Thursday, March 27, 2008

State of the Market - 3/27/08

Some volatility came back into the market today as the indexes started higher, went sharply lower around 10:00, rallied back into the lunch hour, sold back off in the afternoon. A rally attempt started around 2:00, and I really expected this rally to hold and carry us to gains for the day, but it didn’t. The bounce failed and the selling accelerated into the close, giving the indexes moderate losses for the second straight day. Although I can’t call the selling intense, the indexes are now all below their 50 day moving average and I just didn’t like the late action today. Volume was also higher today so this is the first taste of distribution since the follow-through day on Thursday. If you look at the charts below, things do not technically look great anymore. I find it interesting as well that the VIX is exactly where it was after Monday’s close, even though we are some 35 points lower on the S&P 500 and 45 points lower on the Nasdaq. That tells me there is a fair amount of complacency right now in this market.

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

Based on today’s trading, I have to shift my bias to the short side of the market. I was expecting some sort of move today (to be honest, I though it would be up) and we got that. I’ve said a pullback is healthy here, but this is quickly becoming more than just a little pullback, and buying interest should come in very, very soon(like tomorrow) or we could find ourselves move lower quickly. There is no doubt the Market Monitor is now back in bearish territory, and it is not an indicator that usually flops around – once it reverses, it almost always is a significant event. I noticed today that some nice looking stocks (OFG, BLK, WSCI, OME) had some pretty volatile days that have turned their charts ugly in a hurry. The only bright spot I can really find for the bulls after today is that the transport breakouts I mentioned yesterday have not completely crashed – JBHT doesn’t look great but LSTR found some support today. I am not totally giving up on the long side of the market but it needs to prove itself to me very quickly. If this was the best traders could do going into the end of the month and the quarter, traditionally strong periods of time, that tells me something.

A lot of the shorts I mentioned last night started to break down today and may be playable here. I would like to see volume increase on the selling but perhaps that will come in time. I started one short position today and may look at adding more tomorrow if we continue heading lower. I won’t say this rally attempt is completely dead but it is on life-support, and you should trade accordingly. I’ll be back later with some charts. Good luck.

1 comment:

Richard said...

I can't agree with you more, great analysis.