Friday, August 22, 2008

State of the Market - 8/22/08

I wasn't able to be at my computer for the first hour of trading today, and by that time, it was too late to do much of anything, so this summary will be short. I will put a longer one together this weekend discussing where we go from here. If you watch CNBC tonight, you will hear how great today was for the bulls and might be thinking of buying stocks. And I do admit, on the surface, today was a nice day for the bulls that are out there. Anytime all the indices are up over 1%, you can't complain too much. However, I once again did nothing today and am still 100% in cash and there is one main reason why - volume, or the lack thereof.

Yesterday was one of the lowest volume days of the year across the board, even factoring in half-day trading sessions. Today was even lower than yesterday. The fact that we have gone up two straight days on ridiculously low volume is not bullish in my mind. Only three stocks in my long watchlist were up over 4%, with 5% being the biggest gainer. That is also not super bullish.

Technically, the Dow and S&P have rallied back up past their 50 day moving average but right to their former trendline. This could be a very logical place for them to fall back down. The Nasdaq couldn't get above its 200 day moving average and I think that will act as resistance. If you look back to the top in June, you will see that it took a week or so for stocks to begin to really sell off hard. I still think that same thing could happen here.

Actually, I am very happy with the action the past day because it could be setting up a perfect shorting opportunity and a tradeable, sustainable move lower. I don't know that we are going to move significantly higher or lower without volume, so I wouldn't mind seeing us melt up a little more on low volume next week. Again, check out June to see what I'm talking about - after breaking the wedges, the market did bounce around a little before breaking down in earnest. The only thing that would have me turn bullish here would be some massive volume coming in on days like today, when the market is up significantly. Until we get that, I will continue to wait in cash, looking for the right time to strike again on some short positions. I think that's the best game plan, especially as we enter a typically bearish time of the year with September and October on deck.

I'll be back this weekend with either a long post or a video. Until then, take care.


HeadlineCharts said...

Hi, Great blog. I've been reading it daily. How did you get the little 5-star rating thing on your blog? I like it.

Mac said...

Thanks for the kind words.

Google "outbrain" and I think that will take you to the five-star widget.

SkyTrader said...

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We've started a blog of our own, feel free to stop by:

It's mainly just a place for us to put ideas down, but we hope it will eventually lead to some good discussions.