Tuesday, April 22, 2008

State of the Market - 4/22/08

A mixed bag of earnings reports and another rise in oil prices caused stocks to gap moderately lower at the open of trading today. They stayed in a range until about 11:30, when the indices broke below the range and quickly sold off harder, with the Nasdaq dropping over 25 points in a little more than an hour. Unlike yesterday, when buyers came in and nicely took the indices off their lows in the afternoon, buyers couldn’t be found during the lunch hour, and the selling accelerated. Around 12:45, with the Nasdaq down almost 2%, buyers did show up and took stocks up a bit in the afternoon. I can’t call the bounce strong, but it did enable the markets to close well off their lows for the day, which is nice to see. Volume was higher today so it will count as a distribution day, but I think the action wasn’t nearly as bearish as it could have been.

Technically, I will be looking for the short-term moving averages to come in as support for the indices. The 9 day moving average is around these levels: 12,635 on the Dow, 1367 on the S&P 500, and 2356 on the Nasdaq. These levels held during the lunchtime swoon today, and will hopefully hold for a few more days of rest, thereby allowing this market to move higher. Let’s hope so, at least.

I have been writing that we need to pullback, so today wasn’t a total surprise. However, I said it has to be a healthy one, and I am questioning that a little after today. The main problem I see with today is not the overall loss in the indices, because the action in the afternoon took some of the sting away from those losses. The problem I do have is that I saw a LOT of breakdowns in individual stocks that were up to this point looking quite strong. Look at the following stocks (IIVI, BJS, PTEC, BRKR, NFLX, HLF, VNUS, AAWW, VSIN) All of these were what I would classify as leading stocks, putting in nice gains over the last month or so. To see this many stocks move lower on for the most part much higher volume is not a good sign for the overall market. Many of these charts are now quite ugly. I like to use individual charts as a way to tell what is “really” happening in the market, and what happened in these charts today give me pause in terms of being extra bullish right here. I guess it was not surprising that small caps led the market to the downside today – almost a 2% loss - when you look at these charts.

I have been seeing some poor action in individual stocks for a few days now – BKE, OTEX, and GU were all charts that looked pretty good but acted nothing like they should have. Some stocks are working(WSCI has a nice reversal today off some support and I continue to hold), but mostly those continue to be stocks in the commodity sectors. It is still not a market that you can just pick any growth stock and make a ton of money. Remaining disciplined on your buys and keeping your stop losses are always important characteristics of good traders, but they are even more important in this current market.

Although today was a distribution day, I wouldn't say things are over for the bulls just yet. I would still love to see a few more quiet days on lower volume to close out this week while perhaps holding the lows of today. If we can do that, I think we can continue this move higher. At the same time, the quality of charts I see in my scans continue to deteriorate, while the commodity stocks like POT just continue chugging along and do appear to me at least to be starting possible climax runs. It's still a confusing market overall - we still have lots of earnings to deal with and the primary here in Pennsylvania tonight may affect trading if it can bring any closure to the election race. I will continue to use the commodity stocks as my tell for the overall market, and I have no real feeling where we go from here. I remain slightly bullish, but am ready to flip if we get a few more days of higher volume selling. Patience here is probably a good idea. While some charts broke down today, I did see a few that I was interested in, and I will be back later to post those. Best of luck.


Anonymous said...

Just wanted to say thanks for your posts. I really enjoy reading your blog, which I do daily. Keep posting.

Mac said...

Thanks for the kind words. I am glad you enjoy the blog - feel free to ask questions or share your thoughts in the future.