Monday, May 5, 2008

State of the Market - 5/5/08

Higher oil prices and a failed takeover of Yahoo by Microsoft caused a rather rough morning on Wall Street today. Stocks gapped lower but quickly bounced higher, with the Nasdaq entering positive territory. That bounce could not hold, however, and stocks drifted lower throughout the morning. The indices tried to bounce into and through the lunch hour, but those gains couldn’t hold, and they broke to new lows around 2:00. They bounced a bit off those lows into the close, but still finished with medium-sized losses. Volume appears to be lower which takes the sting away from the losses today. As I said this weekend, as long as volume stays lower, then I will remain more bullish, even with a pullback. If the market sells off on higher volume like it did in October, 2007, then I will be looking for a top. That distribution did not come today.

Technically, I would say that the indices should hold their 9 day moving averages as these have held for the last two weeks. These levels are 2437 on the Nasdaq and 1396 on the S&P 500. I would think the big 1400 number on the S&P should act as support as well as there was such a big deal about getting over it. If these levels don’t hold, then the market could pullback in a more severe manner.

I decided to enter two more limit orders on stocks I showed yesterday as short-term trades and got filled on both: NUAN at $21.11 and CHNR at $23.23. I didn’t plan on holding these long-term, at least not CHNR – strictly a one or two day swing trade. I set a stop intraday and just decided to take what I got from it. What I ended up with was a gain of 2% before I was stopped out at $23.73. It was up as much as 8% earlier in the session and finished higher than where I was stopped out at, but didn’t have quite the strong momentum I had hoped for. I also took my profits in IDRA – sold for $14.88. I had a 10.3% gain on this stock, which isn’t bad, but with it being up 9 straight days, I figured there was nothing wrong with locking them in here. I don’t like trading biotechs in general because I always fear a 50% gap down overnight due to the failure of a drug in trial. I was almost stopped out of EXM today and I didn’t like the action – reversing after having a very nice open. All the shippers have that pattern today but EXM looks worse than most. EXM should hold its 200 day moving average or I will likely be out.

Not much else to write about today. As long as volume stays low on down days, bulls shouldn't worry too much about a pullback. At the same time, commodity stocks rallied once again today and oil is back near record highs, so we should see quickly if last week’s rally was based on hopes of inflation decreasing or something else. If these stocks continue higher, particularly oil, I think the market would have a hard time moving much higher from where we are right now. It’s my wife’s birthday today, so I do not expect to put up any charts tonight. If I see anything interesting, I may put a quick post up tomorrow morning. Best of luck Tuesday.

No comments: