Friday, February 6, 2009

State of the Market - 2/6/09

A pretty strong day today on Wall Street, as another bad jobs number and higher unemployment didn't dampen the spirits of traders. Stocks rose quickly for the first ten minutes of trading, consolidated for an hour or so, and then went to new highs again from there. That move wasn't that powerful though and it led to more consolidation. Around 12:15, the morning highs held as support on the pullback, and stocks moved higher from there, breaking out once again around 1:00. They started pulling back again around 1:40, once again held support and made another run at new highs, but couldn't break out again and pulled back as the final hour approached. Support held once again for stocks and they rose back up to their afternoon highs into the close, but could break through those levels and finished just a bit off their highs, but with strong gains nonetheless. Volume was lower compared to yesterday's strong levels.

Technically, both the Nasdaq and S&P broke clearly above their most recent downtrend lines this morning but the S&P closed right below its 50 day moving average while the Nasdaq continued to lead. The morning pop took both indices to overbought levels on the short-term time frame, again more so on the Nasdaq than on the S&P. Not all my oscillators are overbought however, so we could see a bit more of a rise in the indices early next week. 877 is a key level for the S&P to overcome, while the Nasdaq broke to a higher high and only has 1665 above it as heavy resistance. If you're bullish, you definitely want the Nasdaq to hold the 1525-1530 area where the moving averages are consolidating. I would also want to see the 850 level on the S&P hold as well.

I kind of had a gut feeling that the market might respond higher regardless of what the jobs number was today, so I went into the day with a few stocks I was watching but really still nothing that got me super excited. I guess the heavy volume yesterday made me suspicious that we might rally today. When the market did move higher and the S&P got over the 850 mark, I decided to try SSO ($23.34) and GNK ($19.83) from the long side as possible day-trades. I didn't enter either with the intention of holding them for more than today, especially with the weekend ahead of us and the short-term overbought conditions. I just moved my stops up on them as they moved higher (although I did give them more room that I was doing to start the year). I was stopped out around 3:00 of GNK at $20.46 for a 2.9% gain - not much but better than nothing I guess. This one could never break to new highs for the day even as the market did so in the afternoon. Later I was stopped out of the SSO at $23.90 for a 2.2% gain - again, pretty measly but better than nothing.

Right now, I still don't have much faith in this move, and everytime we have gotten overbought like this, we've pulled back rather quickly. Although we still have a little room to the upside on some of my oscillators, I don't know why this time would be any different. I've said this before - if we had a lot of interesting leadership emerging right now, then I wouldn't be as worried about being overbought, but I still just don't see that leadership. The only thing I see moving lately are the ags (beaten down and now extended), big-cap tech (beaten down and now extended) and the banks (yeah, right). None of the few stocks I have been watching with interest like GERN, NTCT, and NFLX did much of anything today which is disconcerting. Add in all the news that is still out there, and you have a market that still needs to earn my trust rather than me just giving it to it. If we gap up on Monday, I actually may look to fade it and take a few short trades, perhaps just playing the ETFs unless my scans tell me differently over the weekend. I think the risk/reward for that trade is getting close to promising after today - more so than chasing this move I guess.

I am going to try and get a video out for the weekend and go over the overall outlook for this market since I haven't been writing much this week. Keep an eye out for it. Take care and enjoy the weekend.

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