Happy Friday all. I know it was the second shortened week in a row, but somehow I'm more glad than usual the weekend's here. You feel the same?
Anyway, not a lot to talk about today on the market front (still stuck in neutral), but I do have a couple of trading-idea updates for you.
The Market's Outlook? Depends on Your Timeframe
While Tuesday's excessive strength surprises me, I'm not a bit surprised the market's stalled ever since. That's right - all the major indices are basically flat with Tuesday's close.... not exactly a screaming picture of follow-through, and the basic reason for the slightest of worries right now.
(Translation: We're still due a pullback, but it's still not apt to be a big one. It just needs to be big enough to cause some healthy doubt. The S&P 500 could accomplish that with just a move back to the 1250 area.)
Overall though, I really like the way the market is at least holding its ground now. It says a lot about the bigger bullish mentality bouncing around in the back of our collective heads.
Unfortunately, that may not be enough to stave off some short-term weakness.
I was telling you yesterday about using short-term data to make short-term decisions, and long-term data to make long-term decisions. We're going to look at things through both lenses today, just for some perspective
In the long run, things are getting better. I don't just mean economically either - the market's also starting to get back into a long-term bullish groove. Take a look at the nearby weekly chart to see what I mean. We're making higher highs now, and higher lows. And, our MACD lines - a very basic momentum indicator - turned positive in late October. Say what you want about what "should" or "shouldn't" happen, but it's undeniable that the market is moving higher.
Better still, it's going to be a while before the S&P 500 bumps into the upper Bollinger band (just think of it as a technical ceiling) at 1312. Even then the upper Bollinger band won't necessarily have to act as bearish reversal point. It may just end up containing the rally to a more sustainable pace.
Ditto on the CBOE Volatility Index, or VIX. As long as it's in a downtrend, that's good for stocks. I don't see the VIX's lower Bollinger band at 18.23 being a reversal point either... just a point where the downtrend slows down (mirroring the slowing pace of the broad market rally).
Bottom line? This points to a positive start for 2012. If you want to see how all of these have worked together over time, check out this full screen shot.
In the meantime (short run) though, it just feels like things are getting a little overheated even if nobody realizes it.
The S&P 500's already facing a ceiling around 1287, and even just above there is the upper Bollinger band around 1297 (again, just think of it as a natural ceiling). At the same time, the VIX is getting uncomfortably close to its lower Bollinger band where at least a market pause if not an outright dip has been common since October. To really appreciate my concern now though, you have to see this full-screen shot.
Any pullback doesn't have to be a huge deal. In fact, I don't think it will be. But, our chart history has shown we're getting to the point where stocks are vulnerable, and I'd hate for any of you to plow in now thinking it's going to be nothing but easy gains from this day on. We're kind of getting near the end of a short-term swing - not at the beginning of one. One way or another, something's got to bleed this pressure off.
Anyway, just a little perspective to take with you into next week.
On Second Thought...
Remember yesterday when I said it was time to take profits on U.S. Precious Metals (USPR)? Yeah, well, I hope you weren't listening. The stock moved another 32% higher today, reaching $0.28.
In a word, Doh! It happens, though it's better to have that problem than the other.
At this point, I really do think you'll want to make your way out. This has been a great trade, and I really do think this company can justify a higher stock price - once it bleeds off all this pressure that's been built up over the last two trading days. I just don't see this stock going parabolic even though it's dropping that hint right now. And if you're looking for a place to move that money...
VirnetX is Ripe
I've been talking about this one with you more than a little too, but it bears repeating again - VirnetX (VHC) is looking juicy. In fact, after consolidating a little since our last look, it's looking even juicier.
You might recall the real technical battle here was at $24.00. VirnetX had found a ceiling there for the better part of August through December. Then in late December it managed to punch through. As is so often the case though, that surge left the stock a little overextended, and sure enough, down VHC went. The good news is, the $24.00 level ended up acting as a support line on the way back, and setup a rebound move that - ta-da - really materialized today with an 8% pop.
I can understand if you had your doubts up until this point, but after today I think it's pretty clear the bulls are serious. It once again is a little frothy, but the point's been made (and on higher volume to boot).
Remember, Cowen and company basically valued VirnetX Holding around $50 per share. It ain't gonna get there straight-away, but today was a big step in that direction. Life just got a lot easier.