Thursday, August 14, 2008

State of the Market - 8/14/08

More of the same up and down action today on Wall Street, as after two down days, the market was able to shake off a higher-than-expected CPI number pre-market and rose throughout the morning after gapping lower to start the day. Stocks slowed down a bit around 11:15 and went sideways into the lunch hour, but were able to break to new highs around 12:40. That breakout didn't last long, as stocks pulled back as they entered the afternoon as oil bounced after selling lower for most of the morning. They held support on their first pullback, bounced slightly, and then drifted lower again through previous support. The selling remained controlled however, and basically stocks drifted sideways into the close, ending in the middle of their ranges with moderate gains. Volume was very low today, and although the indices did move higher, the overall action was listless and boring.

Technically, the Dow and S&P 500 are now above their 50 day moving averages, but not by much. The Nasdaq has held over its 200 day moving average and continues to be right in the area of its long-term downtrend line for this bear market. I can't deny that the consolidation looks quite healthy here so far. The number of overextended stocks continued to pullback today and is back to a relatively normal level, so that is good for the bulls. However, I would need to see more volume come into play on a breakout to become really bullish.

The two main ETF's I am watching as clues to where we go from here are the XLF and the USO. The XLF could not get back above its 50 day moving average today and is sitting right at the $21 area that I said was important yesterday. As long as it stays under this area, I would be looking to short any breakdown in the financials. If it climbs above this level, that would show strength and you may want to wait to short these stocks. The USO could not get over its 9 day moving average and until it does, it stays in selling mode. I don't think there is a whole lot more downside to oil here, but I could be wrong - stocks can go as low as they want to go. A close below $90.80 would probably lead to a testing of the 200 day moving average around $88.

I didn't do a whole lot today. I was happy that I did get out of my shorts yesterday maintaining most of my gains and didn't want to force a whole lot else. As I stated yesterday, I was looking for the USO to get over $95 before looking hard at going long some oil stocks, and since that never happened, those stocks were taken off the watchlist pretty quickly. I did add a little to the BWLD long from yesterday at $36.27 as support held early and the stocks bounced from there. I also started a small position in STEC at $10.79 as the market reversed higher - it looked like it was getting over its 50 day, and I like the fundamentals of this stock and thought it could run if it did clear that area. I was willing to add a few more longs, but I really didn't see much else that interested me. I added a little more at $10.94 as it did move higher intraday. These look OK but I would have liked to have seen more of a move on these. These are currently my only two positions.

Just like yesterday, I think we could go either way here. I am expecting this bear market rally to end soon, but the last time it ended back in May, it was a week or two process on the Nasdaq and Dow, so that could happen here as well. Maybe this rally will take us into September, when the institutions come back, selling in force. If we would breakout here on huge volume, especially on the Nasdaq, then perhaps I would reconsider my bearish longer-term stance. Right now, however, this seems to be a pretty typical bear market rally. My trading timeframe will continue to be short, because it has to be in this market. If you get profits, I would continue to take them, and if you are in cash, then you are smart. There continues to be little reason to trade a lot or make big bets in this market. Tomorrow is options expiration so be careful. There is pre-season football tonight so I don't know if I will have a watchlist up tonight or not. Because I don't have a good feel here for Friday, I may pass. Good luck tomorrow.


Anonymous said...

Thank you Ryan. Your market analysis is very good.

Mac said...

Thanks. Hope it helps.