S&P Target 2000 - Air Pocket Ahead - Part IV - III

by: The Other Street

<< Return to Part IV - II

Today is June 13, 2013, and we opened at 1608 on the S&P 500 (NYSEARCA:SPY). Simba Prince of The Gardens, my 80 lbs Labrador pup got neutered, and I just had a gout attack. We are not in a good mood but we're hedged.

All of this was expected, kind of. As the coaches told our Lacrosse team who caved in 4-2 in the finals after four great wins: Get Over It. Easier said than done.

Now, what do we do until the next tournament? Well, here is how it looks:

S&P 500 Daily
(Click to enlarge)

Believe it or not, each of the lines mean something:

(1) From the November 2012 lows, the yellow-purple Trend Channel shows support at 1608.

(2) From the October 2011 lows, the Trend Channel and the Regression Channel (the green line is the Regression line, the Channel is the parallel band at one standard deviation on each side) are almost identical, and the Regression line shows support at 1580, just below the 25% Fibonacci retracement at 1600.

(3) From the March 2009 lows, the Regression support is around 1540.

(4) And there is a combination of resistances in the 1660-1680 area.

So we are stuck in a trading range and there is no sign of panic or overselling. However, this first hour of trading is interesting, as it follows a 6.3% drop in the Nikkei (NYSEARCA:NKY) overnight, and weak European markets overall. We could have expected some follow-through yet we are up from the open, at 1617 as of this writing (11:00 am EST), with an Advance/Decline of 1.7/1.2. The economic news was nothing special - jobless claims, business inventories and retail sales basically in line. Even the iShares High Yield Corporate Bonds (NYSEARCA:HYG) is up, above $92. Is this the calm before the storm? There is not even a word out there about the Iranian elections tomorrow - not that they should be a surprise, we did not even hear anything either about their grand opening of the IR-40 heavy water vessel last Saturday.

The question is, what are we to do here? Well, I thought I would share with you my penetrating views of the obvious: nothing. Rather, keep the stocks you like, watch those who are currently outperforming without the help of short covering, and reassess your longer term market trends and objectives. In the meantime, stay put, i.e. I am personally 35% Net long, with 20% cash. My shorts are simply the S&P 500 Ultrashort (NYSEARCA:SDS) and Russell 2000 Ultrashort (NYSEARCA:TWM). I used to use HYG, but I went back and looked at its composition - with the economy improving, I see its yield improving, if anything. If you push me, I say we go lower before a real bounce but my stocks are mostly uncorrelated with a high beta, so what do I care?

You will see most of them in the disclosure line. As for trends, or waves as I prefer to call them, you will infer that I am overweight in Housing and Related Cyclicals, I like Diamonds and Silver, a few special Financials, some strange situations, and no clue about Oil. One thing is clear to me, I don't like any duration rates or dividends - except for Fannie Mae T. While the disclaimer stands in terms of specific stocks, I will venture a few names that I particularly like, not necessarily in that order, and usually pretty high on the risk profile (prices in round numbers): Blue Nile (NASDAQ:NILE) at $37, Pulte Group (NYSE:PHM) at $20, St. Joe (NYSE:JOE) at $20, Toll Brothers (NYSE:TOL) at $32, Woodward (NASDAQ:WWD) at $40, Hecla Mining (NYSE:HL) at $3.50, and Wesbanco (NASDAQ:WSBC) at $25. If you wonder about this last one, check the chart below - they are located smack in the middle of the area:

(Click to enlarge)

Disclosure: I am long ADES, AGM, DY, ELON, EXH, EXTR, FIATY.PK, GRPN, HL, HW, IMAX, INAP, INFA, JOE, MXWL, NILE, ODP, PHM, PIKE, RSH, SLM, TOL, UTEK, VECO, WSR, ZOLT, WWD, SDS, TWM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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