Monday, May 11, 2009

State of the Market - 5/11/09

We got another down day today on Wall Street, but with volume coming in low and the Nasdaq outperforming the other indices, I don't think the bears can start partying just yet. Futures were down pre-market and stocks did open much lower, but from there just mostly went sideways instead of having more losses pile on the opening losses. In fact, the Nasdaq quickly rallied all the way into positive territory and stayed there for most of the day. Stocks did close near their lows for the day except on the Nasdaq, but since most of the day just saw sideways action, I can't say it was a bearish day at all. Volume looks like it will come in much lower as well and that's exactly what you want to see on a pullback if you're a bull.

If you watched my video last night, nothing really changed today. If you're a bull, I think you have to be happy with a day like today. We continue to avoid the 300-500 point selloffs that became so commonplace in January and February of this year, and being as overbought as we are, one or two of those days wouldn't be surprising. Volume also looks like it was lighter today as well and that should also make the bulls happy. On the other hand, the bears continue to just not show much strength at all right now. They had a great opportunity last Friday to make something happen after some distribution Thursday and couldn't, and with futures down big today to start the week, they had another great opportunity to make this market pullback but once again couldn't do much relatively speaking.

Technically, the numbers I showed last night still hold true. In the very short-term, I will be watching to see if the markets can once again hold their 9 day moving averages like the Nasdaq did today. The battle for the 200 day moving average continues for the Nasdaq. Right around 1700 is turning into an area of possible short-term support, and I would watch right around 900 for the S&P where the 9 day is right now. That being said, I still think further pullback would be a healthy development for this market - maybe back to 1690 (20 day MA) or even 1665 on the Nasdaq, and around 875-880 on the S&P. If we pulled back to those levels on volume similar to today, then I may start looking at a few longs. If volume starts to increase, however, then I will stay away.

I do have to say that some of these low-priced high-fliers that have been all the rage lately are actually looking decent to me as they have consolidated rather well. I am not planning on jumping all over them, but if the market has a few more days of healthy pullback, then I would start looking at stocks like FSIN above $7.40, JRCC holding $19, PCX holding $8, NCOC holding $2, CSIQ holding $7.50, RUTH above $4.37, COIN above $2, MEE above $18.30, and MT above $30. Coal stocks in particular look decent on this pullback as most have come on nice volume patterns (heavy buying, light selling). I had a hard time believing that the gains these momo stocks have put in would last after they all shot up so quickly the past two weeks, but right now, a lot of the consolidations look healthy. That could change tomorrow of course, so I will continue watching these carefully. If you start seeing pullbacks as volatile as CBOU, then I would start worrying.

I am still in 100% cash and probably will continue to sit out the next few days unless we pullback a little further on lighter volume. I really do think that is the best play right now until this little chopfest resolves itself. Particularly on the Nasdaq, you can see how much of a battle is going on right around the 200 day moving average, and I will just let the bulls and bears fight in out there amongst themselves before playing the side of the winner. If we keep selling off tomorrow, keep watching volume - if it comes in light once again, then the bulls are still likely in control. Take care, and good luck Tuesday.


Anonymous said... miss the whole 40% rally waiting for the heavy volume/capitulation to buy in and now you waiting for the same heavy volume of selling before going short ? My bet is that we pull back on light volume ever so slowly to trap everyone into buying on pullback. You think so ??

Mac said...

It's certainly possible - the bottom was not one that stood out until it had already passed. Maybe the top will just be a slow steady decline. Traditionally a top will show up with heavier selling. I have to go with what I know opposed to just guessing when the top will happen and hoping for the best.

Cocameister said...


This was one of your best market recaps ever. Good perspective on the situation and I think you are right.



Mac said...

Thanks Cocameister

Anonymous One said...

I'm sticking with what Mac said, anonymous, but I do agree with you that so far playing the technicals has been a losing strategy and I explained why in one of my earlier long winded comments.

But, for the sake of getting back in the market, I'm waiting for that pullback on light volume to the 860-875 area and will by into SPY.

BUT I'm open to another strategy, anonymous. What are you thinking? If you read my earlier comments, you know I've been playing with FIBS and with quantifying news driven trading because, truth be told, I'm wary of trading good old S/R. That hasn't been working.

BTW, Mac, good video this weekend, and you're right about that bottom. It wasn't a capitulation bottom, but it now looks like was a intermedia bottom at the very least.