Wednesday, April 29, 2009

State of the Market - 4/29/09

Quite an interesting day today on Wall Street, as the Fed day turned into a good one for the bulls. Stocks started the day higher, and continued in a strong fashion right up until lunchtime. They paused there right around the key 875 number for the S&P and consolidated until the Fed decision or statement came out at 2:15. There wasn't the typical immediate reaction to the statement - instead stocks waited until around 2:30 to break to new highs with the S&P pushing above 875 for the first time. This spike was brief, however, as the indices pulled right back into the consolidation zone quickly after. They fell for most of the final hour, giving up almost half their gains before rallying back in the last ten minutes of trading. Volume appears very light overall.

Technically, the most interesting thing about today from my perspective was volume. I know volume is light leading up to the actual Fed statement on these days, but for an attempted breakout on the S&P to come on such little volume is disconcerting to me at least. I mean, volume was lower than yesterday and way lower than the 50 day moving average. Maybe it will come in very late in the session but based on the charts I see now, it is indeed quite low. That breakout attempt also looks like it may fail as the S&P got as high as 880 before settling back into the consolidation area below 875. The XLF and S&P are also still badly lagging the Nasdaq, which is not typically a bullish sign. Maybe these don't mean anything, but I have my doubts. Volume on the Nasdaq was a little better and this index continues to lead, but is coming up quickly on its 200 day moving average.

I did have my quotes on at the open today with my long watchlist from last night, but didn't make any moves. I was closely watching WGOV above $19.15 but it had no volume at all early on as it "brokeout" so I passed. Low-volume breakouts are not typically a recipe for success in individual stocks either, and this one did close below its daily average volume. Of course, it did close two dollars higher, so who knows? Maybe this really is a Constanza market as someone in the comments pointed out a few days ago. You have to be a fan of Seinfeld to understand, but if you watched that show, you'll get it. Just do the exact opposite of what makes sense rationally and you will be a whopping success in this market. Today's low volume attempted breakout that looks like it failed makes perfect sense when looking at it from this viewpoint, right? Boy, I think I am going to go buy everything I can find tomorrow.

I did have my eye on a few shorts late in the session today (PNC, GE, MOS, RATE, ACM, ADM) but decided to wait so I am still sitting in 100% cash. I will likely continue to be cautious here as I know nothing is certain with this market. No matter how bearish I may be, the market could be up another 150 points tomorrow, because it doesn't care in the least what I think. That being said, given seasonality, historically high overbought readings, a lack of volume on the attempted breakout today, poor overall leadership, and some heavy resistance that has still not be dealt with, I have to assume we are topping out here or very soon. I don't have a clear signal that says "this is it", but much like we bottomed back in March quietly and without much fanfare, maybe a top around here will occur in the same way - just a slow change in character for the market.

Bottom line for me is if you are long, I would be very cautious. As always, however, I could be completely wrong. Best of luck Thursday and try to remember how volatile the day after Fed days tend to be. It should be interesting.


CW, Portland OR said...

Question...where is the best place to get volume readings during the trading session and also at the days end?

swingtrader said...

To quote Wayne Gretzky (via Steve Jobs): "I skate to where the puck will be."

To me, the market is ignoring numerous negatives, almost seems hopeful at this point. But I am also with you on the low volume issue. The May 4th stress test stuff could be a "ticking time bomb" as Art Cashin calls it.

I made a nice 15% profit in 13 trading days on CERN, sold today into the earnings news because the market just feels weird - like it may go higher despite everything but at the same time it is overdone.

It feels like pessimism is driving it higher, as strange as that sounds. As soon as more people belive in the rally, that's when the turn may come that you are looking for.

Mac said...

In terms of volume, I just kind of check the charts out as the day goes on, but I wish there was a better and more accurate way. For instance, today it really looked like volume was going to be very low, and now that I look at the graphs, the volume was higher across the board. Still not above the 50 day moving average, but higher. Maybe there was a late day surge.