Tuesday, June 10, 2008

State of the Market - 6/10/08

Things looked poor early this morning for the stock market, as a larger than expected increase in the U.S. trade deficit and lower Asian market caused a gap lower for the indices across the board. As has been the case recently, however, the bears could not press their bets, and the market rallied higher off the gap down. The Dow briefly flirted with positive territory in the morning, but overall the market just traded listlessly during the first few hours of trading after the early bounce. Just like yesterday, the Nasdaq lagged behind the Dow and S&P 500. Going into the lunch hour, stocks were close to the closing prices from Monday, but consolidated there for about an hour before finally busting through those levels around 1:10. Those intraday highs lasted for a total of about 30 minutes, when sellers came back in and threw stocks back down. Keeping in recent tradition, however, the market remembered that it can’t possibly trade the same direction for an entire day, and once again rallied into the close. The gains on the Dow were minimal, while the S&P and Nasdaq finished with marginal losses. Volume appears to be higher but not by much.

Technically, there isn’t much to say that I didn’t say yesterday. Both the Nasdaq (2430ish) and S&P (1350ish) held Monday’s lows, which now look like very, very important support. If we break through these levels, things could get very ugly. The Dow once again led to the upside today, which is not what you want to see if you are a bull. Crude oil traded down today, which makes the lagging action of the Nasdaq the past two days even more worrisome. Overall, things still look rather weak to me. It is possible we continue to bounce here for a few more days, but thing just don’t feel good to me overall. I see more charts breaking down(MRVL, VRGY, AUTH to name a few), very few if any setting up on the long side, and more and more shorts are becoming attractive. Those are all additional reasons why you need to be very careful on the long side – stay in cash. I keep thinking one of these days, the late recovery efforts are going to fail, and then the market will really be in trouble.

I covered my CSR short this morning at $16.29 for a 15% gain, which I am happy with. I actually placed the order when the bid/ask was around $15.90, and as soon as the order went in, the bid/ask jumped thirty cents. I can’t complain too much though – I will take a one-day gain like that anytime. On any bounces, I would look to reshort this. I thought about taking CMO as a short around $12.40, but for some reason, I hesitated and by the time I decided to do it, it was too far down for it to be low-risk, so I passed. That one looks like it is headed much lower as well. I did enter CBI as a short at $43.64 as it looks like it will break through the 50 day moving average to the downside after bouncing around it for most of the year. This looks like an O’Neil type short with the big volume selloffs in January and the end of April, followed by weaker volume rallies. I will keep my stop loss tight in case it reverses. I was also stopped out of my APOL short from yesterday with a 3% loss as it climbed back over the 50 day moving average. This one is not worth holding because it did not follow through to the downside, although I will keep it on the watchlist. Volume needed to be bigger tomorrow – without it, I should have passed.

That’s about all I’ve got for now. There isn’t much new to say. This is a bad market right now – one that could bounce a little more, but one that needs to be stayed away from unless you are taking shorts. Even there, I would recommend patience – a lot of shorts have been beaten down in a short period of time and could snap back at any time – don’t chase. I made a little money today, and I think in the current market, that’s really all anyone can do. We're likely not in a period of time where big money is going to be made. I'll be back later if I find any shorts worth looking at. Best of luck Wednesday.

No comments: