Tuesday, April 21, 2009

State of the Market - 4/21/09

A wild and wacky day today on Wall Street, as stocks gapped lower at the open, looking like they were going to continue building on yesterday's downside move, but instead moved higher and closed with good-sized gains. Stocks started by testing the numbers I put out yesterday to the downside. They held at first, tried to rally, and then retested them quickly after. When they held again, it was off to the races, as stocks reversed and ran hard all the way until 1:00. They consolidated there for a while before breaking to new highs around 3:00. They pulled back to that consolidation area before rallying back a bit into the close. Volume appears to be a little lower on the S&P and lower on the Nasdaq but when compared to last Friday (a more accurate comparison) volume looks solid on the Nasdaq. I don't have the final totals yet, however.

Technically, I said last night that the bulls really needed to make a stand today or things could get ugly, and that's exactly what they did. The 830 level on the S&P was tested twice early on, as was the 1600 level for the Nasdaq at the open, but both held and that is very important. The indices have still not closed below their 20 day moving averages and as such, the outlook has to remain bullish overall. The close took both indices just back above their 9 day moving averages. Yesterday I was starting to think these two moving averages would be crossing soon, which has been a decent trend indicator during this bear market, but now it doesn't look like that will happen.

The open today was sort of weird as I saw so many stocks gap down a great amount. It seemed weird at the time and in hindsight, perhaps that was a signal that we would get that reversal. In the video last night, I pointed out a bunch of stocks that were either breaking down below trendlines or sitting right on important trendlines that needed to hold. Well, after going through that same list right now, almost all of them put in reversals today, and some were absolutely huge ones. Not all of them came on higher volume, but it is something that I have to pay attention to. When so many stocks looked poised to breakdown but then they reverse higher, I have to throw away my opinions and respect that as bullish action.

Due to the wedging action I saw from around 11:40 to 12:40, I decided to try a short or two, but wasn't that successful as you may guess. I made one modest trade today early - short AIPC at $31.29. Later on, as the S&P bumped against its 9 day moving average, I went into SDS at $69.01. Because I was feeling good at that moment about my position, I also went into some FAZ at $10.46. The market was moving up very slowly and very weakly from where I sat, but it didn't matter. When the market took off, my stops were hit and I was out of FAZ at $10.08 for a 3.8% loss. SDS was hit at $68.22 for a 1.2% loss. AIPC still looks OK as of now and as long as it stays below its 50 day moving average, I will hold onto it, but that could change tomorrow.

So overall, this market continues to destroy any bears that are out there (me included) and today was another example of that. As of now, it looks like yesterday could prove to be the same setup that we saw on March 30 - a one day big drop that didn't amount to anything. We see if this time will be different, but so far the action looks very similar. Bulls have to be happy about the way things are going right now. I'll be back later if I see anything interesting in my scans, but there is also a hockey game tonight, so I just don't know for sure. Good luck, and take care.

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