Tuesday, May 12, 2009

State of the Market - 5/12/09

A choppy day today on Wall Street, as stocks started lower, slowly drifted down to test some short-term support levels, and then started bouncing sharply starting around 1:00. That bounce ran into the close as stocks finished basically mixed. In an exact opposite scenario from yesterday, the Dow and S&P outperformed the Nasdaq, which was down a large amount for most of the day. As of now, volume appears to be a little lower but I will have to check out the final totals. If it comes in heavier on the Nasdaq, it would be another distribution day so that is something to watch.

Technically, the 20 day moving average was tested on the Nasdaq and it looks like it held, so that is good for bulls. The lows of today around 1696 should continue to act as short-term support and as long as it does, I don't think the bulls have too much to get nervous about. The S&P held its 9 day moving average around 900 today and as I said yesterday, I think it can pullback to at least 875 without the bulls getting worried, as long as it comes in on lower volume. It looks like that's what happened today, although again, I have to check on the final volume.

The oscillators I follow haven't changed too much recently, and the VIX is still holding that bottom trendline of the descending wedge I showed this weekend, but I did notice that the McClellan Summation Index (T2118 in Telechart) is starting to flatten out a bit,. That is something I am going to keep my eye on here. Throughout this entire bear market, this oscillator has timed tops relatively well, and I will be watching for a cross below the short-term moving averages here. I will try to get a chart up later if I have time.

I would personally still prefer to see a little steeper pullback here in terms of getting long, but the past two days have been somewhat constructive so I will continue to keep an eye on some stocks for possible entries on the long side given that we don't see any really heavy selling. A few tried to breakout today (COIN, FSIN) but I didn't buy anything. I am still in cash and don't feel I have missed much the past four or five days. There is still quite a battle happening at the Nasdaq's 200 day moving average, and as I said yesterday, I would rather just let the bulls and bears battle it out there and then jump on the side of the winner.

Bottom line is that it looks like the markets may finally be consolidating a bit and so far, it has been in a relatively healthy manner. That could change tomorrow of course, but if this continues for another week or so, I think this market probably has even more upside to it. However, if we just start rocketing upward once again tomorrow, I still don't know how much further the market can go. It needs to rest, and perhaps that is happening right now. And as always, if volume starts increasing with more selling, then maybe the rest will turn into more of a nightmare. I am keeping my options open and wouldn't be surprised at either occuring. In the meantime, there isn't a whole lot to do except rest as well. Good luck Wednesday.

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