Monday, October 20, 2008

State of the Market - 10/20/08

Sorry for the late post - I just got back from the dentist where I got my first crown put on so I was away from my computer for most of the last hour of trading. I may be back later with some more thoughts after going through my scans, but at first glance, today was basically what I expected on Friday. The morning pullback was bought, stocks moved steadily higher, and ended up closing at their highs of the day going away with sharp gains in the last half hour of trading. This is why I went long early Friday in anticipation of a move like this, but Friday's reversal messed that up for me at least. If you held through it and got the benefit of today's move, congrats to you.

Where do we go from here? Well, the indices closed just above their 9 day moving averages - this is one thing I've been waiting for. I consider that to be bullish, but they just barely closed above them and volume today was really, really low compared to last week's session. I definitely don't like that. They really couldn't get over their trendlines as well, so I can't say we "broke out" today for those reasons. On the bullish side, the VIX did breakdown significantly and perhaps that is a sign of more gains to come. All in all, as much as I would like to say today gave me some clarity as to where we are headed in the short-term, I can't say that it does. I want to see some follow-through tomorrow with higher volume. If I was still invested here, I would let my positions ride on the long side but with a fairly tight stop. Since I am not invested however, I think I can wait a bit longer to see what happens. If volume was heavier today, I would probably be more excited. Unfortunately, it wasn't.

Dow, S&P 500
Nasdaq, VIX
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

If I see anything interesting when I do my full scans, I'll share later. A quick look at the shorts I listed last night tells me that those setups still look decent. I am seeing quite a few bear flag setups in the commodities - rallying on lower volume. Based on what I am seeing right now, I don't think I would buy a breakout here - I would probably look for more of a reversal lower - but that is just a guess. We'll have to see what tomorrow has in store. Good luck.

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