Wednesday, May 27, 2009

State of the Market - 5/27/09

After a great day for the bulls yesterday, today turned out to be a total clunker, as stocks started selling off around 2:00 and continued to sell off into the close, giving back almost all of what they gained yesterday. Volume looks to be heavier on the Nasdaq, giving it another distribution day, but possibly lighter on the S&P. We'll have to see how the final volume totals come in - these could change.

Technically, the same thing I said yesterday applies today - we're in a range and today's action proves that even more. Again the numbers - 875/880 up to 930 on the S&P are very important, and 1665 up to 1773 on the Nasdaq are also very important. Today the Nasdaq got up as high as 1768 and showed good relative strength but reversed hard off that level. My guess (only a guess) is that we will now drift back down to test the bottom of this range, which should be very interesting. The 50 day moving averages are quietly sneaking up very close to those support areas previously mentioned, which will just add another layer of support in that area.

The more we test upside resistance and fail and the more we test downside support and bounce, the stronger those areas are going to become. I said last night that I am expecting a big move out of this range one way or the other, and the longer this goes, the more powerful that move will be. I wish I knew which way we go for sure, but I honestly have no way of knowing. There are bearish signs out there and bullish signs. I am just going to keep my options open and play the hand that is dealt by Mr. Market. The only result I don't want to see is a bull or bear trap where we break one way or the other and then just reverse back into the range, whipsawing a bunch of traders. With support and resistance so clear, I unfortunately do see that as a possibility.

I was stopped out of my QID position today around $34.87 for about a 4.5% loss, but am not too upset. These were very small positions and more test positions than anything else. It stinks to see the market reverse back down, but I just didn't adjust my stop properly and therefore paid the price. My SDS position, which is a little larger, is still on and remains the only position I hold now. Unless you are a day-trader, tight, range-bound markets like this aren't the greatest for trading.

That's about it for today. I showed you some possible setups on the long side last night, but after going through those, many look quite ugly now to me (GMCR in particular - an IBD stock). Meanwhile, some of the shorts on the watchlist (namely UMBF, MTB, LPHI, RGR, ARST, TSYS, and AIPC) look decent today, so maybe we do head lower here for a few days. That doesn't mean we are definitely in a downtrend - we have to get some confirmation before trusting that conclusion. Good luck tomorrow and take care.


Anonymous said...

ARST~curious why you thought it might be a short given todays breakout before earnings? as of friday afternoon we have ARST 15.99 +1.74 on a good volume spike.

Mac said...

I would agree today changes my outlook on ARST, but at the time I posted that, I saw a head and shoulders pattern and an overall pattern that looked toppy to me. I thought a break of the 50 day MA might be a sign for a short. That's why you always want to check for earnings before opening any positions.