Daily Wrap

Well insider transactions were released today and it's the same as it has ever been at least for the majority of 2010. Insiders were heavily skewed toward the sell side. We saw a smaller ratio this week then in previous weeks and months, nearly 19 shares sold for every 1 bought, in dollar terms that comes to $4.3 million in buys and $81 million in sales for the week, not as high as the 5 digit to 1 ratio we have seen, but still selling.

This is not a spotty trend, it has been consecutive for months and unrelenting and as I've said before, there's lot of reasons insiders may sell, but “I believe my company's stock is going higher” is not one of them.

Until last week for the first time in seven months, the same was true of domestic equity fund flows, retail had been taking money out of the market every week for 7 consecutive months until last week we saw the first inflow, 1 week a trend does not make. However, when we look at the overwhelmingly bullish sentiment, it makes sense that retail is dipping its toes back in the water, just remember that when the market trades at extremes, we are generally close to a change in sentiment. We also got data today from Smithers and Co. that finds the S&P to be 70% overvalued. I'm not following the actual input that have allowed them to reach this conclussion, but if you look at the S&P pricing now, vs. the S&P pricing around early 2006 (at comprable levels) the market was in a lot different place then it is now. Back then we were still in the midst of a consumer led bull market rally based on homeowners spending like drunken pirates based on rising home valuations, the market was still in a place in which growth was attainable, even though we'd soon pay dearly. Now we are pretty far from growth with unemployment clinging to stubbornly high levels, consumers not spending and a whole cornucopia of negative events taking shape including fraudclosure, the wholsale buying of US debt by the Fed as no one else is interested or trusts the US to make good on its debt obligations, record levels of banks closing their doors in 2010, pension fund unfunded liabilities, municipal bond selling on a huge scale, so on and so forth. The fact is simple, back then we were still looking forward, now we are stuck in an economic hole and those on Capital Hill won't stop digging. So overvalued? I buy it, but the market has always been and always will be the perpetual pendulum that swings way too far one way and then way to far the other with only a brief amount of time spent at the median.

As I mentioned last night, it was likely we'd see gains in the market today. Window dressing by institutional money “The Art of Looking Smart” is often found at quarter and year end, it's a time when they offload underperforming assets so they won't show up on the next quarter's prospectus. After the quarter's end, many of those companies sold are added back to the portfolio and judging by the market action today, it looks like that's exactly what happened. It may take a few days for the market to start acting normally, meaning for the second part of window dressing to be complete. So right now is a good time to take the market's temperature so to speak; to uncover the early 2011 trends taking shape in institutional allocation.

Silver has been an ongoing battle, I'm indifferent to a long trade in Silver, I have nothing against it, I just don't know that the real facts of the Silver/JPM vigilantes, vs the JPM Silver short are truly out and in the open. The one observable fact has been SLV has seen several battles at a line in the sand around $30. It looked like overnight that line had been decisively crossed with silver over $31. SLV, however told a story today that the battle still rages. See my earlier posts today on Silver and the obvious distribution/negativedivergences that sent SLV packing from a plus $30 level to a close of $29.99

Remember the earlier article in which I said the triangle looked like the $30 level would be tested, and how'd we know that?

Above you can see the false breakout from the triangle was met with several 3C negative divergences that played out exactly as we'd expect. A pretty volatile decline on big volume. Silver will be on the radar.

As will housing. I'm bearish on housing, now it's time to find the trade setups. I just went through the process of house hunting and what we saw out there was ugly. Agents are literally walking over each other and they don't care who you're working with, there was a time when they did and wouldn't waste their time, not anymore. Short Sales... no one wants to touch them. 80% of first time bids on short sales, the buyer walks away due to the process taking so long not to mention the banks deciding to just halt them and then restart them and most everything out there is a short sale or a bank REO.

Housing will certainly be a 2011 theme that should produce some lucrative trades. You've seen the recent data, it's not getting better, we are in a double dip recession in housing prices which leads to a lot of other worm holes.

As for today's market's Price Volume relationship, I bet you can guess...

The market finally closed above 1% for the first time in over two trading weeks, so the winner is..... Close up and Volume up by a wide margin. On the Dow we had 25 that fell into that category-this is the most bullish price/volume relationship of the four. The NASDAQ 100 had 86 and the Russell 2k had nearly 1400-the S&P had 400. Sounds pretty bullish right? Except this, when we see such an overwhelming dominance in the P/V relationship, it can often signal a one day overbought condition and as I showed in the last post, we had many stocks that took very bullish gaps and turned them into very bearish closing reversal candles.

As of now Asia is in the green and futures are higher, however, as we saw with silver and names like INTC today, things can change in a hurry and Asia (other then on Mondays) is usually a lagging indicator following what the US did the day before.

At 12:52 today I posted the first market update showing a change in character in 3C, here's what it looked like.

As you can see, 3C had already gone into negative divergences before the market hit its highs earlier in the day, the negative divergences in 3C cut off any further gains and it was time to give some back from there through the close.

Interestingly, the 5 min 3C chart hit the highs right on the head and look at the leading divergence from there to the downside in 3C. It's no wonder that was the peak in the market and many stocks gave back almost everything they gained from their gaps on.

The NASDAQ (QQQQ) did end the day with a nice looking positive divergence though so I'd expect, barring any unforseen surprises, the Q's should see a strong early morning. The Dow didn't look quite as good on the close but not horrible, the SPY was inline so it looked the worst. Perhaps we'll see some strength in tech in the early going.

XLF had a strong day, it'll definitely be on the radar tomorrow.

However as I pointed out in today's intraday trade, several market bellwhethers are falling apart-MCD and INTC were two I covered. We'll be watching more of the bellwhethers as some of the cats and dogs trades seem to be winding down, it's time to watch for weakness in bellwhether stocks and probably tomorrow I'll cover market breadth, it seems like a good time to do so.

Now that volume has returned, we should be able to pick up a few good trending trades, look for an updated, new January trade list tomorrow, but don't miss the featured trades I chart out in the posts, bookmark them if you have to, right now, it seems like it's turning into swing trading season as soon as window dressing-”the aftermath” is complete.

One final note, Friday I set a bunch of Cats and Dogs trade alerts, many of those triggered today. As you know since I downloaded the beta version of TC2000 (one of the perks of being an affiliate) I had a system crash that wasn't resolved until mid-morning today, so those trades weren't put on a list, I just called them out as they triggered. I think they can still be played, but if you entered any, please email me for the current outlook, stops and targets. It's easier to do that then to list 100 + trades that may not be worth playing much longer as the January list will be looking at swing trades that I'm running scans on tonight.