Tuesday, January 27, 2009

State of the Market - 1/27/09

Another short commentary today because my outlook remains exactly the same as it has the past two or three days. Today the market opened higher, fell quickly, but bounced back up and basically chopped its way sideways to close with modest gains on lower volume (once again). This makes three consecutive days of modest gains on progressively lower volume. That is not bullish.

Technically, the S&P continues to be held under the 850 level and with the 50 day moving average still looming overhead, I continue to look at this market with a bearish bias. The Nasdaq is still stuck beneath its 50 day moving average and is starting to look like a possible head and shoulders pattern - it's not perfect, but it is there and developing.

I said last night that if we had one or two more choppy up days (like we saw today) it might get the indices up to overbought levels and present a really nice shorting opportunity in terms of risk/reward. We aren't that overbought yet, but we are getting there in the short-term. The oscillators are still fairly neutral overall but again could be overbought with one or two more days of higher prices. I am kind of hoping for that to occur, as I would really like to get short on a move closer to 870 on the S&P.

After a quick look at my scans, I continue to see the same thing - lots of bearish patterns setting up and a drastic lack of leadership on the long side that would lead to a nice rally. There have been very few stocks I have had to remove from my short list the past few days. JPM, GS, and PNC all still look about as bearish as you can get from my perspective. Let's add WFC to that list, which is forming a nice looking bear flag. XLF is looking like a nice bear flag as well. That's just the financial sector. As much as I would like to bullish, I just can't ignore these facts.

As I said earlier, nothing has changed. The individual charts I watch are very bearish and the patterns on the indices look bearish as well. I am still looking to get short soon but realize we may have a bit more room to move to the upside. If we do, that will likely just make the risk/reward ratio even better from the short side. If you are going long this market, be very careful. I still think cash is better than trying to catch these tiny upswings until the short setups start breaking down. As always, I could be completely wrong and the market could take off here. Everything I see right now, however, tells me that very likely won't happen. I will try to do a video tonight to look at these short setups again that I am watching. Until then, take care.

1 comment:

Anonymous said...

Here comes another curve ball... there are supposedly new plans from the Treasury re the banks. XLF is up 4.5% after hours.