Weekend Update: Hold the Line

The SP500 managed to hold, bounce and retake its rising 20 WMA this week. Overall a positive result from the potential breakdown we saw last week; this is the first step. There are still things to accomplish, but there always are. After a weaker than expected August Payroll Report yesterday, markets seemed confused about what they expected out of the result. Did they want a good number? But wouldn't that encourage Fed tightening? Did they want a bad number? But if that's the case then it doesn't matter if the actual economy and market are healthy, it just matters that Big Ben will keep his pedal to the metal...and that's suppose to be good for stocks?

As I have believed for some time now, the Fed would not be tightening its stimulus at the upcoming September meeting. This only seems confirmed now that the report was on the disappointing side and didn't signal a rapid expansion in the employment market. In fact they revised down the prior numbers from July as well, which shows even more softness than was previously perceived.

What this means for the market at this point is...Not much, just NOISE!
The fear mongering in the media has been deafening while prices are still holding up. If you think that a "clarity" or "all clear" signal will be given to the market after the Fed meeting relief rally fades, then you are just fooling yourself. The focus will just shift to the next headline worry. Noise is everywhere, its rampant and relentless. You need to have and follow a disciplined plan that avoids reacting to noisy, emotional events and sticks with the signals generated within your strategy. Otherwise a week like we have just had will chop you up and spit you out (your account balance at least).  

Markets have been choppy and whippy for the the past few days, but apart from some volatile intra-day action the overall results have been modest in either direction. While the overall return of the SP500 this week was 1.4% or 23 points, all but 4 of those points came on the gap higher open we saw to start the week on Monday. Apart from that initial reaction we really saw sloppy and nervous trading. Friday's job related trading saw an initial 9 point move higher, followed by a drop off that took the market negative 12 points, only to see the direction shift again to take us back to the highs up 9. How did the day finish out you ask? With the final hour fade the SP500 traded back to the flat line into the close. That's 39 points of movement from highs to lows to highs again and finally settling for a 0 return day. This is why we extend our time frame and attempt to avoid getting caught in emotional trading like we saw today.

Looking at the Daily view of the SP500, to me it looks as though we will trade more or less sideways for the next week heading into the Fed meeting September 17th. If this scenario plays out orderly it would potentially build a right shoulder to a yet-to-be confirmed reversal pattern. Lets take a look:

There is a lot going on here, but this is the exact same chart we have been watching for sometime now. As you can see we are still between the upper resistance zone and the lower support uptrend line. This reversal setup could build here in the next week just below the downtrend resistance and then look to resolve the pattern with an announcement from the Fed the following week. The areas of importance that we will be watching here will be the 1,670 prior swing high and the 1,630 low from last week. That is our range and we will be waiting for a move above or below that area.

We lost no positions this week in our Portfolio and I really only have a couple notable charts to discuss from our list. We saw mostly solid gains across the board except for HAIN, which was our only down holding this week.


F (monthly)

This is a long term look at Ford. Going back to 1995, we see that since topping out near $39 per share in '99, the stock traded down to below $1. Since that low F has staged an impressive rally, regaining almost half of its prior value. But there is still a lot of work to be done to get back to those prior highs. What we can see here is that for the past 12 years the stock has been carving out a large support base off the lows. Within that base formation there is also a large reversal pattern taking shape. If the stock can break above the $17.65 resistance level, Ford could attempt to regain ALL of those prior losses. I will be watching this closely. This pattern suggests that Ford's stock could double over the course of the next 10 years or less.


HAIN (daily)

While the chart is fairly unchanged since last week there was some important news on Wednesday. One of HAIN's largest shareholders, Carl Icahn announced that he would be selling half of his 15% position in the company. While tracking Insider Selling is not the most accurate measure for timing, when an investor of this magnitude and reputation makes a large move we have to take notice. Something notable on the chart above shows the most recent "spike" just this last August and the other huge earnings jump in August 2012. I am noticing some similarities in the two events; both involved huge volume spikes (not shown), a large surge in Relative Strength, followed by a failed attempt to continue to drift higher after the report. In the previous year once the stock broke below the 20 DMA, it went on to correct all of the prior breakout move and then some. While this did set the stage for a new support base to build and subsequent breakout, it was still a 25% correction from top to bottom.

Due to this pattern and chain of events I have reduced my positions in HAIN in all "short term" accounts, but have maintained a 1/2 sized, core position. For long term accounts like our Blog Portfolio I am standing pat here and will continue to honor the support near $72-70 as the level that needs to hold for long term positions going forward. My recommendation to you would be to decide what your time frame is for the stock and determine whether you feel a 15% correction is worth sitting though for the likely prospect of continuing higher. Or whether you wish to be nimble enough in the market to take some very nice profits here and wait for said correction to add back into a full position more near to support levels.  

Our weekly stock Holdings' performance:

PBW   +5.2%
F          +5%
CMI    +2.8%
AAPL  +2.4%
PPG     +2%
SP500   +1.3%
DDD    +1%
WFC    +.09%
HAIN   -4.1%

cash
HD      -2.38%
ENB    +1.3%

That's pretty much it for this week, still in wait and see mode and we will continue to see how our stocks and the market hold up around these key levels.