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Friday, April 19, 2013

Now is Not the Time to Go Bottom-Fishing

By InvestorPlace

Those interested in going long should wait for a better risk/reward setup

New York, Apr.19, stock trade .- Thursday’s session had many a perma-bull sitting on the edge of their seats through most of the day. Since the business of trading can lead to death by a thousand paper cuts unless one sees both sides at all times, let me make both cases.

Staying with tradition, I am kicking off today’s morning scribbler with the indispensable daily chart of the S&P 500. Thursday’s close brought the index right down to my key support line in the sand of 1,538, which held on a daily closing basis. That’s the bull case.
The bears, however, are pointing to a broken November uptrend… make that two daily closes below said uptrend now.
I don’t particularly declare myself in either camp, precisely for the above reasons. Instead, I like to revert to the tape that is rather then one I wish for. Currently being positioned net short in a U.S. equities portfolio, I still need my 1,538 line to snap before adding to short-side bets. However, any constructive price action and I will quickly flip back to the long side again. Said differently, the ultra-dovish posturing of global central banks will quickly teach you to respect the trend.
A look at the sector front of Thursday’s intraday fray shows both health care and consumer cyclical stocks led the slide. These were two of the four sectors I discussed in Monday’s column, saying they were ripe for moves lower given their steep slopes off the November lows.
For a broader look at the universe of cyclical stocks, we can turn to the Morgan Stanley Cyclical Index. The November uptrend is long broken, which makes for lousy risk/reward for those looking to go bottom-fishing for stocks in this sector.
Sticking with high-probability setups is the name of the profitable game, and those looking to pick up cyclical names should exercise restraint until constructive price action flashes a buy signal. As of Thursday’s close, we are nowhere near a green light on these stocks.
In my two weeks covering for Sam Collins, I have yet to shed much light on the technicals of the Nasdaq 100 index, so here goes:

After also staging a breakout-fake out in early April, the index, as represented by the PowerShares QQQ (NASDAQ:QQQ) started breaking down quickly. Thursday’s weak close broke a somewhat lousy looking uptrend, but broke it nonetheless. From here, the direction of least resistance also looks to be lower, and those interested in the long side would be wise to wait for a better bottoming formation. ...
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