Sunday, April 26, 2009

State of the Market - 4/26/09

Sorry about the late (very late) wrap for Friday - it was a very busy and tiring weekend. Friday involved ordering new countertops right after work, followed by a family visit. Saturday involved landscaping work around the house and putting together some new furniture ordered online. Today was more yard work. It's keeping me busy, no doubt, and therefore my focus was away from the market the past few days. Maybe that's for the best.

Friday was a bullish day by all accounts - strong price gains with heavier volume. Intraday, however, shows me a lot of choppy action that makes me wary of what is going on right now. Wednesday (I believe), we saw a huge drop in the last half hour of trading. I believe we saw the exact opposite Thursday - a huge jump in the last half hour of trading. Friday, we saw a very sharp drop before 2:00, but the indices bounced right back up to confound a lot of traders I am sure. The Dow also had about a 70 point drop in the last five or so minutes of trading Friday. I don't know what is causing all these random spikes and drops, but it all looks a little shady to me. Maybe I am a little spooked from the comments in Thursday's post, all of which were very insightful and well-thoughtout.

Technically, the Nasdaq has broken to new highs for 2009 on slightly heavier volume Friday. The S&P is lagging however and is still under important resistance at 875. The XLF is lagging as well, and the RTH (retail holders) had what looks like a possible false breakout last week. Perhaps that is a negative divergence that bears watching. Worden pointed this out in its report this weekend....

"The resolution came on the upside...BUT. The Dow and SP-500 remained mired down in a lateral trading range. For the Nasdaq Brothers it was onward and upward. Both reconfirmed their Intermediate Uptrends, and both made new highs for the year.
The bothersome BUT was in the failure of both the Dow and SP-500 to attain Intermediate Uptrend status. For the 500 it's only an inch to go, but it has failed to make that last inch a week ago. The Dow has further to go, but two or three days could do the trick. My feeling is that the correction, which is likely to come fairly soon, would be easier to handle (especially psychologically) if all four Major Averages carried Intermediate Status on their epaulets."

Friday's gains made it seven straight weekly gains for the Nasdaq, while the S&P was only 3 points away from matching the seven week win streak by the Nasdaq. We remain quite overbought, with the T2108 remaining above 90 for the past five days by my count. In addition, leaders continue to lag overall as they have for this entire rally. IBD has continued to point this face out -

But some red flags are popping up. First, the IBD 100 continues to lag the major indexes. It rose 0.8% Friday and was down 1.4% for the week. The market's best stocks should be leading the market.

Some leaders are tripping over their own feet. Niche airline Allegiant Travel (ALGT) got tagged for high-volume losses for three days in a row. It's back near its buy point after a bearish reversal for the week.

Neutral Tandem (TNDM), which helps connect callers from different wireless carriers, fell 5% for the week. It logged its biggest-ever weekly volume as shares fell, an ominous sign.

All of this STILL has me expecting a pullback at some point very soon. I don't know if the pullback will just be a small, healthy one, or if will lead us back into the depths of this nasty bear market. My feeling is that this is still NOT a new bull market. Of course, I have been wrong on this rally pretty much the entire month and half it has lasted, so take what I say with a grain of salt right now. Any pullback will be nothing to worry about for the bulls unless the 830 and 1600 levels are broken on the S&P and Nasdaq respectively.

Right now, I still just don't feel comfortable doing much of anything here so I probably won't. As I vented last week on this blog, I think I am just worn out a bit mentally and when you have that mindset, forcing trades you're not comfortable or confident with is not a great idea. So I will probably just be an observer until I get a good feeling regarding a potential move. I will continue to watch for possible earnings plays, but if I make any moves, I will probably still lean stubbornly to the short side. I have not yet been able to put my conscience aside and trust this rally, as I still think has been made completely on lies, smoke, and mirrors. That is something perhaps I need to work on as a trader - trading in the moment and disregarding my personal opinions - but as of now I can't do that. My conscience still won't allow it.

Best of luck during the upcoming week - it should be interesting with the swine flu news coming out that looks to be pretty serious. You may want to keep an eye on some of the drug and pharma stocks as I am sure they will be popping in response. We have the stress (less) tests as well in the news as well as other things that will likely affect trading. I have no idea what the news will be, let alone how the market will react to it, so be nimble and open-minded. Good luck and take care.


strobe said...

Adam Warner over at Daily Options Report has been talking about the end of day whipsaw action and hypothesizing on it. Could it be last hour rebalancing of double and triple ETFs causing some crazy moves into the close? I think it's possible. That, and the self-conscious nature of this rally since at least the beginning of April...

Mac said...

I think that's very possible, as well as the weird nature of this whole thing. Those ETFs are likely making things much more difficult for individual stocks.