Monday, January 5, 2009

State of the Market - 1/5/09

After having breaking through some heavy resistance Friday, the market pulled back from extreme overbought conditions today, although it was a very healthy pullback and the bulls have to be encouraged by the action overall. The day started with some selling for the first half hour that took the market down to its breakout levels of 920 on the S&P, but those levels held and stocks bounced right back up and entered a consolidation through lunchtime. It tried to break to new highs and out of this consolidation around 2:00 and it did briefly, but that breakout didn't work and stocks fell back toward their morning lows as they entered the final hour. Those lows held again, and stocks did bounce a little into the close, but still finished with small losses. Following Friday's low totals, volume was higher today across the board but still not super heavy.

Technically, the S&P fell right to the 920 mark this morning and bounced immediately, which is a good sign. If that level continues to hold and the market just moves sideways, that would be very bullish. We'll have to see if that happens however - I don't think it will but who knows? The extreme overbought conditions we had going into this week will not go away in a day or two, so it may take a week or so of healthy consolidation (lower volume, holding support, no heavy selling) in order for the risk/reward to look good in terms of buying, at least in my opinion. If 920 is broken, I would look for the 50 day moving average to come in as support. So overall, it is hard to know yet if today was the start of more selling or just the start of some healthy consolidation.

The shorts I took at the end of the day Friday were kind of a mixed bag today. I was stopped out of my TGT short at $35.20 early in the session, giving me a 1.81% loss. Not quite sure what caused its pop, but no big deal - I will keep it on the list to short. I am up a small amount right now in MR and QLGC as both fell today. I want to see more downside soon or I may cover and take profits.

Right now, I am still bearish although today really wasn't bad and if we move sideways to slightly down to allow this overbought condition to work itself off in a calm manner, then I may start looking to get long. I still don't think it is smart to go long yet, however, and I will still be focusing on the short side over the next few days if I see setups that look good. I am specifically looking at SKF, DUG (which is extremely oversold) and SRS as possible plays along with some of the shorts I showed in the video this weekend. I started to see some breakdowns on heavier volume in a few of those shorts on my watchlist today (BOH, CYN, NTES, RVBD, RMG) so I will be watching to see if that's a clue to further downside soon.

I don't know how many videos I'll get up this week (the first full one as a new parent) but if nothing else I'll try to put up some watchlist later after going through my scans. Good luck tomorrow.

No comments: