The S&P Forms a Bearish Setup

 | Oct 03, 2012 | 4:53 PM EDT
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For the third day in a row, the S&P 500 managed some minor gains, but breadth was slightly negative, and weakness in oil and commodities offset strength in biotechs, homebuilders and retail. There was some excellent trading action in select stocks such as Sarepta Therapeutics (SRPT), which was my main focus today, and Apple (AAPL), (PCLN), Google (GOOG) and a few others came back, but we still aren't seeing much momentum of interest.

The S&P 500 is wedging up slowly as it approach resistance at 1457-1460. I view this as a bearish setup. To negate it, the bulls need to move through 1460 with some volume. If we roll over and take out the lows of the last couple days, it will probably be time to press shorts.

Although I'm still looking for a topping pattern to develop, I don't want to sound too negative, as there has been some excellent trading action in biotechnology and mortgage-related names like Ellie Mae (ELLI) and Home Loan Servicing Solutions (HLSS). The sort of speculative action is a sign of a healthy market, but it is narrow, and I see other things of concern. I'm still worried that this action is the "suck-in" that sets the stage for the next pullback.

An opportunistic approach rather than a dogmatic directional bias is what is working right now. Stick to stock-picking and be disciplined with money management, and you'll be fine. When market direction become clear, we can be more aggressive with trend-type trades.

Have a good evening. I'll see you tomorrow.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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