The ISM was a game changer, like no other.

That was a huge surprise, which, naturally, brought forth a huge rally. Into strength, my TA Swing indicator generated a buy signal. Those signals, in such circumstances, are relevant, and point to more upside.

If you are so lucky to get a dip to buy, don't hesitate. Buy it. Copper has been telling you to buy stocks all week. I was long only 3 call positions, and about 3 stock positions coming into today. Paint me a chicken for not going all out, but I had some good exposure, unhedged.

The groups we've been dialed into the most over the last few days, Financials, Materials, and Energy, ripped the hardest today, based on their bullish percent values in comparison to all other sectors. I still like these themes into weakness, if I am so lucky.

Top picks:RF, X, BZH, YUM, VMW, BIDU, JASO, CAT, CMI, FOE, and Emerging Markets.

Thanks to a better than expected reading in China's PMI this evening, stocks are set to rip at the open.

So long as tomorrow's ISM comes in near the consensus of 53, gains should hold, and the S&P should be able to trade outside of this channel, and put in some work to the upside.

We've talked about keeping an eye on China in the last few weeks, and even posted a chart of the Shanghai, which is very close to confirming a bullish reversal pattern.

This means nothing for the S&P's, other than the fact that I continue to doubt equities get crushed, with Emerging Markets trading so well.

Here are a couple of ideas that ought to bode well into strength tomorrow.

CLICK HERE.

The day trading should be exquisite this week. Therefore, don't bother looking to locate a swing trading reference point in this mess. The signals are crossed, and I am having a heck of a time painting a picture of what the landscape is going to look like going out a few weeks.

You've got to be approaching the market with a bearish bias here, but with caution. Treasuries are on the run, the Yen continues to trend higher, and the Dollar is perking up. Not to mention, if you've traded through a September before, you automatically have a bearish bias based on seasonality.

My problem, is that I don't see stocks getting crushed here. Emerging markets continue to diverge away from the S&P, Copper has been diverging over the last two sessions, trading up north of $3.40 today, and the McClellan, which hasn't printed an oversold reading, is getting pretty low. Based on these signals, I have a hard time loading up shorts, when I think we are very close to a short term low, or a tradeable bounce.

Based on this, I've cut back positions to 3 call positions, 2 stock positions, and 3 longer term (small) positions in which I plan to use to start a new "Dynamic Covered Call Portfolio." Since last week, I've been more active on the day trading front, trying to catch big intra-day moves in individual stocks.

The tone during our daily meetings has been to get long Emerging Markets, but more of a "wait-and-see" approach to US equities. The divergences are starting to say that a low might not be far away, but the seasonality tells me to avoid being a hero, and wait for better signals.

Not exactly an actionable game plan tonight, but I'd rather have you guys play it safe, than sorry.

As better signals develop, we'll get specific in terms of tradeable ideas.

OA

For bullish watchlist, CLICK HERE. 

For bearish watchlist, CLICK HERE. 

CLICK HERE for the point and figure version of the bullish watchlist.  

CLICK HERE for the point and figure version of the bearish watchlist. 

Small Caps

Day Trade Candidates

We haven't seen a divergence like this in Copper for quite some time. Equities down, Copper up big.

It's also worth noting that Oil prices were strong and treasury prices were 'contained.'

This is about the last thing the bulls can hang on to here (below), as they've been asleep at the wheel, with absolutely no conviction in taking prices higher.

Sure seems like something is brewing here, and tomorrow's GDP and comments from Bernanke ought to make it an awesome trading environment. I still think you are better off day trading for the next short stretch, but if this pattern above holds, I still think the upside is 1070. Not much, I know. But according to the McClellan, we're not completely 'stretched' here.

OA

No real capitulation...no real oversold reading...no rally?

1040 seems tradeable, but I'm thinking only to 1070, where we might see some sellers.

The one thing I did like today was the volume in Treasuries during that intra-day reversal. Seems like a lot of traders are betting against that trend, which negates the idea of a "bubble burst." A pull back, sure. A change in trend? Doubt it.

Treasury prices on the decline might help to prop up equities here for a little while, but they need to break this trend in order to see anything substantial.

Still watching China...

Don't be a hero here. The market still looks like trash.

According to the McClellan above, we're not even in oversold territory yet.

The Chart of the BKX I posted yesterday, indicates that the market can go a lot lower than this. The next reference point would be the Nov/Dec lows, which puts the SPX at its July lows, minimum.

Looking at the SPX, 1010 seems like a logical target...

If this happens, before Labor Day, I have a tough time painting a picture through the month of September.

I bet we see another round of stimulus.

OA

These charts pretty much sum up the market structure. Not much else to say...

The builders are in a tough spot heading into tomorrows announcement, Financials ($BKX) are ready to take out their June lows, and Semiconductors are heading lower, outside of their multi-month range.

Take that and mix it up with the weakness in Crude, the heavy action in the Euro, and the trend in treasuries, and it's looking like it's going to be a nasty September.

Stay frosty,

OA

My screen capture video software is fried. The video recording went off without a hitch, but for the second week straight, I am unable to render and convert the file. Therefore, I will attempt to recap what I spoke about in my little 6 minute presentation.

As we spoke last week, the TA Swing indicators are "sell signals" across the board. The Euro broke down beneath its rising trendline last week, as did crude oil. Financials and homebuilders are weak, and despite some cross currents, the atmosphere is continually growing bearish.

Into strength, we'll be looking to establish more bearish positions, in the set-ups outlined in the links below.

However, if you are going to take on a balanced approach, part of my segment tonight was based on the only two trends I would be playing to the upside next week: Cloud Computing Stocks, and Emerging Markets (CHINA).

For bullish stocks of interest, CLICK HERE. 

For bearish stocks of interest, CLICK HERE. 

CLICK HERE for the point and figure version of the bullish stocks of interest.  

CLICK HERE for the point and figure version of the bearish stocks of interest. 

The best pairs trade right now is being long almost any other country against the SPY.

Since last week, we've been talking about Emerging Markets as the place to be. Take a look...

India

Chile

Thailand

Turkey 

Malaysia

Hong Kong

China is setting up pretty well also. Keep an eye on the Shanghai. An uptick here looks good on the chart.

OA