Wednesday, July 1, 2009

State of the Market - 7/1/09

The third quarter started today on Wall Street, but overall there wasn't much going on. In a very similar pattern to the first two days of this week, stocks made their move in the first sixty minutes of trading, rising in a strong manner before leveling off and doing virtually nothing the rest of the day. Today was slighly different in that stocks drifted a bit lower from about 10:30 on whereas they held sideways Monday and Tuesday. Volume was very light, even compared to yesterday.

Technically, the S&P once again challenged the 930 level but was rejected once again, getting as high as 931 before closing about eight points off that level. I know I keep harping on that number, but it is important - I don't know that the bulls can feel too confident until they at least cross that level. On the other hand, the more times they fail when challenging it, the more chance there is of a rollover. The Nasdaq closed well off its highs and could be wedging a bit here. Right now, support remains around 1815.

As I stated yesterday, it is hard for me right now to make a lot of moves in this low-volume, slow environment. I passed on some shorts yesterday and was glad I did early on today, because many bounced back near the open and I would have likely been stopped out. I'm sitting here right now thinking, "do I want to get heavily short here in this environment ahead of a three-day weekend?" and I really don't know the answer. The patterns overall remain in tact, and I did see some reversals today (PCZ, SU, WGOV, FCX, CLB, ECA, CNQ) that makes me still interested in shorting this market. My top picks include ANF, WLL, LFC, SU, FCX, SPN, and RIMM. Increasing volume as some of these stocks drift lower would give me confirmation and confidence, but volume isn't there in most cases.

I think one main reason I am hesitating here is that although I have been talking about this head and shoulders scenario for about two weeks now, it seems like everyone has now recognized it and is looking for it. In a market that has most likely been manipulated with anyway, does a pattern that is obvious to everyone and their mother have a much less likely chance of playing out the way it should??? The more I think about it, the more I say, "yeah, probably." Are we still in a "Constanza" market where doing the opposite of everything that makes sense is actually the right play?? Maybe I am overthinking here.

Overall, I am still bearish based on the charts I see but am fully aware that things could change and we could continue to just chop around here, which is basically what we've seen this week. This bounce looks to be getting weaker and weaker and could roll over soon. That is why I am still looking selectively at shorts here, even though in the back of my mind I expect some chicanery soon. Hopefully, it won't happen and we can just play the charts for what they are showing us. I'll do my best to get a video out tonight looking at a few of the better setups I see. Take care and good luck.


Anonymous said...

1) Maybe that head and shoulder will just come true because everybody thinks it's too obvious and doesn't expect it to play out.

2) There are divergences with today's highs on the 60-min on various charts

3) Since you pay a lot of attention to volume, watch this clip from Bloomberg. He talks about how high frequency program trading creates "fake" volume, minutes 4 through 6 in the clip.

Mac said...

I actually did watch that video earlier today - has me thinking about the manipulation factor.

Your first point is well taken. I keep thinking back to the scene in Princess Bride (my wife's favorite movie) when they are going to take a drink and he keeps going back and forth about which one to drink and outthinks himself.