12-5-11 morning comments

Friday’s action looked a little like stalling but didn’t quite meet the volume criterion.; we did meet stalling criteria on the NYSE Composite however. Still the current wedging action (moving up on declining volume) is less than positive. Friday’s action could be okay in the context of the prior big move up however and I note the possible support floor based on the confluence of pivots in Billy's email.

This morning the futures are pointing upward, the S&P500 is knocking at the 200-day moving average line again. This is where the battle line is drawn; we will break one way or the other.
I have seen positive action on M (Macy’s), GOOG (pretty ugly base though), DLTR, PNRA, PM, HD, CXO, INT, FL, TCBI, MA, V, SWI, ULTA, CVLT, UA, SBNY

If we see a follow-through day in the coming days the exposure count would be +3 for the B1 FTD buy signal as well as another +1 for the prior B3 (lows above the 21-day moving average) and +1 for the B6 (lows above the 50-day moving average) that we have already had since the lows. +3 represents 75% invested however there is a restraint rule that limits the exposure count to +2 (55%) until the index closes at least 1.25% above the FTD close.

I was dealt a dilemma two weeks ago when the market fell into correction mode. I had owned SWI and I was up 20% in less than 3 weeks. This normally triggers a hold for at least 8 weeks. I could have held but I chose to sell.

Because of some of the positive stock action, last week I considered taking an early entry in ISRG, a pocket pivot buy point. Then I looked at the battle line drawn at the 200-day and remembered how the current situation looks like many of the prior bear markets at the exact point the markets turned downward and decided now is not the time to take a risk like that. I remain 100% cash and await the market’s decision. I note that bear market rallies are at the outset supposed to look very convincing in order to extract the most pain.

[QUOTE=mscott;19048]Because of some of the positive stock action, last week I considered taking an early entry in ISRG, a pocket pivot buy point. Then I looked at the battle line drawn at the 200-day and remembered how the current situation looks like many of the prior bear markets at the exact point the markets turned downward and decided now is not the time to take a risk like that. [/QUOTE]

ISRG will probably prove us both wrong because we're writing about it, but the EV pattern is a negative divergence which (more often than not) does not end well on the long side.

[ATTACH=CONFIG]11712[/ATTACH]

Here, I have a shorter-termed TEV/LEV/SmEV plot in the middle, located above a 40d (longer-termed) TEV/LEV/SmEV plot (yellow, blue, red respectively). On the top is price with closing VWAP and intraday VWAP and the bottom is volume.

Institutional support has been waning from ISRG fairly aggressively over the past few days as price has moved upward. This negative divergence is a big warning sign. Further, the upper EV pattern is clearly evident in the lower EV pattern, indicating that there is little institutional support for ISRG at the present time, at least in terms of trading over the last 40 days. When the short term EV magnitudes are close to the longer-termed magnitudes we have the equivalent of the main sail drifting in the doldrums, and any breeze (buyer, seller) can whip us around. Not an ideal situation for making money.

Regards,

pgd