Good Morning, Traders. Late day buying on Tuesday spurred the markets to a slightly positive close in the major averages. The Dow tacked on 51.87, the S&P added 2.37 and the Nasdaq Composite gained by 5.50. Internals were negative most of the day, so the afternoon rally caused breadth to close less than 1.5 to 1 positive on both markets. Advance/decline lines limped to just over positive as well, and the my Core Sector List closed 50/50. Broker-Dealers, Oils, and Software were among the winners, with Homebuilders, Retailers, and Semiconductors were the weakest sectors. No major changes to the technical picture other than the fact that yesterday's lows in the S&P briefly took out the prior swing lows of July 14. As we can see from the bottoming tail hammer on the chart below, the lows did not hold and the market closed in the upper third of its range. The same Fibonacci retracement areas that we discussed in yesterday's commentary are still relevant if we gain strength from here as is the ascending trendline from June lows that we violated on July 13. The terminus of this trendline is now at the 1264 area, and we expect that to be strong resistance going forward for the S&P as it will mark the "backside" of the trendline and also convene with the 20-, 50-, and 200-period daily moving averages, which are all within 10 points of this level. The rest of the week could be tricky as Fed Chairman Benjamin Bernanke will give his semi-annual policy report to Congress today, FOMC minutes from the last meeting will be released tomorrow and options expiry is on Friday. Although our overall bias is downwards at this point, we are not ready to initiate new short positions and feel that short-term reversal plays to the upside offer best risk reward currently as most shorts are now a bit overextended to the downside.

Focus List

SNDK - Sandisk Corporation
Industry - Semiconductor
Side - Long
Trigger - 39.85
Stop - 37.70
Target - 43.00+
Timeframe - 2 days to one week

Notes

• Bottoming tail in the $SOX on Tuesday dailies
• Stock getting very overextended from both trendline and moving averages, indicating that some sort of retracement is possible

RJF - Raymond James Financial
Industry - Brokerage (regional)
Side - Long
Trigger - 27.25
Stop - 26.40
Target - 28.50+
Timeframe - 1-3 days

Notes

• 2 hammers on dailies now for reversal play
• Short term play off of 200 ma and prior lows
• Move stop up immediately after entry; "right or right out"
• Target listed is for 1:1 risk reward but bounce could easily move to retest converging 20- and 50-period moving averages above at $29 area

Peter Reznicek is the Chief Equity Strategist and a principal of the Prana Fund, a domestic hedge fund, and ShadowTrader, a subsidiary of thinkorswim which provides coaching and education to its clients on both intraday and swing trading of equities. For a free trial to the full version of The Big Picture or to learn about ShadowTrader's other services, visit shadowtrader.net or send an email to preznicek@shadowtrader.net.