Thursday, May 7, 2009

A Quick Look at the Indices

As I sort of suspected, volume did come in very heavy today and all the indices definitely put in a distribution day. Now normally, one day of heavy volume selling isn't a death sentence to the bulls, but considering this one happened right near the 200 day moving average for the Nasdaq and also accompanied bearish reversal bars, I think this one day could have some significance. I am not ready to jump around and short everything in sight - in fact, I can almost guarantee I will do nothing tomorrow. However, on the charts below, I highlight some important short-term support than the bulls will want to see hold. If these areas don't hold, then things get more serious, especially if volume stays heavy.

S&P 500

Looking at the VIX, it is still in a general long-term area of support and is coiling in a falling wedge, which is typically bullish. If this would happen to break out higher soon, I would take that as another sign that a pullback is at hand, perhaps a serious one.


All this being said, the futures are up right now after the Stress(less) test results were released after-hours, so tomorrow will likely be very volatile. That's why I probably won't be doing much Friday. Today was bearish, but there isn't enough evidence yet to know for sure that this is a top, and I certainly still don't feel comfortable buying a pullback because we are still very overbought. I just have a feeling some traders are going to get chopped up tomorrow. Good luck Friday.

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