Monday, February 4, 2008

State of the Market - 2/4/08

A down day today for all indexes, but it came on lower volume so I don’t know that much can be taken from the action. To be honest, I wasn’t paying too much attention to things because I still feel that, at this moment, it is best not to do anything. My scans tonight didn’t show any major breakdowns or breakouts, so although we did have a down day, I really don’t know if it is important.

I am mainly focusing right now on finding where this bounce might end and where would a good spot be to initiate some shorts again. I am still finding many more shorts setting up than longs, and there are just so many V-shaped patterns showing up, that I continue to think this is just a bear market bounce. I find the chart of the Russell 2000 very interesting. It is approaching major overhead resistance as well as its 50 day moving average, so if it gets rejected here on higher volume, then maybe the bounce could be over. If it gets through these multiple layers of resistance, then maybe the bounce will continue for another week or so. I will be watching this index closely.

Russell 2000

On some measurements (mainly stochastics) we are getting close to being overbought. I looked at the T2108, which is a better tool to use for identifying oversold markets, but I noticed that this chart has frequently bounced up to the 50-60 area before reversing back down. These points coincide with the end of bounces so far in this bear market. So the fact that we are getting to this level as well gives me another reason to think we don’t have much farther to go.


Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I have pretty much the same list of shorts that I had yesterday (although I did notice a lot of energy stocks showing up in my scans so that is something to take note of), but am really looking for some higher volume on the downside before initiating any positions. These charts are running into resistance levels, mainly the 50 day moving average, or are just above this level on low volume. A few were down today, but the heavy volume wasn’t there that can act as a confirmation signal. The hardest part of shorting is finding the correct entry, and so I am trying to be a little more patient here to make sure I am right in my market view. I don’t want to just guess and have the market continue onward. But if you look at charts like DE, NDAQ, and ARD - I am sorry – these are just not healthy patterns. They have so many flaws that I have to think they have very little upside left and will be heading lower soon. I guess we shall find out. I would be surprised if we continue higher for much longer, but the market will do whatever it wants, so we need to remember that. Good luck tomorrow.

No comments: