Friday, October 31, 2008

State of the Market - 10/31/08

Futures were lower early in the morning, but fought their way higher as the morning progressed. Stocks opened slightly lower and sold off slightly for the first fifteen minutes, but put a low in around 9:45 and moved steadily higher from there until around 11:45. They consolidated through the lunch and broke out to new highs for the day with a quick 20 minute pop around 1:15. A pullback ensued and the lunch time consolidation was tested, but it held, and stocks attempted to breakout again around 3:00. That breakout reversed, and stocks headed lower throughout the final hour, giving up most of their earlier gains. However, they did get some intraday support at the lunchtime lows and bounced a little into the close. Volume was quite a bit lower today, which takes the shine off the gains somewhat.

Technically, the market had a nice move most of the session, but reversed right around its 20 day moving average. If we are going to trade in a range for a while, then this area makes sense as the top portion of that range - the Nasdaq and S&P 500 reversed near their highs of a few weeks ago. The late bounce made the reversal look much less damaging as it did around 3:50, but we'll have to see if the highs today will act as resistance for near future. I continue to hope for some consolidation here as I think it will make a potential breakout have that much more potential.

I said last night that I was really hoping for some consolidation for a few days and if that happened, I would get more bullish. Today wasn't consolidation, and if I was long, I would start to get a little worried here about a pullback. This market could certainly continue to run as it works off its oversold condition, but I can't chase anything right now after a 140 point, 4-day move in the S&P. If the pullback I expect soon occurs on lower volume and we can hold the short-term moving averages, then I would look to possibly buy there. But again, as I said last night, there isn't a ton to buy right now. Volume wasn't great either today. So in the short-term, I am looking for a pullback soon and would remain patient in terms of looking for longs. There is no need to chase longs here, especially with volume falling off on a lot of the individual stocks I see.

In terms of my trading, I was watching the S&P closely today and looked at 985 as a key number for it to get over. I thought that would be a likely place for a possible reversal - that is where it made it most recent highs on October 20. When the breakout couldn't hold at 3:00, I went into some SDS ($83.39) as a possible play on this reversal and kept a tight stop on it. I also shorted WIRE at $19.33, which was a chart I posted last night. Volume was quite weak on this one as it bounced the past few days. That is all I did - I thought about pushing it a little heavier on the short side, but with this market, I still thinking going "all-in" on either side is not a smart play. My attitude was "let's see if these work out before moving in with more positions." The late bounce affirmed this thinking, as my quick gains mostly disappeared. I still have these positions and plan on holding them over the weekend, although I am always nervous about that.

I'll be back at some point this weekend, but right now, the indices look more bearish to me as volume has fallen off each of the past four days as they have rallied. We'll have to see if the 3:00 pullback means anything for next week's direction. The weekend is here - time to take a break. Take care.

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Jesse W. said...

great short term analysis of the market! I would like to link your site in a future article if you don't mind.

Jesse W.

Mac said...

No problem - thanks.