Finally! The bulls have finally managed to do something right. We received our bounce today and it was a nice run-up into the close. The bulls managed to force shorts to cover, which helped fuel some of the gains for the day. Breaking resistance around the 1040 mark in the S&P 500 was an important positive and if we can hold this level tomorrow, we could see us breaking past more resistance which will hopefully turn this bounce into a rally.
Unfortunately, the low volume today combined with the overall downtrend is not making me a believer in a rally. This is typical of what you would see for a short-lived bounce but last year’s low volume rallies showed us a new side to the market that many were unprepared for. As I stated yesterday, we must learn to evolve and adapt to be successful in this market and the future. What worked in the past is not likely to continue to work in this market.
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If we can continue this move tomorrow, we are likely to see some of the bulls jump in the market out of fear they will continue missing out on gains. When the daytime CNBC pundits turn bearish, I give a greater chance of the bulls succeeding. Just keep in mind, this market is clearly in a downtrend so we must not be overly eager to add unless we are just as fast to sell if it does not pan out.
Doug Kass, one of the better analysts, has stated he believes the market has already seen its lows of the year. I sure hope he is right but I do not trust bottom calls until the market proves it to me. Kass has a relatively good history of making some decent calls, so he is one of the few analysts to take serious when he speaks of a bottom. He called the start of our most recent rally, when we cracked resistance at the 1100 mark in the S&P 500 and was spot-on in turning bearish at the right time. Due to his recent success in this uncertain market, I lend him a bit more credibility that maybe he is seeing something the rest of us are missing. At least the optimist/bull in me wants to see him be right.
Most of you know my style is not to call bottoms but rather wait for the market to confirm the move and quickly/aggressively move in to take safer gains. I utilize speed and aggressiveness to make my gains as it protects me from unnecessary downside risk. Protecting your capital is the key to long-term gains. If you have to continually make up large losses because you were buying and holding (buying and hoping), you now have to make up those losses just to turn a profit again. Let us not forget this B&H style also reduces your liquidity, so you better not need this money to help pay any bills.
The strategy I continue to use in this market is to look for stocks testing 52-week highs or to find sectors that are clearly oversold such as Energy recently or sectors showing significant strength like Technology continues to do. I will also add in some news-driven stocks such as the oversold Orient Paper (ONP) play or today’s Sirius XM (SIRI) play.
SIRI is the most requested chart analysis this week so I will now just into the requested chart analysis.
Sirius XM (SIRI)
A/D line: Strong positive number, recent uptrend again
ADX line: Short-lived buy signal in late June (Russell Rebalancing) only to be met with significant selling from the market selloff. Current path puts it in a buy signal within two days.
MACD: Negative but could be the lagging indicator to turn, slowly turning around.
CMF (21): Bullish
OBV: Confirmed all moves in the PPS, normal
RSI: Neutral territory
Resistance: 100-day moving average ($1) & 20-day moving average ($1.01)
Support: $.90 to $.92 but nothing to be confident about as we are under most of the important moving averages except the 200-day.
Analysis: SIRI, like most charts after the two weeks of punishment in the market, is a broken chart trying to find ground to work off of. I am concerned for short-term support levels so I will keep tight stops but I really like the fact that we tested resistance levels almost the entire day. The more we test resistance, the likelier we are to break it. With SIRI showing strong subscriber growth in a bad economy, we should see some additional bulls join the fight but this sets us up for a sell-the-news reaction come earnings due to the prerelease of information. With the ADX line about to signal buy, that should give us an extra boost, but if the market takes another downturn like it did the last time the ADX signaled buy, SIRI is likely to fall with it regardless of the good news.
Entropic Communications (ENTR)
A/D line: Strong number and strong uptrend
ADX line: In a bull phase with the ADX trend growing stronger. The yellow line above 40 is a good trend, above 50 is very strong.
MACD: Continues bullish phase
CMF (21): Bullish
OBV: Confirmed all moves in the PPS, normal
RSI: Neutral territory closer to overbought.
Resistance: 52-week high ($6.98)
Support: 20-day moving average and to a lesser extent, the other moving averages that are beneath the PPS.
Analysis: ENTR is a solid momentum stock that is testing its 52-week high in a bear market. That, in itself, shows good strength. Most of the indicators are bullish already and ENTR has strong support levels due to all the important moving averages being below the current PPS. The resistance is not strong and it is mainly clear sailing for now. The only negative force on this stock is the negative market days and the ecstatic profit takers who made a great choice in buying ENTR. However, even some of the negative days in the market saw ENTR close green. This makes me even more bullish on it. I am looking for ENTR to test its 52-week high again and break out for more upside gains, barring any major selloff in the markets. Oh, by the way, ENTR has no debt, per yahoo finance. That is arguably my favorite fundamental aspect to any stock I am involved in during this market.
As always, do your own homework to see if you agree. I will see you in the Live-Chat come morning. Good luck out there.
Mike
At the time of publication, Kudrna was Long ONP, SIRI, and ENTR but positions may change at any time.
