Wednesday, July 15, 2009

State of the Market - 7/15/09

A very good day today for the bulls on Wall Street today, as a positive earnings report by tech bellwether INTC led to a gap open, and from there it was nothing but strength the rest of the day. It was a slow, steady, methodical climb higher and by the closing bell, the indices had gained about 3% across the board. Volume appears to be heavier and above average on the Nasdaq, and heavier but below average on the S&P.

Technically, there were positive developments all over the place for the bulls today. The S&P almost gapped over its 50 day moving average and has cleared the downtrend line I've mentioned many times that extended from May 2008. This is a big deal in my opinion. The S&P dealt with resistance around 931 for most of the afternoon but was able to close just slightly above it (slightly meaning one point). The head and shoulders pattern that developed so nicely now looks like it may be voided. The next level of resistance for the S&P is 956 - a close above there would give us new highs for the year.

Meanwhile, the Nasdaq also gapped up about its former uptrend line in a bullish fashion and took aim at its most recent highs (which was also its first lower low since March). It also fought that 1861 area much like the S&P did and closed just above it by one point. If bulls move this thing higher tomorrow, then they would be clearly in control of the market.

Financials were strong today, with XLF also clearing a downtrend line and climbing above its 50 day moving average. Next levels to watch are $12.67 and $13.08. GS, my key stock to watch for the week, did breakout of its short-term base but struggled to get past overhead resistance between $154 and $156, closing at $155. If this continues higher and can overtake these levels for good, then it means good things for the overall market. I am still watching for a bull trap here however.

Both OIH and XLE gapped above the necklines of their head and shoulders today as well, putting serious doubt into the validity of the original setups. Oil bounced a bit as well and could be putting in a rounded bottom here. I mentioned in a video last week that the USO should have support around $32 and so far that is proving to be the case. If oil continues to bounce back, it probably means good things for the overall market.

In terms of individual stocks, I did see some movers today from decent patterns but I did not play any as they were extended by the time I noticed. I posted these intraday on Twitter - AMKR, RCRC, EGOV, TLEO, SLH, and CKEC. I am not finding a ton of new setups that interest me, but a few that are looking decent include VITA, JOBS, and FHCO. ININ was an earnings mover from yesterday that followed-through very nicely today. If I go long, I believe I will only do so with earnings movers, as they will have a specific catalyst to push them higher even if the market in general chops around.

So overall, about as good as day for the bulls as they could ask for and I am definitely no longer leaning bearish. Perhaps that head and shoulders pattern was too obvious. I guess the real question for me to ponder right now is whether this is real, or whether it is a trick much like July 7 was, when everyone (including me) was bearish and expecting a big fall further. That didn't materialize, and I am curious as to whether this will be different. I am guessing there is quite a bit of bullishness out there after today, so I wouldn't be surprised at all by a pullback soon.

Earnings played a big role today, and I would imagine they will continue to play a big role as we move forward. One thing that is important after GS and INTC the past two days is that expectations have probably been ratcheted up a bit, and it will be interesting to see what the reaction will be if/when reports come in worse than expected. Will we get a 250 point down day? I don't know, and that's why (as I mentioned before) I will be focusing mainly on earnings plays and that's about it.

Definitely a good day for the bulls - let's see if they can keep this thing going. Longer-term, we're still in a three-month range of about 80 points on the S&P, so it would be nice to break out of it. Take care and good luck Thursday.

2 comments:

Anonymous One said...

Mac,

Anyone who shorted around 900 and 910 got killed. If they have the guts to hold on, it may still work out, but this is another example of the retail trader watching charts and getting taken to the cleaners.

You said it a long time ago, things have changed and the charts act differently.

You might want to read Matt Taibbi's great article in Rolling Stone on Goldman-Sachs. A eye opener when in comes to the markets.

Anyway, I didn't short and I was glad to see you didn't either. But now what?!

Keep on the good work and let us know if you have any theories on how to interpret the charts in light of what looks like a new paradigm.

My theory is still that the smart money is so greedy that all other money will eventually be taken!

Anonymous One

Mac said...

It depends on what they shorted and how long they held, but yeah, in general, shorts got whipped once again. Now will the bulls get whipped around here.

I did read the GS article - very sad stuff in terms of our country.

Now what - I really don't know. We are basically still in a three-month range here on the S&P. If earnings are positive enough, then maybe we'll have the catalyst for a breakout to new highs.

I still think watching the GS chart will give clues. It struggled at overhead resistance yesterday.

I will basically be looking for earnings plays as I think they have less risk and less chance of getting whipsawed because they have a catalyst. I should have played many more during the last earning season - I remember seeing STEC after-hours at $12 and passing for some reason. Yuck.