Friday, April 11, 2008

State of the Market - 4/11/08

After a nice day overall for the markets on Thursday, a poor earnings report by bellwether GE quickly torpedoed any good feeling that may have been left over, and caused a very poor opening for all indices this morning. The market gapped lower and quickly sold off harder throughout the early part of the morning. After some selling for the first hour or so, things stabilized a bit and the indices traded in a range until the middle of the lunch hour, where some selling reemerged and they took out the lows of the day. Dip buyers were nowhere to be found during the afternoon, and the indices stair-stepped their way lower through the rest of the session. Only a very late bounce brought them off of their lows. Today’s action puts the S&P 500 and Nasdaq below their 50 day moving averages, which I believe should signal a major change. Will it? Who knows with this market? Volume was a little lower on the Nasdaq which softens the blow a bit for the bulls and looks about the same as yesterday on the S&P 500. I expected much heavier volume on a 2.5% loss for the Nasdaq. Regardless, I don’t like at all that the 50 day moving average offered no support. That is not a good sign.

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

This market remains extremely difficult to play on either side unless you are taking very quick profits, which is really all you can do. We just continue to go back and forth without follow-through on either side. I honestly don’t know which side of the market to favor right now. I of course now regret covering my shorts from yesterday but they needed to be based on yesterday’s trading. At the same time, even with the major losses today, I saw very few short candidates break lower on heavy volume. At the same time, I saw some of the leading stocks on the long side break down on heavy volume in the form of BRKR and OME. At the same time, I saw many of the longs on my watchlist hold up very well in the selling. Is your head spinning yet? Mine is. I am very confused, and I kind of hope I am not the only one. I was tempted to take a few shorts at the end of the day but for all I know, we will be back up 2% on Monday.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Trader Mike made what I think is a good point on his blog last night that with us entering earnings season, traditional technical analysis might not be as reliable as it would be otherwise. As today shows, these reports, whether good or bad, are going to be what drives trading, and depending on how good or bad they are, things could go either way regardless of the technicals. I guess we just have to be careful, disciplined, and flexible over the next few weeks, ready to take trades both short and long if they present themselves and also ready to sit and do nothing if nothing presents itself.

I reentered into WSCI this morning on the weakness and as it was close to several levels of support – a rising trendline, the previous breakout level, and the 9 day moving average. I will use today’s lows as a stop loss area in case these support levels don’t hold. The Bull Trader had a great analysis of this stock, pointing out that it has no analysts, is in a very hot sector, has a super low float (which I have mentioned before as well) and has had no insider selling even after having a huge run. Lots of things to like in this 99/99 stock. I also started a small position in GU here due to the fact that it has rested nicely and I liked how it barely budged in the face of the market action today. It has max BOP on its chart and has a clear stop loss close by for me to use. I ended up passing on any shorts and will wait for volume to come into play.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I have brought this up before, but I was looking at the chart of the 1937 Dow which IBD has compared this market to and still saw many similarities. I don't know if this really means anything, but if it does, it is unfortunate, because as you can see below, 1937 was basically a trendless year from what I can see that I am sure made anything but very short-term trading difficult. Boy, does that sound familiar?

1937 Dow Chart
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Hockey tonight for me. I'll post some charts and other thoughts at some point this weekend.

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