Cautiously optimistic...

Number wise,  market's drop this week has been the biggest since March.    Has it really been that long since we've seen this much downside volatility?  Yes, it has!   Normally, after yesterday's big drop, we'd hope to see some stabilization in this market and find some entry points from our plays, but it just wasn't the case today.  The ' late day' buying has abated this week.  We’ve been cautious heading into the week and gave further caution intraday Monday.   So, we haven’t been stung a bit and those that ’short’ by our market commentary have had a nice few hours.    We noted heading into the trading day that most of our shadowed plays had dropped below 9ema in this slide.   Obviously, the drop yesterday carried through today pushing them lower.    From SPX  side, we did become “vulnerable” even w/o bad news and broke through the short term support at the SPX 920-923 breakout gap and went straight to next support at 911.   The declining 200ma SPX is now at 908 and we aren't that far away from the 900 "psychological" support either.     Remember, a ‘bullet point’  to our premise of a bullish market since March has been an underlying bid prevailing first at 20ma for a few months and most recently at 200ma.  Well,  that’s in jeopardy as buyers didn't come around this time at gap 920-923 and need to show up here at 200ma or we eventually go to April highs (~880) this summer.   After, “losing 929”, we now have it as 929Resistance on any bounce in the near future.

Given this much decline in such a short time frame without much of a catalyst, we feel that a bounce may be in order very shortly. (5% off 956SPX now) is as good as any.   Of course, we remain very cautious at this point because we'd rather see some stabilization first before getting our hands back into plays for any duration.   Still,  this is more of a profit taking correction from jittery longs than shorts getting overly excited and pressing new positions in anticipation of further downside.   Shorts/Bears need ’bad news’ to get giddy once again as they’ve been burned badly for 3 months due to ’upside risks”  ruining their days after they decide to get off the sidelines and press.

The drop from the commodity sector, in our opinion, is much needed and had become too reliant on $USD lately.   Notice today was the first time the $USD -commodity link correlation did not work and must have fooled a few to step in the morning on the USD weakness only to get stinged.  This gave credence to watching 9ema and avoiding such a trap.   Financials also look very weak and they can potentially wreck this market even further if this group deteriorates further.  Their quietness is a little uneasy.

Despite the fact that the market is under some pressure and with any good newsflow not being used to rally the individual stock and/or market,  we still remain optimistic longer term.    After all, a meaningful correction after such a long bull run since March has always been a possibility.   We've just avoided this belief until this weekends DIM journal.   It's particularly hard to speculate on the trading range now that we've broken the recent 920 gap support   We have to be prepared to widen our SPX trading range to 40 or even 60 points.    Right now,  we are simply waiting out this slide and waiting out the reactions to earning reports this week.   BBY  was really a sell on a good report and so we’ll continue to monitor if our fear from yesterday continues.

Since the market is looking a bit vague at the moment, we have to choose to focus more on individual plays at this moment from our shadowlist.   Today, one must have lid up on top.   You have to like STEC 's guidance and chase some in spite of a 20++% move.   Over the next few days, we are going to be looking for those plays that can reclaim their 9ema.   We are very interested in the decoupling going on now and will be cautious in the very short term, watching if this continues.   What we mean by ‘decoupling’ is good news is sell news and an opposite reaction of commodity linked groups/stocks to USD is occurring.  One or both, can't be too good for market sentiment.