Monday, June 22, 2009

State of the Market - 6/22/09

Not a good day today on Wall Street, as the selling started early and kept going for most of the day. Futures were lower to start the session and stocks sold off from there right until lunchtime. At that point, things flattened out a bit, but at no point was there a significant bounce - the market just flatlined and the bulls were nowhere to be seen. Stocks finished at their lows and with significant losses across the board. Volume was definitely lower compared to Friday, but that is a skewed comparison because of options expiration. If you use Thursday as a comparison, volume looks to be well higher on both the Nasdaq and S&P. Not good.

Technically, today was not a good day at all for the bulls as some support levels were broken for both the Nasdaq and the S&P. I've mentioned 1774 as key support for the Nasdaq, and after fighting to stay at that level for most of the session, it did close below it. The 50 day moving average is right around 1740, and if the Nasdaq gets down to that level, I would expect a bounce. More on that later. The S&P closed below both its 50 and 200 day moving averages and now has only 875 as possible support. I would suspect a bounce there as well if we get that low. If that gets broken, then all bets are off.

I talked about oil last night in the video as a key tell for this market and today it had a major technical breakdown, gapping below its 20 day moving average and closing well below it. As I mentioned on Twitter, this will be the first time since the end of May that oil has been below its 20 day moving average, and that is a very big deal. It may bounce as well, but I think there is a very good chance it is topping here, barring any unforeseen events in the Middle East. The XLF also had a technical break today as it closed below its 50 day moving average. It did hold the $11.33 mark, which is where it brokeout from at the beginning of May, but just barely.

In the video last night, I pointed out a series of "tell" stocks that I thought would give big clues as to where this market was headed. These stocks were all big-time movers that had pulled back to their 20 day moving averages and that needed to hold this last layer of support. The group included the solars (SOL, LDK, JASO, TSL, CSIQ, CSUN) and KNXA, GROW, TSRA, LAD, SVVS, and ULTI. If you check this group out now, you can tell very clearly, particularly with the solars, that things are not good. We saw some warning signs starting two Fridays ago that I pointed out here and here, and after a day like today, those warnings signs definitely look like they were trying to tell us something. Hopefully you listened starting last week and weren't hurt by today's selloff too bad.

So where do we go from here? Well, after trying to be as neutral as I could be this weekend, I have to go back to the bear camp here. The evidence is pretty overwhelming that we are putting a significant top in at this point. I don't know how far down we will go, but based on some of the patterns, it could be a big move. Looking ahead, I am still not shorting here and the main reason why is that I expect some quarter-ending window dressing to occur soon. That's really just a guess, but with the low summer volume, it should be very easy for the bulls/government/PPT/hedge funds/insert your own group to push the market back up a bit. We've seen it done many times the past two years, so they should be able to here as well. I think the damage has been done however so their efforts will most likely be futile, but it may give traders like me a better risk/reward setup for entering shorts soon. That's the outlook I have right now. A bounce would also setup some of the right shoulders I've been harping on for the last week or so and make many bearish head and shoulder patterns complete, including on the indices.

I know this scenario might be too easy and obvious, so the other possibility is that we just fall from here without a bounce. It is certainly possible, and if 875 doesn't hold or is broken convincingly, then I think that is probably likely. Overall, however, my point is that shorting here is risky and you may very well have a much better chance to do so in about a week. Patience is key sometimes and I am trying to be patient. If you see some short setups you like, fine - maybe try a few. If I find any tonight, I will try to get them out there. But I am just kind of going with a hunch here. If I miss out and the market does fall straight down, then it won't be the first time this year that I have missed out.

That's it for now - after my scans, I'll see if there is anything interesting to share and maybe see about getting a video up later. Take care until then.


Anonymous said...

Too much have been said about Qtr-end dressing buying...what about fundies selling to record their gains for this Qtr.

Mac said...

You could be very right and a clear break of 875 without a reversal would lead me to think that we are indeed going to head straight down. We'll see - just kind of had a gut feeling.

Nergo said...

After a 40%+ run-up since March lows it seems obvious its time to short. What's the main reason why you are not shorting? I like your patience. Your a great example

Nergo said...

good advice. Thanks

Lee said...

Great post's the past few days and great video this weekend as well. Your advice was respected and has played out well for my positions.

Mac said...

Thanks Lee. Best of luck.