T2108 Update: Excitement Under The Calm
Dr. Duru | Sep 03, 2014 02:29AM ET
T2108 Status: 61.9%
VIX Status: 12.3%
General (Short-term) Trading Call: Hold (Bullish)
Active T2108 periods: Day #300 over 20% (includes day #280 at 20.01%), Day #14 over 40%, Day #12 over 50% (over period), Day #39 under 60%, Day #40 under 70%
Commentary
The end of summer trading, the post-Labor Day period, disappointed anyone looking for the end of vacations to signal a return of trading volume that would set the tone for the rest of the year. Not only was volume just normal or average, but also the major indices barely budged on the day. Even T2108 was non-committal with a close at 61.9% barely a point lower than Friday’s close. However, look a little closer and under the surface, and we find several points of great interest.
First, the S&P 500 (SPDR S&P 500 (ARCA:SPY)) managed to come back from trading below the psychologically important 2000 level. The index traded as low as 1994.85 before closing at 2002.28. I am guessing the break of 2000 on the first day of post-Labor Day generated confirmation for some group of bears.
The S&P 500 fights off a break of 2000
The tech-laden NASDAQ (PowerShares QQQ (NASDAQ:QQQ)) only gained 0.4% on the day, but the fresh 14-year high is another big statement. The index also extended its out-performance against the S&P 500.
The NASDAQ made a small step but a big point gapping up to a fresh 14-year high
While the indices were trading within tight guardrails, I got impressive stock price alerts all day. If I had not known better, I would have thought the stock market was experiencing a tremendous rally. Instead, the various stock surges I saw represented just a sliver of excitement roiling under the covers of a seemingly calm market. Here are some of the charts with brief commentary, including trades and mistakes I made. I think the overall (albeit selective) message here is that the market is ready to continue soaring higher.
Tesla Motors, Inc. (NASDAQ:TSLA)
I wasted no time when I saw TSLA gap up to a fresh all-time high. I consider that a major endorsement of the stock and a signal that the stock is likely to go ever higher. I immediately purchased a call spread. I continue to hold onto a very small short which stays as a hedge for my bumrushes into call options on TSLA.
Get The News You Want
Tesla Motors, Inc. (TSLA) gaps up to a fresh all-time high and doesn’t look back
Splunk, Inc. (NASDAQ:SPLK)
Woah! SPLK surged mightily on Friday after posting earnings. It stretched well above its upper-Bollinger Band® (BB) and set up a trade to fade. I of course checked on the position right at the open. I was relieved to see the stock sitting still and thought all was well. So imagine my surprise when I saw the stock managed to gain another 11%. Imagine my double-dismay after I discovered I neglected to place a stop on the position. Good thing it is a small position. Now I might as well wait to see how things play out at 200DMA resistance.
Splunk, Inc. (SPLK) ignores the rule of fading after over-extending above the upper-Bollinger Band. Bulls and buyers in full control as another 200DMA test looms.
Rackspace Hosting, Inc. (NYSE:RAX)
One of my favorite trades is the “comeback” trade. This is a situation where a stock surges on some exciting catalyst only to get faded and then reversed on no confirmed news. I sold half my position of call options as RAX retested its 200DMA a little over a week ago. I am gratified to see the stock breaking that resistance now, and I plan to hold the rest as long as I can. Hopefully some deal comes through soon….
Rackspace Hosting, Inc. (RAX) breaks out above its 200DMA as it reaches for previous excitement over a potential deal for the company
El Pollo Loco Holdings, Inc. (NASDAQ:LOCO)
I thought LOCO was “done” after analysts failed to come through with a collective “hurrah” upon initiation on August 19th. The stock gapped down in disappointment. Yet, the next day formed a bottom, and the stock has just bid its time in a small consolidation phase. Today was a big day with an 11.5% surge.
El Pollo Loco Holdings, Inc. (LOCO) surges 11.5% to close the gap created by an unenthusiastic crowd of analysts initiating coverage. It now looks ready to resume its post-IPO momentum.
GoPro, Inc. (NASDAQ:GPRO)
Here is another hot IPO I thought was “done” after a gap down. This time it was real news: earnings. Sellers had one more good day. After that, buyers have stiffened the upper lips, thumped their chests, and rallied on. Last Thursday, the stock rallied right to its intraday all-time high and pulled back. The stock has since managed two fresh all-time highs above the upper-BB. The buyers are back in full swing. Buy the dips…if you can.
GoPro, Inc. (GPRO) confirms it has shaken off the post-earnings blues with another all-time high
Now a much-needed sidebar on GPRO… A prominent market bear tweeted a link to an article warning that knock-offs are a threat to GPRO. As soon as the stock pulled back $2 from its high, this bear tweeted almost triumphantly. The stock regained half of those losses by the close. It was a bizarre sequence that betrayed what I think is an ever-growing frustration on the bearish side of the fence (or at least THAT bearish side of the fence!) – scratching and scrambling for signs that the market is ready to sell-off or even collapse. To the bears out there, stay cool. Let the market tell you it’s ready and stop trying to over-anticipate, staring at headlines, reading news with a bearish-tinted glasses, etc… I think there is nothing harder than trying to time and predict a top when a market or stock is making multi-year or, even worse, all-time highs. Of course, fundamentalists are looking across a different plain… (Regular readers can probably guess the identity of this prominent bear. I have decided to stop referring to him directly because his tweeting behavior is becoming more bizarre and almost more desperate to me; that is, less and less useful for commentary. He is a stubborn contrarian who himself is becoming a great contrarian signal for the bulls. I even wonder whether at times he is overly focused on generating attention and trying to see whether he can move markets to conform to his on-going “fight the trend” mantra.)
Renaissance IPO ETF (IPO)
This chart is enough said on the market’s opinion toward some of the market’s latest crop of hot stocks. A break to a fresh all-time high will be yet one more feather in the cap of the bulls. Bears should hope that IPO makes a major gap down from here on massive volume…
Renaissance IPO ETF (IPO) is right back at all-time highs
Baidu, Inc. (NASDAQ:BIDU)
Until today’s surge, BIDU had been a major disappointment.
Baidu, Inc. (BIDU) FINALLY breaks its doldrums. Post-earnings momentum looks ready to resume.
Daily T2108 vs the S&P 500
Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)
Weekly T2108
Be careful out there!
Full disclosure: Long TSLA call spread, short TSLA shares, short SPLK, long RAX call options