Monday, April 20, 2009

State of the Market - 4/20/09

A nasty day today on Wall Street, as an earnings "beat" by Bank of America couldn't do much to rally the bulls. Stocks gapped lower and continued to sell off hard until around 11:00, when they moved sideways in a consolidation through lunch and into the early afternoon. The afternoon brought continued selling, although the pace slowed and stocks kind of drifted lower into the end of the session. Volume was very weird today - much higher on the Nasdaq (I have to assume because of the JAVA acquisition) but lower on the S&P. If volume does come in lower there, that's about all the bulls can hang their hat on for today.

Technically, the short-term moving averages were broken today on both the S&P and Nasdaq, and both broke longer-term trendlines for this rally as well. So there was some damage done today, and this could be the start of a more severe pullback - at least on the surface it looks like it. Support should come into play for the Nasdaq around 1600 and for the S&P around 830, which is where the 20-day moving averages are and is very close to the closing prices today. I think those levels are very important, and if those levels don't hold, then we are probably looking at a trip to the 50 day moving average. Of course, I've said this before on trendline breaks and the market has just rallied right back. But as I showed last night in the video, with as overbought as we are on intermediate-term weekly charts, I have to think a pullback would be long overdue. I am not saying for sure that this is the top, but I am interested to see how the bulls

One of the worst things about today for the bulls is that the leaders of this rally acted very poorly and in a lot of cases, broke down and now look quite ugly. RGR had an absolutely nasty reversal and failed breakout. The solars like STP and YGE broke short-term moving averages. BAC had an awful reaction to "good" earnings. ASIA had a small breakdown below some short-term support. BBBY also looks like it broke some short-term support. Some held up OK - FEED is a good example of one that acted nicely - but I will continue to watch this. Paying attention to the leaders is a good way of getting a grasp on the overall market.

I pointed out crude oil last night in the video as one of the possible tells for where we head next, and it broke down hard today (7%) out of the coiling formation it was forming for the past few months. Not good news for the bulls. A lot of oil stocks got hit as well today. In addition, both the XLF and RTH had gap downs today that took them below their 9 day moving averages. This will be the first day except for March 30 that the financials closed below their 9 day moving average. XLF should have some support around $9.70, but if it breaks that, then all bets are off. These three areas (oil, retail, financials) are what I will also be watching for clues and if they continue to break, we could be looking indeed at a major top.

I did not make any moves today but I am ready to short if the market continues to sell off tomorrow. If volume was heavier today, I probably would have started a few positions a little early. So far, this rally has been marked by quick support coming in from the bulls to keep the prices moving higher. It will be interesting to see if tomorrow we get the same thing, because as soon as that buying support disappears, then things could get very ugly. I personally would like to wait for a little more confirmation before going heavily short, and early tomorrow should give it to us. Watch those 830 and 1600 numbers to see if the bulls make another stand. Today looks a lot like March 30 to me - back then I thought we were looking at a top. I guess we just have to see if tomorrow and Wednesday look like 3/31 and 4/1 or if this time will be different and if today signals a major change in trend. Good luck Tuesday.

No comments: