Tuesday, March 10, 2009

State of the Market - 3/10/09

After so much steady selling, we finally got an up day on Wall Street today, as stocks were buoyed early on by a positive report from Citigroup and that led to a gap open. From that gap, stocks did nothing but add to their gains for the first 45 minutes of the trading session. They had a healthy consolidation around 10:15 before breaking out again right before lunch to new highs. They consolidated again from there for most of the rest of the session before trying to break out once again into the close. Stocks did finish at their highs for the day and volume appears to be higher, although not overwhelming. All in all, a very strong day for the market but we will have to see if it is going to lead us anywhere.

Technically, the S&P rose right to the top of the descending channel has been in for about the past month. It got slightly higher than this channel but not in a powerful way. The 740 area should be heavy resistance as it coincides with the most recent area of consolidation as well as the important November lows. The 20 day moving average is right around there as well, so I will be watching that area closely as a possible reversal or at least a pullback area. The Nasdaq did break above its descending channel and outperformed the S&P today. I will be watching the 1385 area which coincides with the most recent consolidation area as well as the 20 day moving average for a possible reversal or pullback. The VIX does seem to have broken down out of its coil pattern today - we'll have to see if that means anything because the VIX has just been plain weird recently.

I made one small trade around lunchtime in FAS ($3.47) as it broke to new highs but that was it. I didn't feel comfortable chasing early on but it turns out that was the correct play. I don't feel too bad - if this is the start of something meaningful, there will be plenty of time to jump on the train. As I stated above, however, there is a lot of overhead resistance that needs to be dealt with so I believe caution is important here. I do still have my FAS position but may get rid of it after-hours. If we open higher tomorrow, I will probably let it go then.

Although today was impressive, I still don't like this setup in a number of ways in terms of this being a possible important bottom. Significant market bottoms coming off extremely oversold conditions typically do not have the high levels of complacency that this one had. We still have had no fear recently. It looks like if this turns into something, my "option #2" from the weekend post will play out, where we just one day turn slowly and then move higher. There was no real sign that today would be the day, at least from where I sit (maybe I just missed it) and that made it tough to play. If you were heavily long going into today, congrats, but I would guess today allowed you to just make up some of the losses you have from previous sessions.

I still have great doubts as to whether this will amount to anything or if it will just be one of those bear market spikes caused by short covering. We haven't seen one in a while, but remember, you almost always see the biggest one-day percentage gains during the middle of bear markets, and today certainly was a large percentage move. Right now, my gut tells me it's just a spike because we never saw that panic I've been talking. I really wanted to see that. However, I will respect this move. Maybe we do just move up from here. I doubt it, but anything is possible with as crazy a market as we have seen this year. I think I will have a much better idea after going through my scans - if I start seeing some stocks emerge as potential leaders, then I would be more optimistic. Before today, my long watchlists continued to be extremely thin and that does not give me much hope for further continuance of this rally. We'll see I guess.

My game plan as of now is to tread lightly here. We could be up big again tomorrow, but I don't know how smart it is to chase a huge move like we had today. Throughout this bear market, these huge spikes have always amounted to a whole lot of nothing (except good shorting opportunities). If I see some leadership emerge and we move up in a healthy manner without these huge one-day spikes, then I will look to get more long. As it is, if we bounce up to that 740 number of the S&P, it will be mighty tempting to look at putting some shorts on. I'll try to be back later with some more thoughts after doing my scans. Take care.

No comments: