Last night I felt the McClellan pic I posted was worth a thousand words. In relation to a trending market, these divergences are spot on. Normally, I'd post a picture with more longer term data to substantiate my claim, but its Friday. Therefore, I'll leave a few tid bits and start my weekend smiling.

I bought into this dip today, and have even held a handful of longs through most of this weakness, with only a small number of puts to offset the losses. Aside from the bullish divergence I posted last night, there are 3 main reasons why the market was going to crush the shorts today, and why this was a great spot to be a buyer.

1: Copper would not go down today.

2: Panic Selling / Forced Liquidation in Crude Oil. Equities don't go to new day lows on this move.

3: Take Your Cues From Goldman, as Goldman leads the way. 

Also, I loved the action in the XLF. Covered my JPM puts near the 200 day MA.

Through my buying efforts, I focused specifically on the materials sector, and have a few tech names I am dying to buy on Monday. The reason I like materials stocks was due to the oversold names in this group, the price action today as stocks like AKS, XRA, and PCX did not go to new day lows as the indices did, and the technical set-ups like you see in PCX. Easy to manage if it don't pan out.

In closing, going back to Goldman's 2010 forecast of a 2004-like range-bound market in stocks, you've gotta be a buyer here. If we do manage to fluctuate up 5% and down 5% over the next few quarters, you've gotta buy low and sell high.

I'll be back this weekend to provide you, the reader, my shopping list for next week.

Have a good weekend,

OA  

This action in Copper prices is starting to spook me a little. 

As you may or may not know, we've been using Copper as a leading indicator to stock prices, and for just reasons. Copper bottomed well ahead of the March lows, and signaled through every little pullback in the last year that the trend would continue. Take a closer look at where that relationship stands as of now.

As of late, Copper prices have taken roughly a 15% haircut, and look heavy as hell. This has also dealt a heavy blow to stocks like Freeport McMoran and Southern Copper, which are both down between 22-25%.

I speak of this only as a market barometer, which is also a good indicator of the global growth story. As you can see, right now that story is hurting.

Equities have been trading well the last few days, but there has been a reluctance to break the 1105 level in the S&P. The McClellan has been able to reset from its extreme oversold levels, but I haven't bought any calls or any stock in over two days. Nothing looks good.

If this level holds, I am going to continue to add bearish positions, looking for more downside in equities.

That is, of course, unless the market can find some leadership. Sustainable leadership. Also, I need to see Copper stabilize. Otherwise, I am just sitting here, waiting.

I just finished giving an hour and a half presentation tonight on the topic of Market Breadth Signals for Swing Trading. The chart of the night definitely goes to the S&P and McClellan Summation Index comparison, which has nailed every major turning point through the beautiful divergent signals it provides. Another reason to be careful here.

First off, a hat tip to DHI for getting their $hit together and posting their first profitable quarter in over three years. As you know, this bodes well for my homebuilder theme.

While its true that you might be scratching your head right now, wondering why you are not taking part in the recovery of these beaten down stocks, don't worry. There is still upside left in these names.

I'm sure you noticed that the homies were the top performing group out there today, which as we've discussed, is a solid market signal, but is also a strong theme that is still very much in play right now. In other words, you haven't missed it yet.

Take a look at them gains.

My point in bringing them up again is two-fold. One, this was a fantastic market call. Two, this move today confirms a lot of good patterns, was chuck full of volume, and points to more upside (See Below).

RYL: A break of $24.50 confirms a monster triangle pattern. Volume has been ramping up here as well. 

DHI: A consolidation pattern lasting longer than a year gave way today on massive volume. She goes higher.

TOL:Even TOL wants to play.

SPF: My "Sleeper" pick.

I think this theme continues through Q1. I'll continue to pound the table as needed.

If you are tired of me pumping this group, I could get back to last week's call on crude. She traded nicely today.

More themes are coming, but as you already know, timing is of the essence and I hate being too early.

As a reminder, you've probably seen the banner above, but if you have not yet already registered, sign up for the TA Open House on Wednesday, February 17th. Seating is limited.

That's all for now. For those that heeded my request last night to comment, say hello, pitch me ideas, etc....Thanks.

OA, out.

Note:This song is dedicated, to my homies....

The McClellan came through and "Mutual Fund Monday" went as planned. Stocks lifted, they held, and they resumed trend. Sure stocks were only able to recover the "hot lunch" they were delivered on Friday, on weaker volume nonetheless. However, breadth was good, which is the first time I've said that in weeks. As far as I can tell, we should be able to drift higher from here, and see sectors separate a little. In other words, Bend Over, Here It Comes Again, Shorts (BOHICAS).

I'm 99% long right now, and still plan on taking a few more positions in the next few days, and lightening existing positions on the way up. In the next few days I plan on initiating a few shorts, but not until the sun, moon, and the stars align if you know what I mean. A little balance ought to do me some good.

As for today, I jumped on the Miners, Large Cap Tech, and Small Cap names. The Miners are in a great spot right now, especially with Gold trading above the 1065-1085 range. The group is ready to rip, as witnessed today. This is as oversold as the miners have been in ages.

On another note, my casino plays tore it up! Long calls in WYNN and LVS.

I am wanting to nibble in materials, specifically steel. However, I'm going to see if I can get a better entry than chasing my favorite names (AKS, MTL, STLD) up 5-7%.

In closing, I still like oil, which we touched on last Thursday. Crude traded well into the bell, and the entry point is still admirable, even if you didn't feel me last week.

On that note, I'm out.

Oh, and by the way, if you do in fact stop by this site, throw me a bone. Say hello. Don't just visit and bail. I'm back up over 10k hits per day, which is dick compared to how this site dominated its competition, back in the day, and yet, I get no love. Throw me an idea, a chart, or just flat out throw something. 

Below is this week's Weekly Watchlist. Happy Trading!

OA's Sizzlin Small Caps

Price Patterns

All Triangles- WYNN, MGM, RF, VLO

Buy the Dips (Bullish stocks near support)

RYL, MAS, GNW, OXY, USO, KWK, PNC, AKS, USB, PCAR, BID, MTL

Sell the Rips (Bearish stocks near resistance)

RTH, RIMM, ELS, LFC, ANF, LMT, VLO, M, PLCE

Don't bet against stocks quite yet.

Yesterday, ahead of Obama we took on a couple positions in financials (RF + 4.2%) and in healthcare (UNH + 0.57%). Even into weakness today, I like some of the separation occurring in stocks. It makes me feel better about the idea of loading up again, similar to how we did at the end of October of last year; which was "All in." The October decline versus the January decline are roughly the same in magnitude: Oct (9 days): -6.5% vs. Jan (8 days): -6.3%.

Yesterday we discussed the relevance of $72 dollar crude, and what it meant at those levels. Not only is this a good technical signal on the actual commodity, but this is an important market measure. I have a hard time picturing falling stock prices if crude oil is stable, or better yet, ready to head higher.

I mentioned yesterday I love the spot, and today, I love the price action.

For this reason, I nibbled in the oil service space, and might take down some USO tomorrow.

Copper and Gold also traded well into the close. The Central banks are defending their basis in Gold at 1075, and Copper prices are nailed to trend support, which held today. Both were good sources of relative strength, and should point to stabilization.

Speaking of relative strength, I also am of the opinion that the strength in homebuilders is important. We've been on this theme for weeks, and I think that this is still a great entry point in several of these stocks.

Relative strength, indeed.

Looking back, I get the fact that this is meaningful selling, with plenty of volume behind it. I still am of the opinion that you can start to short stocks, but I don't think you could stumble upon a worse spot. Wait for strength, be patient, and be selective.

Tomorrow I have a long list of stocks to pick from, should the market whisper "buy me,"but I am also looking to initiate a few verticals and or diagonals at these extremes.

Heading into "Mutual Fund Monday" I'd make damn sure you covered your shorts.

OA

More stabilization in stocks today. So far, so good. Now the fate of my positions lie on the shoulders of our President, as he gives his State of the Union address later tonight. I'm pulling for more speak of job creation and less speak on bank de-balling. If the Commander-in-Chief's threats on the financials are less hawkish than they were last time he spoke, we should be good to move higher.

I played into financials and healthcare into the close today. Again, just nibbling, but have a good long list of stocks to buy when I get the "all clear" signal. The healthcare plan providers such as UNH, WLP, HUM, etc were all trading very well at the open, and the BKX looked great.

Today's price action looked good into the close. The only hesitation I have is the weakness in commodities. Copper was down as much as 4% today, and oil got crushed too. If this continues, we've got more room to fall.

The only thing keeping me from reading too much into commodity weakness is the reference points that line up here.

FWIW, I am actually looking for a spot to try and buy oil.

Bottom line: If Obama's tone is louder as he addresses job growth, and not as loud over "War on Wall Street" and Bank regulation, buy stocks tomorrow. Especially if commodity prices firm in the morning.

Also, keep your trading terminal on tonight. There should be some decent swings in the ES, Gold, Treasuries, Euro, and most markets later this evening.

Trade on.

OA