Monday, June 15, 2009

State of the Market - 6/15/09

Not a good day at all today on Wall Street, as stocks started lower to open the session and just built on their losses from there. The pre-market futures were lower due to weakness overseas, and stocks gapped down to start the day off. They sold off very hard until around 11:00, where they went into a tight, sideways consolidation for most of the rest of the session. They tried to bounce a bit into the close, but really couldn't and still finished with large losses. The only good news I can find for the bulls is that volume was not overwhelming. It looks to be higher than Friday which would give the indices another distribution day, but volume was still well below average.

Technically, a lot of bad developments out there for the bulls, and because of that, there is a very good chance today was a significant session. I've been mentioning 925-930 as a strong area of support on the S&P, especially with the 20 day moving average and an uptrend line in that area as well, but that was broken to the downside today. It wasn't broken by much, and actually, the S&P sits right on its 20 day moving average as of today's close so maybe the bulls still have a chance IF they step up immediately tomorrow. Things will get mighty tricky however if they don't. If these moving averages are broken, 1774 on the Nasdaq and 910 on the S&P are levels from which I would expect to see a short-term bounce.

The U.S. dollar was the main reason for the selling today, and any further buying here could confirm the inverse H&S pattern I showed in the video last night. Keep a close eye on this. The VIX shot up today and looks like it is trying to poke its head above a downtrend line. This would be bearish if it continues to rise. Finally, the McClellan Summation Index I mentioned in the video Sunday looks like it will have a moving average crossover, and this is likely a very bearish development as well. Again, the bulls need to step up immediately here and if they do, some of these technical developments would change, but if they don't, then I think we are indeed looking at a top.

I posted a lot of my thoughts earlier today so I won't repeat them all here. The damage to individual stocks, many of which look ugly now, is my main concern, even more so than the indices. Some of the stocks I listed earlier did bounce back a bit - for instance, RAX (which I was stopped out of) gained back most of what it lost earlier in the session. However, I am not interested in this stock any more - the chart looks bad. I see a left shoulder and head already formed here, and although the pattern may not play out, it certainly looks like a complete head and shoulders pattern could happen here. Commodity stocks were the ones that didn't bounce back today and I would be very careful here as well. Overall, I just saw so many great setups last week and most don't look nearly as good now, and that is what has me worried.

Overall, caution is very much warranted here and I feel there is a very good chance today could mark the beginning of the end for this bear market rally. If the bulls somehow reverse this and get past the 950 area, then I would change my outlook, but too much damage was done today to too many charts, and that damage will take time to repair in my opinion. I will likely be staying in cash for the next few days, and if the market bounces and fails, I will be looking to get short. A further fall followed by a weak bounce would likely be a nice shorting opportunity in that it would complete a possible head and shoulders pattern on the indices. We have to wait though to see if that indeed happens. Good luck Tuesday.


Anonymous One said...

This is what I've been waiting for, Mac. What signals would you look for to go short? I'm not asking for you to predict the market! Just trying to come up with a plan to go short IF and ONLY IF the opportunity arrives. What signals are you looking for exactly? I'm referring to SPY. Roughly what number and what volume?

Also, congrats on the Penguins win!

Mac said...

Thanks - they had a really nice parade today in town for them. It's been a good sport year here in the Burgh.

In terms of shorting, you could either: 1) short further weakness tomorrow hoping we don't bounce and ride it down

or 2) wait for a further breakdown, maybe to around 900 on the S&P (where I would expect a bounce) and then short a weak bounce back into this 930 area.

I prefer option #2 as i think it is less risky. It also plays along with the head and shoulders possibility in terms of the chart. After rallying for so long, I don't know that we will just roll over without some whipsaw action and dip buyers coming in.

At the same time, I realize the market rarely does what I want, especially this year. Overall, if we get further weakness tomorrow and the rest of the week, i would look at any bounce back into the short-term moving averages as an opportunity to short. Hope this helps.