Everyone’s Talking About The SP 500 Symmetrical Wedge – US Total Debt Reaches $15T

If you have not heard by now, the S&P 500 is trading within a symmetrical wedge pattern, which has most in the investing community buzzing. Because symmetrical wedges are generally neutral, they attract quite a bit of attention since no one knows for sure which way it will break. The point I want to make about this wedge is that way too many people are watching this pattern for us to simply buy the first sign of a breakout.

When a more than average amount of people are watching a particular chart pattern, the success rate generally declines. This pattern will play out as a bullish continuation, or a bearish reversal, whichever it is, confirmation must be utilized on any breakout or breakdown of this wedge. Confirmation being a secondary close below the low or above the high of the breakout candle. This method keeps traders out of bad trades, and prevents needless stop outs.

Currently I am short the USO. I took profits on 2/3 of my initial position after the pullback from the 200 MA pierce, and added 2/3 back today after the gap higher. Today’s move looks like an exhaustion gap as it tagged gap window of $39.80 and the pivot high of $39.50. Additionally, the USO hammered into the .618 level before closing lower during today’s 3pm selloff.

USO closed today in a doji formation which leaves the door open for a star or “island” reversal tomorrow. In any case, oil is extremely extended and regardless of the CME margin easing, oil really has no business above $100 in this economy.

In other news, the United States went over $15 trillion in total accounted debt today, a number that is up over 40% in just the last couple of years.

http://www.usdebtclock.org/

Markets Still In Weak Technical Position After Mid Week Rally

The stock market still closed out the week in a weak technical position despite the reversal Monday afternoon. Most stocks are below all major moving averages and are in confirmed downtrends. Financials are leading the market lower and any bounce into key resistance can be safely played from the short side.

3 Long And 4 Short Ideas For August – David Urban

August historically is one of the worst months for technology and precious metals stocks while financials tend to have a seasonal rally. Investors looking to pick up some quick alpha can play some odd cross currents during this seasonally weak month.

Long

Goldman Sachs (GS) – An earnings miss last quarter should deter investors from going long one of Wall Street’s premier names. Goldman’s earnings growth was very strong on a year-over-year basis. Year-to-date the firm is the leader in M&A and equity underwriting with a strong Tier 1 capital ratio. The recent selloff should be looked at as a buying opportunity.

Wells Fargo & Co. (WFC) – One of the stronger financials in a weak sector with strong Net Interest Margins and ROA when compared with peers. Credit quality continues to improve and its depth and breathe in US retail banking will allow Wells Fargo to lead when the sector turns.

Best Buy (BBY) – The leader in the big box electronics retail segment. Technically, we are putting in a triple bottom and with back-to-school season in full swing electronics sales should see an uptick. Best Buy’s dominant position in this retail segment will drive revenue and profit growth into the fall and Christmas buying season.

Short

Microsoft (MSFT) – The new Windows phones are right around the corner and there will be a massive retail push in an attempt to grab significant market share during the Christmas buying season. However, PC sales growth continues to sputter as tablets are making inroads and Online is bleeding red ink.

Intel (INTC) – Strong second quarter earnings masked significant portfolio weaknesses. Overall desktop sales are flat as smartphones and tablets begin to push out replacement cycles. Intel continues to miss the switch into smartphones and tablets.

Silver Wheaton (SLW) – This stock is everyone’s darling as the unique business plan has been copied by a few other companies. However, silver’s meteoric rise this year means that it becomes more difficult to sign contracts with mining companies to sell silver for $3.90 per share. The change in leadership this year has not brought new contracts and clarity for the future business plan. There are better values elsewhere in the streaming sector.

Silver Standard (SSRI) – Management has overcome problems at Pirquitas in Argentina, but questions concerning sovereign risk at San Luis in Peru have popped up. Technically, we are in the process of completing the right shoulder of a head and shoulders pattern so investors should be wary ahead of earnings.

http://seekingalpha.com/article/282730-3-long-and-4-short-ideas-for-august

Yesterday I discussed the possible down move as part of a larger wave in the silver market and credited Seeking Alpha contributor David Urban for some of the research. David has Silver Wheaton (SLW) and Silver Standard Resources (SSRI) as two short ideas for August. David, like myself also called for a reversal in the dollar in advance of it happening a few months back. He also correctly called for a rally in gold and the equity markets over the last two months when equities were at the lows.

Many tech plays are extended going into the month of August. After a debt ceiling hike is agreed upon, the market will likely rally off of the lows but will soon have to deal with poor economic data. The Nasdaq has outperformed the market so far, and technology may be a good area to look in to for shorting opportunities in the near term.

I like the call on financials for the month of August. Financials put in a bottom a few weeks ago and are currently off of the lows made throughout this past week. Bank of America (BAC) is sharply higher today after Harry Reid announced that his plan would make its way through the Senate. Citigroup (C), Wells Fargo (WFC), and Goldman Sachs (GS) have all staged a nice rally over the last week to two weeks and could potentially be putting in a higher low with today’s close.

Winners – GWG, MCP, Entry On SQQQ

Winners:
GWMGF – +23%
MCP – +20%

Loser: ZSL -4.5% exit price – $18.48.

ZSL had some solid gains Friday but the gap lower on Tuesday is what caused me to let this one go. Good portfolio management limited the downside risk on this one and silver has since surged so this turned out to be a loser, but not a detrimental loss.

On June 16th I said the bottom was put in on Great Western (GWMGF) and entered at $.623. The stock traded lower during the day making a bottom at $.574 but no new low was made after that day and the stock is now trading at $.81 for a gain of 23%. Short term downside would be the 50 MA and short term upside would be $.90.

On the same day I said that MCP was also a safe buy as long as it stayed above the $46.40 low and since then, it is up 20% though MCP was up as much as 25% a few days ago.

With the tag of the double top today, I went short the Q’s via SQQQ at $21.98. The reason why I like this short so much is because the upside is for the Q’s to fall back to 2840, (2%) (roughly 4% on SQQQ) and 2770 (4%) (roughly 8% on SQQQ), while the downside is less than 10 points. Confirmation above 2880 would be a sell but that level is only 8 points away so the downside risk is very limited.

Markets Pause On Light Volume After Holiday Weekend

Last Week’s Winners, Long & Short Ideas For This Week

Winners from last week:

FAS – Entry 6/20 $23.09 exit 6/14 $24.46 = +5.7%

QLD – Entry 6/21 $ 79.75 exit 6/22 $82.81 = +3.7%

TZA – Entry 6/22 $38.04 exit 6/23 $40.86 = +7%

________________________________________________________________________

I like ZSL for a short this week if SLV can get back to $33.20 – $33.50.

I like the short side value SLV has a $33.50. From this area, it would be 9% away from the downside target on SLV of $33.60.

You can use ZSL to short SLV to maximize profits. 9% x 2 = 18%. With SLV at $33.50, expect ZSL to fall to at least $19.50 which would make the upside target about $23. There is a nice pivot at $23 and a big gap to fill just above that area but you can bet I will have unloaded before then. Adjusting for entry and exit, you should be able to make at least 15% of off this. Stop is a confirmation above $34 on SLV.

I put out my entry of LOGI at $10.37 on Twitter today and will continue to use it to disclose entry and exit points intraday. Though this is a weak stock that is in a downtrend, it just tagged the resistance level that it broke out of in March 2009 after the financial crisis. Obviously, this is a long term support level and should be good for at least a small bounce.

Again, this stock is in a downtrend and carries a little bit more risk than normal, but going into today it was very overextended from its 20 MA and it also pierced that 2009 low this morning before rallying about $.25 higher near the flatline for a slightly negative close. It has a gap to fill at $11.10 which is the first target, and could potentially rally to the 20 MA around $11.70 but I won’t be holding it that far unless it gaps much higher tomorrow and stages a robust reversal. If that isn’t the case, which is what I am expecting, then I’ll probably be a seller at $11.05 for a gain of $6.2%.

S&P Potential Head & Shoulders

A saw that few people pointed this out over the past week and though the right shoulder is weak, it’s still a legitimate pattern. For those who don’t know the math behind it, the neckline (1300) is subtracted from the peak of the head (1370). Then, the sum (70 points) is subtracted from the neckline (1300), some analysts use the breakout point instead, which in this case would be 1315. Regardless, the price target in this case is within 1230-1245. However, given the long term pivot of 1227 and the tendency that the market has to capitulate and overcorrect even after the bad news is out, it’s safe to say that based on this pattern, we’re likely to be headed for 1227 once again.

There will be levels along the way, such as the 200 MA which will meet the YTD lows that are at 1260-1265. This is a significant level because it is the level that we opened at on the first day of 2011, and it is the level that we closed on when the market bottomed during the tragedy in Japan. This pivot can be played from the long side but ultimately I’ll remain short the market.

Also, I would like to say that this particular pattern doesn’t mean much to me outside of added confirmation to what I have already been saying for the last two weeks. The reason I decided to post this was because I found it interesting and because I have heard others mentioning the potential for this head and shoulders top to play out. In any case, as I said before, I’m still short the market but am playing the long side for options expiration. After that, I’ll use the upcoming bounce as another shorting opportunity.

Another interesting statistic that I did not include in my commentary last week is the S&P closed negative for six consecutive weeks with Friday’s close. The last time we had five AND six consectutive negative closes on the weekly chart of the S&P was the week of June 2nd, 2008 through July 14th, 2008. Again, we have not had five OR six negative weekly closes in a row in three years. The last time we did this for four consecutive weeks was Feb 9th, 2009 through March 2nd, 2009. This supports my prediction that we will have a bounce next week, but not a reversal as we have not had volume and price capitulation or a spike in the VIX yet.