is a disconnect between the markets and the economy.  The markets can still move up while the economy falters and fails.

With that in mind, I think we could see some more upside strength on low volume.  The bulls may be too afraid to aggressively buy at these levels without some healthy consolidation.  I continue to look for strength from selective stocks hitting the 52-week high lists and finding more news driven stocks, such as OREX, to trade.  Lately, this has been a very successful strategy for us as long as we cut our losers quickly and let our winners run.

As always, do your own homework to see if you agree.  Have a good night and I’ll see you in the morning.  Good luck out there.

Mike

At the time of publication, Kudrna was long ONP, OREX, GST, and ONP but positions may change at any time.

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