Monday, April 28, 2008

State of the Market - 4/28/08

A slow, quiet day for the most part on Wall Street today. Futures were basically flat heading into the open, and stocks traded in a pretty tight range for the first half of the day. The market broke out of the range around lunchtime, but didn’t really move much higher. A late selloff had stocks closing near their lows for the days, but it wasn’t very sever. Basically there isn’t a whole lot that can be said about today’s action other than it appears that we are consolidating here a little. There wasn’t much news to influence trading – most of the news will come later in the week in the form of GDP and the Fed decision on interest rates, and that will probably determine where we go from here.

Technically, today did very little to change things from where I described them this weekend, except that the T2108 indicator is getting ever closer to the 80 mark which represents very overbought markets. My Market Monitor ratios are showing a market that is still a little extended, although the readings aren’t as extreme as they were last week. It is very possible that we have another day like today Tuesday and most of the day Wednesday. Traders usually are hesitant to do much of anything before a Fed decision. This type of quiet consolidation would actually be beneficial because it would allow the market to work off a bit of the overbought condition it has and allow a breakout over these resistance levels to be more powerful. As I’ve said before, a lot depends on what the Fed does – the consensus seems to be that they will do a small cut of 25 basis points and say they are pretty much done, or they will hold on the cuts and say they are pretty much done. Not many people are expecting them to continue with the cuts, which makes sense. I think either of these two expected outcomes could really cause problems to the commodity stocks, which already look quite toppy. We shall see.

As for my trading, I almost started a position in CYBS today but then saw that they release earnings tomorrow, so I passed. I like the chart and maybe it busts out of this double bottom because of earnings, but starting a position right before earnings is basically gambling, and I try not to do that if I can help it. DGLY is another stock that looks good today but has earnings soon (Wednesday) so I had to pass on that as well. There were a few other charts that I saw that moved higher today that I considered entering, but I only ended up starting a small position in IDRA at the end of the day based on the volume. With the market overbought, and the Fed coming up on Wednesday, I agree with most traders seem to be saying - there’s no reason to do a ton of trading right here. I will wait for the reaction to the Fed news and look to get more heavily involved in the market then. WSCI acted nothing like I expected it to today – no IBD pop, but it is quite extended here so maybe I was expecting too much. It did pullback today and on higher volume, and I am going to be patient here and use some short-term moving averages as support levels. Having the patience to let big gains develop is the hardest part of trading for me, and I am trying to show some here. We’ll see what happens.

Not a long commentary today because there isn’t a ton to say. The back half of this week should be more exciting than today. Until we get there, remain patient. I’ll be back later if I see any new stocks setting up. Best of luck.

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