Wednesday, November 26, 2008

State of the Market - 11/26/08

The market started today with a gap down, but that was quickly bought and stocks moved higher throughout the rest of the morning into the lunch hour. They consolidated through lunch, broke to new highs, but then pulled back. The lunchtime consolidation acted as support, however, and stocks broke to new highs for the day around 2:00. They continued higher into the final hour, pulling back only slightly at times but finishing right near their highs for the day.
As of now, volume appears to be lighter, however, and unless there was a really big push late, today is the fourth straight day of gains coming on successively lighter volume.

Technically, the Nasdaq and small caps took the lead today after lagging yesterday, which is certainly good to see. If a real rally is going to develop here, these are the indices that you want to see lead because they hold the smaller stocks that can move fastest. Almost all the indices, however, closed right at their 20 day moving averages (the Dow and S&P are slightly above it) and it will be interesting to see if they pullback from here. They are all also nearing two month downtrend lines that could act as resistance. The McClellan Oscillator is almost overbought and is approaching the extreme level it reached on November 4. On the bullish side, the VIX did breakdown below its 50 day moving average and support around 56-57, so we'll have to watch if it continues to move lower from here.

I said yesterday that I was hoping (from a bullish perspective) that the market would rest today and Friday on lower volume, which would allow the market to set up for possibly much larger moves next week when traders return and volume picks up. I didn't think it necessarily had to pullback - moving sideways would have been fine. I thought that the worst thing the market could do is rally here on low volume and get overbought going into next week. Well, that's exactly what it looks like we got after today. The market continues to melt up and up but volume continues to get smaller and smaller. If I was a bull, I would not be real excited about today and in fact unloading some positions (sucks for me I don't have any to unload).

In order to have a meaningful rally (one that lasts more than a week) we have to have buyers push up stocks. Mutual funds and hedge funds - the big boys - have to come off the sidelines and buy stocks up. Retail investors can't maintain a rally here, at least in my opinion. I could certainly be wrong, as this market has proven very clearly that it can do whatever the heck it wants this year, but it would be surprising. I know this week is Thanksgiving week, and that volume is traditionally less this week, so maybe the light volume really doesn't matter. I can't just dismiss it though like it is no big deal. If I saw more charts setting up and new leadership emerging, maybe I would be more forgiving. However, I am still not seeing a ton of new leaders emerging here. Maybe my scans will show me some tonight and I will change my mind.

I do not plan on trading Friday at all with the half-day and the low volume, so I will likely not be back here until sometime this weekend, when I plan on putting together another video with some charts to watch. Right now, I am actually hoping for another big day up on Friday, as I think it would allow this market to get even more overbought and make a potential short-term short setup even better for this market next week. That's what my gut is telling me right now may be setting up, but as always, I could be very wrong. I certainly wouldn't be buying stocks here after the move made this week.

I hope all of you have a great Thanksgiving holiday. I am certainly thankful for many things - my wife, my two year old son, my son that is on the way, our collective good health, a steady job in these tough economic times, and many other blessings, most of which I know I take for granted. Hopefully, we can all take a few minutes tomorrow during the turkey and football to reflect on what we have and learn to appreciate it even more. Take care.


irvingbelateche said...
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Anonymous said...


Analysts on TV keep telling there are a lot of money on the sideline. Really? I thought wealth have evaporated and people net worth have decrease, their houses have reduce in value and their retirement accounts have taken a beating, and people are so deep in debt.

So how come they have so much money on the sideline??