Friday, February 15, 2008

State of the Market - 2/15/08

Another confusing day today in the markets, as they showed no follow-through on yesterday’s down day, which showed no follow-through on Wednesday’s follow-through day, which showed no follow-through on Tuesday’s reversal. Fun times, aren't they? It seems like the market is really doing its best to confuse everyone as much as possible, or at least it is confusing me. Am I the only one? Today, we were down at the open and continued lower through most of the morning, and many of the short setups I have been seeing looked like they were finally breaking down. I entered two more today based on the action from yesterday, and added to one as well. Then, around 1:00, things changed course and we melted up again to end the day close to mixed, causing many of those same shorts that showed up early in the day to close well off their lows and look like they held support levels. Volume was heavier early in the day but seemed to level off as the day progressed.

Basically, this market continues to basically suck because it is really difficult to get a read on the direction we are heading. On good days, there are some nice charts that show up but then they just don’t follow through. On bad days, shorts look very good but then they just don’t follow through either. Plus volume has been non-existent on both up and down moves, which makes it more difficult to take meaning from any of these moves. This chart of the Russell 2000 pretty much summarizes what I am talking about – a move above the trendline followed immediately by a move below the trendline and then a close today back above it. Just crazy.

Russell 2000
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Most indexes are setting up triangle-type patterns so maybe we will mercifully see a conclusion to this drama starting next week. I’ve said the same thing, however, for the past two or three days, so who knows? The 20 day moving average is acting as pretty strong resistance for the S&P 500 and the Nasdaq, so if we do get over that level on higher volume, that would be good. They’ve made two attempts at getting over this resistance this past week so maybe the third time will be a charm.

S&P 500
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Individual stocks don’t give me a great clue either. I saw stocks like EMKR, SDTH, and VCGH show some weakness today after looking like they were setting up very nicely, but I also saw a stock like TITN, which was also setting up nicely, follow-through and put in a big gain. I saw shorts like SGR, SCHN, RIO, and ARD (several of which I own) show major weakness the past day and a half and then look totally different after today’s close. It is utterly ridiculous. I want to post one chart that just sums up everything that is frustrating me about this market . FUQI was a stock I was watching on the long side and was tempted to buy Thursday morning, showing great strength in a weak market, but did not because I wanted to see how it closed. It ended up closing extremely weak and put in a bearish reversal. Today, it sold off again in the morning only to bounce again into the close. Bullish tail Wednesday, bearish tail Thursday, and bullish tail Friday. That sounds like a recipe for success, right?

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

After I do all of my scans, I will probably be back this weekend with some possible charts, but I do think I will find a lot of contradictions in those charts, so there might not be many plays for Tuesday. Remain open for anything right now and let's just hope some sort of resolution comes early next week. Trading is difficult when there is no trend to trade. Good luck.

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