Tuesday, December 9, 2008

State of the Market - 12/9/08

After having another great day yesterday, the stock market looked like it wanted to pull back early today, as futures were down and the market did open down a good amount to start off trading. Support from yesterday, however, came into play, and stocks quickly put in a bottom there and rose throughout the next hour and a half in impressive fashion. The Nasdaq led the way, breaking past yesterday's highs, but the S&P lagged and looked like it was forming a possible head and shoulder pattern on the intraday charts. Around 11:00, stocks did start pulling back. They consolidated through the lunch hour, but around 1:00 started drifting back down to those important support levels. They broke through the neckline of that intraday head and shoulders pattern at 2:00, and fell further from there. They tried to retake the neckline as the final hour approached, but really couldn't do so and closed near their lows for the day. Volume was heavier on the Nasdaq, giving that index a distribution day, but lighter on the S&P.

Technically, I said last night that I was expecting a pullback and we got that today. Now we have to determine if this is "more" than just a pullback, because this type of strong selling is not what I was hoping for. I wanted a slight, quiet pullback where the market just kind of rested for a few days. I don't think today can be described in that way. It seems like the indices got rejected today at their 50 day moving averages. The S&P 500 closed below its former high around 896 and that is not encouraging. Next line in the sand for me for the S&P is right around 880. If that holds, I will give the market the benefit of the doubt. The Nasdaq did come close to testing that 1535 area and closed above it - that's the level I will watch carefully. The XLF closed above key support around $12.95 and I will watch that level as well. Interestingly, the VIX was barely higher today even with the large pullback. Not quite sure what to make of that.

I didn't do much of anything early on today because I didn't have a good feel for things. I thought about buying at the beginning of the session as stocks were right near support, but just passed instead. I later had SKF on the screen around $103 but again passed as I felt I would just be guessing. Since the new highs were just broken yesterday, I think it was tough to know for sure how the market would react near them and if they would hold. Therefore, I sat most of the session out. I did try and short KBH around 2:00, but Scottrade had no shares to borrow. Oh well. I did take a position in SDS right around 3:30, but accidentally hit sell when trying to put my stop order in and was out immediately ($85.56 buy, $85.66 sell). At that point, because I wasn't too sure with the decision anyway, I just decided that was some sort of sign and shut it down for the day.

I am not ready to throw this rally under the bus yet after one bad day, but I do think this pullback was a little harsher than I had hoped for, especially when I look at the intraday charts. They don't look bullish at all. I said last night I was watching those short plays as a "tell" for the overall market, and a lot of those setups look like they now may play out as good plays. That is also bearish. With the lack of great leading charts (not just beaten down ones), I think it pays to be cautious after today. Hopefully you caught the video last night when I pointed out we were due for this pullback and not to chase any longs. We'll have to see how this plays out - I think we are kind of up in the air right at this moment. Watch those levels I mentioned earlier and go from there. If we rest a few more days but don't move much lower than where we are now, then perhaps we can make another run at the 50 day moving averages and continue with more upside. But if we get more selling tomorrow and break downside support, then this rally could be over just as quickly as it started. Because of that, I don't know that I am anxious to make a big move here - want to see some confirmation first on both sides. I'll be back later if my scans give me any revelations. Good luck Wednesday.


Charlie G. said...

Congrats on the weekend holds, and thanks for the analysis. It's very helpful to me at least.

Mac said...

Thanks Charlie - it worked out well for me all in all.

Anonymous said...

check out UNG. nice video on Sunday and thanks...

Anonymous said...

Hey Mac ... since you were going to take a position in SDS at close to the high for the day, it sounds like you do not expect the selling to end. FWIW, I agree but I think you can get in SDS tomorrow for a slightly better price.

Also, what does the McClellan look like tonight??

Thanks for all you do.