Tuesday, May 26, 2009

State of the Market - 5/26/09

A very nice bounceback session today from the bulls, as stocks opened flat but immediately took off as trading started, rising significantly for the first half hour of trading. They wedged themselves slightly higher from there into the lunch hour and continued a slow move higher into the afternoon hours. They pulled back a little as the final hour started but managed to hold on to the majority of their large gains for the day. Volume looks to be higher than Friday, but that was one of the lowest volume days of the year, so be careful comparing them. I would like to see above average volume on a day like this but it doesn't look like we will get it.

Technically, today was a very nice for the bulls but we are still in a trading range here and could continue to bounce around inside this range for a while. We saw a nice day last Monday too, similar to today , but the market went nowhere the rest of the week. The S&P held the 875-880 once again, but still has to get above the 930 area, marking its most recent highs. The 200 day moving average is also now sloping into this area, which will likely make this resistance even more formidable. The 50 day moving average is rising quickly as well into the 875 area which will likely add strength to that support level. As those moving averages come closer to converging, the bulls and bears are going to likely be having some major battles.

On the Nasdaq, the 1665-1675 area is still a strong support level and the 50 day is moving up there as well. The Nasdaq retook its 200 day moving average again today (third attempt in the last month) but until it climbs above 1773, I would still remain somewhat cautious. Financials didn't move all that much today considering the size of the overall gains, which is interesting. They also seem to be consolidating here into a tight coiling pattern.

Until we break out or break down from this consolidation, I don't know if there is much point in doing a whole lot of trading right now, which is a main reason I didn't put a video out this weekend. I posted last week that I had a feeling we are due for some sideways chop, and it looks like we are getting it.

Overall, this consolidation looks healthy on the daily charts of the indices in that it has come on lower volume. At the same time, I have seen some worrisome signs in individual charts so I don't think it is guaranteed we are just pausing here before moving higher. I know this is boring to say this, but I really do believe we could go either way here. When I try to predict what the market is going to do, I usually get myself in much more trouble than when I react to what the market actually does. Therefore, I am going to wait for the move and then react to it (although I still have my QID and SDS positions from last week whose stops have not been hit yet.)

Overall, I am hoping my scans start giving me some clues as to which direction this market's move will be. I do think a big move is coming - I am just not sure which way. If I find some clues in terms of how many setups I see on individual charts, I will share.

Lastly, I wanted to direct everyone to a great little booklet I found last night on Trader Stewie's website. I had never seen this one before, but I am glad he posted it because after reading it (takes about 15 minutes or so), I am glad I did. It is a great refresher on trading psychology and some of the typical mental mistakes made by traders. I would recommend it to anyone out there - after all, it's free too and is just a PDF to download - no email address or information to give out.

As you may know, I don't think I've been trading well so far this year and I have thought a lot recently about why. This little booklet helped in terms of refreshing my mental state and reminding me of the qualities a good trader must possess to be successful. It has very little to do with the system or style you trade, and a lot to do with how you trade it. This is one of the reasons I haven't traded much for the past few weeks - I just wanted to get away a bit and "refresh" myself so I can come back with a better mental mindset. Now that summer is close by and my work commitments lessen greatly for a few months, I am hopeful that I can get back on the successful path I was on last year.

Take care and good luck tomorrow. Go Pens.


szaman said...

Mac-What is your stop on QID?

Mac said...

I will get out if the market breaks to new highs. I am trying my best to hold until then.

Anonymous said...

A re-match!! GO Pens GO

Should be exciting, love these games.