Thursday, May 7, 2009

State of the Market - 5/7/09

The market that would not pullback finally did today, as another strong open was sold off for the first time in a while, and the bulls could not do much to fight back. Stocks sell steadily and strongly for the first hour or so of trading before moving sideways into and through the lunch hour. They broke down again around 1:30, but basically went sideways after that for most of the rest of the session before a bounce late took stocks a bit off their lows. Volume as of now looks softer on the S&P but heavier on the Nasdaq, but I don't have the final numbers, so that could change.

Technically, as I have been saying, a day like today was not unexpected and probably long overdue, but in reality, it wasn't really that bad. The S&P looks better today compared to the Nasdaq, which had heavy volume and looks like it logged a distribution day, along with falling below its 9 day moving average. A few days of distribution are not that big of a deal, especially after a strong rally, but I will be watching if we get more over the next few days. If the market puts together two or three of these days in a row, particularly on the leading index like the Nasdaq, then I would start getting very worried if I was a bull. If volume slows down on the pullback even if the losses are large, then it is probably not a big deal and is actually healthy. Short-term support for these two indices lie around 890 and then 870 for the S&P and between 1679-1665 on the Nasdaq. Particularly on the Nasdaq, that area should act as strong support - if it doesn't, then things could get uglier.

I pointed out yesterday the moves of the under $5 stocks seemed to be getting extreme and that likely some very volatile selloffs could be seen soon. If you look at a stock like CBOU, it definitely doesn't look good today. After doing a quick look at my scans, I know some of these stocks suffered some short-term damage, but overall I saw others that held up surprisingly well. Frankly, there wasn't nearly as much selling in these names as I expected given their dramatic moves upward. Perhaps they can consolidate a bit without crashing and then move higher after a week or two

Tomorrow should be interesting as we have the official stress test results (that everyone already knows about anyway) and the monthly jobs report coming out. I personally would still like to see more pulling back here, but the bulls are certainly not dead after one semi-bad day and it certainly wouldn't be surprising to see a bounce right back up tomorrow . I am still waiting patiently in cash and will do my best to play the trade that is given - either going long on a calm pullback or going short after a big breakdown and a feeble bounce. Either could happen. After doing my scans, I will probably have a better idea about where the market stands. Good luck Friday - I am off work so I may be posting on Twitter throughout the day depending on how much work around the house I have. Take care.

1 comment:

Anonymous One said...

Mac said, "It really depends on what the pullback looks like. If it comes on heavier volume and then we bounce back on much lighter volume, then yeah, I would short. if the pullback is calm and on lower volume, then I would look to get long around some support levels, maybe even all the way down to the 50 day MA. It all depends on how the next week or so goes. Today for instance is not a great start of a pullback for the bulls due to the heavier volume."

Thanks for you response to my post from yesterday. I like that strategy and I'm going to dip back in when you make the call.

I will go long if volume is pullback is on long volume, but you need to give me an S&P number. 875? 860? Or at a MA?

Or I will go short on pullback on heavy volume and bounce on lighter volume. But, again, suggest resistance.

I'm ready to see if the technicals work, but don't worry, it's only a test with a small amount of my account! I feel like I need to get back in or I will become totally gun shy.

I want to give TA based on S/R another shot before switching to something like Fibs. I don't like to combine methods, so for me, it's really always one simple method or another. That's what's always worked.

By the way, Mac, let me know how you interpret the final volume today. Especially as it pertains to trading SPY. Would you consider the start of pullback on heavy volume or light volume?