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Market
at a Pivotal Point Today ...Literally |
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Believe
it or not, today's a very pivotal day for stocks - and not just
in the short run. The bears have had several chances since mid-November
to knock the bulls off their perch, but haven't made good on any
of them. Instead, the bulls have been resilient, allowing index charts
to work their way into a nearly-confirmed bullish trend.
Obviously there's
still a great deal of risk to contend with, but the near-term nuances of
the current situation have longer-term implications. They're worth a close
inspection today.
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Gettin'
Down to the Details |
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Wednesday's
3% plunge was a tad nerve-racking. On Thursday though, when the market
opened in the red and then moved even lower, things got back to the
point of being downright scary. After all, just a week earlier it looked
like stocks were going to at least stabilize, and possibly rally. Now
all that progress - and potential - was going to be wiped
away in a matter of hours.
Funny thing
though - by the close of business on Thursday, the indices were back
in the black ... a lot.
 In
retrospect (and hindsight really is 20/20, isn't it?), we can now
see that we were simply due for a dip. In fact, we were a little overdue.
Stocks had rallied 7.5% over a six day period ending on Monday, which is
nice, but a little much considering the current environment. Besides,
charts were well overbought on a short-term basis.
Thus, the prior
two days were spent giving as much as 4.0% of that rally back to the bears.
As of Thursday's close, however, the S&P 500 only lost a net of 2.5%
from Tuesday's close. When put in those terms, the whole thing wasn't
really that big of a deal.
The catalyst
for Thursday's reversal was an important one - support at the 20 day
moving average lines (and the 50 day average lines, in some cases).
Both
moving averages have acted as reversal points - bearishly and bullishly
- for the past few weeks. To see them hold up now and let the market
continue to make higher highs and higher lows is no small matter.
Just to be clear,
don't get a false feeling of security. Though stocks are generally
behaving better than they were, say a couple of months ago, Wednesday's
job numbers should be a sobering reminder of just how vulnerable the market
is.
Still, nothing
speaks louder than results. The market is up 4.2% for the last two
weeks, and is up 22.6% off of November's lows. That's the best
seven-week stretch since the fall of 2007... seriously. Now
let's just see if it can keep moving in this direction.
As was mentioned
above, the market really is at an inflection point. We need to see
certain things happen today (though not just today) in order to
maintain confidence in any rally.
 First
and foremost, the 20 day moving averages and the 50 day moving averages
have to hold up as support lines for all the indices. For the S&P
500, the line in the sand is 890. The Dow's is at 8677, and the NASDAQ's
is a little under current levels... 1554.
For the indices
to keep themselves propped up at those support levels though, the bulls
need to do one thing they haven't done yet... put some real volume
behind any gains. Even with Thursday's rebound volume wasn't all that
great.
Why such
a need for growing volume? If the rally runs out of buyers, nobody's
left to bid up stocks - the rally is quenched. .
And finally
- perhaps we should say hopefully - a move to yet another higher
high could really clinch a near-term (as in weeks) bullish move. For
the S&P 500, that just means a move above this week's peak of 943.
For the NASDAQ, look for a move past 1665, while the Dow's hurdle is 9088.
That's certainly do-able with only a modest effort.
So, there you
go; it's pretty straightforward actually. Let's see how today takes
shape, though our analysis may extend into next week's charts as
well.
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Have
You Seen China Energy Recovery Lately? |
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If you've been
mulling over a purchase of China
Energy Recovery (OTCBB: CGYV), it may not be a bad idea to go ahead
and pull the trigger.
As we blogged
on Monday, a string
of higher highs and higher lows for CGYV shares was a hint of bullish traction.
We suggested venturing into a position based on that trend. Since
then, two things have further led us to wonder if a breakout move is coming
sooner
than later.
-
 Volume
is picking up. It really started to ramp up with the move from $1.50
(12/24) to last Friday's peak of $2.09 (01/02), telling us more buyers
are bringing money to the table. Even with the pullback over the last two
days though, higher volume on persistent prices means there are buyers
still willing to pay on the higher end of the price scale.
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Despite peeling
off from Tuesday's peak of $2.05 (the same day they announced the completion
of a $3 million deal) over the last couple of days, the opens and
closes have been on the upper end of the daily trading range for most of
this week. This is just a simple suggestion that investors are in a
buying mood at both the beginning as well as the end of the day....
another sign of persistent bullishness (even though the stock can slip
a little in the middle of the day).
Nothing has changed
regarding our ultimate signal of a breakout, which is a move beyond
November's peak of $2.25. If that level is exceeded, there may not be
any
second chances to jump in at a decent price. We'll just add that $2.09
could be an interim breakout trigger... an early warning of sorts.
Keep in mind
that China Energy's current market cap is a hair over $40 million, while
the company could end up doing $40 million in business during 2009
- a valuation that just doesn't make any sense. Investors may not let CGYV
stay that undervalued too much longer.
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Updated: 6:01 am PDT (13:01 GMT), September 9, 2010
