Thursday, April 17, 2008

State of the Market - 4/17/08

Some mixed earnings (good from IBM, bad from MER and PFE) caused a weaker start today for the market, as stocks traded lower for the first half hour of the session. A bounce was attempted at that point, but bulls couldn’t get too much going throughout the morning. A bearish head and shoulder pattern set up on the Nasdaq 5 minute chart intraday, and when they broke through the neckline of this pattern around 11:30, things didn’t look particularly good. After a few attempts however, they busted through and rallied a bit into the afternoon, closed near their highs, and ended up pretty much flat. Volume was lower. All in all, a pretty boring day.

A quick flashback to yesterday. This is what I wrote about the trading action:

“However, we’ve heard this story before with powerful, one-day rallies (March 24 and April 1) and the result of each was a whole lot of nothing. Hopefully today will be different. The key is not what happened today, but what will happen tomorrow and Friday. Follow-through is needed in order for this most-recent one-day rally to escape the same fate as the others.”

Did we get that follow-through today? Definitely not, but I can’t say it was an awful day. This could probably be classified as a consolidation day, and it was nice to see the market rally a bit off of its lows intraday. I will take maybe one more calm day like this but we can’t get too many in a row. That’s what happened after April 1, and when that follow-through didn’t come quickly, we just drifted back down. Tomorrow is options expiration I believe, so it should be very interesting trading, and perhaps we can get a move higher then.

Technically, I noticed the Dow is right at its downtrend line for this bear market, and that is something to watch. It goes along with the idea of follow-through – at some point, if we are to get a meaningful move higher, we have to bust through some of this overhead resistance, and now is a great opportunity to do so. The S&P and Nasdaq have a little more room to go before getting to the same point, but the idea is the same - hey, Mr. Market, let’s do it already, huh? One thing that does worry me a bit is that in my Market Monitor scans, I noticed that there are very high numbers (almost 30) again with stocks making over 50% moves in less than a month, and these high numbers usually say that a quick correction is coming soon. With the lack of great charts(at least from my perspective) but overabundance of extended charts, I am starting to worry again that yesterday was nothing but another tease. We shall soon see.

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

In terms of my trading, I added to my GU position today as it showed early strength on very strong volume. I will continue to use the 9 day moving average area as a stop. This could run if the market runs but we still have to see about that prospect. BKE did very little today and its “breakout” looks quite weak. I am tightening up my stop on this one and seeing what happens. There are a few nice setups here and there, but I don’t expect to be making many moves other than managing the positions I already have. I am hoping WSCI can make a move above $15 tomorrow, which should get it close to the top spot on the IBD 100. That type of move is asking a lot, but I can hope, I guess. It has held up well so far.

Today wasn’t bad overall, but in my opinion, bulls have to get more from this market over the next one or two sessions, including higher volume, for us to continue higher in a meaningful fashion. If not, I expect we will just head lower like we’ve done the past two times the market put up big, one-day gains. I am trying to remain patient here, but if we don’t move higher soon, I will look to take some profits and possibly even look to go short. It continues to look like big institutions are still not involved heavily in this market, and we won’t have a significant move one way or the other until they decide to jump in. As I write this, I see GOOG has put up a nice earnings report. Perhaps more of these will bring the big boys back to the market. Right now, however, the similarities between this market and the 1937 Dow, which I have posted about before, continue based on their charts, and that is not a good thing for trend traders. Good luck, and I’ll be back later if I find any nice charts.

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