The big reversal after Ben Bernanke failed to give us any specific new monetary policy caught a few bears by surprise. The bulls are now focusing on the comment about how various ideas will be considered at a two-day meeting in September. That is being spun as an indication that the Fed is going to offer up some form of QE3 sooner or later. In fact, Goldman is now saying that it anticipates further easing by early 2012.
One thing I like about this market now is that it is developing a clear trading range. The S&P 500 has support around the 1120 area and overhead resistance at around 1205. The longer it holds that support, the better the base and the more likely it can gain some momentum to the upside. On the other hand, if we it retests that 1120 area again, I would not expect it to hold and I'll be quick to hit the eject button.
Trading range action helps the charts of individual stocks to develop. When the market first breaks down and has a routine oversold bounce, it doesn't produce very many good-looking setups for the long-side. But the longer it holds, the better the charts start to look. There is still plenty of work to be done, but there is some improvement.
I am being a bit more aggressive with my buying now but I'm keeping time frames short and stops tight. The risk of bad news out of Europe remains extremely high and I wouldn't be at all surprised to wake up to some big ugly opens next week.
A couple months ago, we saw some particularly good trading in coffee-related stocks. One name I'm watching again is Coffee Holding (JVA). The stock has been holding support at $15 fairly well and I'm watching for it to turn back up. I would like to see better volume, but I'm looking to add if the market continues to hold.