Wednesday, March 19, 2008

State of the Market - 3/19/08

Not a good day for bulls in the market today as a solid open caused by higher-than-expected earnings from broker Merrill Lynch led to more optimism and an early rally. This rally, however, could not last much past lunchtime, as stocks sold off hard in the afternoon, with all indexes closing at the day's lows. Volume was also higher today. Certainly not the type of day hard-core bulls wanted to see after such a big up day on Tuesday. A pullback was expected after we gained 4% in one session, but I didn't expect one as severe as today, since the selling also came on higher volume, the action doesn't look very good.

Technically, both the Dow and S&P 500 came close to touching their downtrend lines, and the Dow looks like it was rejected by the 50 day moving average. I said yesterday that there is a lot of overhead resistance, so I am not surprised they didn't bust through this are on the first attempt. 1350 on the S&P and 12,500 on the Dow are going to be the key numbers to watch for over the next week or so. I wouldn't be surprised to see them challenge this area again, and it is on these subsequent challenges that I will be looking to possible add some shorts.

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

Although I am bearish, I don't think today's action means we are heading immediately lower from here. My hunch says that there is still a few days of rally left in this market. It usually takes several days to determine the true trend after Fed days, and with options expiration tomorrow, I am not putting too much importance in today and tomorrow's trading. I certainly wouldn't be happy if I was a bull after today, but it's not the end of the world either. Keep your eyes on things tomorrow and into next week, and then we can determine what the market is likely to do. I really don't like the action today from my bearish perspective either - I was hoping we would keep heading higher to set up some really nice short entries. Maybe we will still will - I hope so. I have a lot of potential targets and I will try to put some up later tonight. Good luck.

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