Monday, July 20, 2009

State of the Market - 7/20/09

The beat goes on for this market, as stocks rose once again today on Wall Street. Futures were slightly higher this morning on news about CIT funding, and after opening higher continued to move up for about thirty minutes. There was a pretty sharp pullback a little after 10:00, but stocks started to climb back about an hour later and were back to challenging their morning highs by around 1:00. They broke out to new highs as the final hour started, but just slightly before a late spike put stocks near their highs for the day as the session closed. Volume appears mixed - well lower on the S&P but slightly higher on the Nasdaq as of now.

Technically, the market continues to be overbought with the Nasdaq up now 9 straight days - given some of those days were very slight gains so maybe they don't count, but still, it's extended here. The other main thing I don't like about this move is that the move above 1879 was a sneaky one. I don't know if I can even call it a breakout because it was just a bunch of smaller moves with the exception of July 15, most of which came on below average volume. As it is, there is a little resistance at the gap back on October 6 - top of gap is at 1947 and bottom is at 1905, which is close to where the market closed today.

The S&P continues to lag here and needs to get above the June highs at 956 to put in a new high for the year. Once again, typically it would a negative divergence to see one index breaking to new highs while the other lags badly, but in this market, who really knows? Volume today was quite weak on the S&P, and typically an overbought market moving higher on lower volume bearish. Does it matter in this market? I wish I knew - nothing would surprise me.

In terms of a few indicators, the McClellan oscillator is up in overbought territory above +200, which doesn't come as a big shock. In another bizarre development, the VIX continues to just drift along the bottom trendline it's been forming for a while now - I would expect a sharper breakdown here with the market moving to new highs each day, but again, that would be normal and make sense.

Oil closed higher once again today and as I mentioned in the video, I am very interested to see what happens as it approaches the $65-66 area where it will meet some heavy resistance. Both OIH and XLE continue a massive bounce back and OIH in particular is back above its 50 day moving average after today. Financials did very little today and continue to form a little bull flag - watch $12.40 on XLF for a breakout. RTH had a nice day but is overextended and is about to run into the top of its channel around $81. I will watch that level closely.

In terms of individual stocks, I saw some well-known stocks moving today, but all of these have either extremely volatile, choppy patterns (FUQI, ARST, VIT) or negative volume divergences (GMCR, RGR, KIRK) that makes me stay away. I just can't make myself ignore these divergences based on what I've learned and what the past has taught us about stocks and how they behave. Perhaps I am just not adjusting to this "new" market, but I can't buy stocks like these.

I am hopeful that I see more calm, healthy consolidation patterns or breakout setups form soon, and after a quick look at my scans today, I did see more than I saw this weekend. There are several charts that look poised to breakout with healthy volume patterns (INOD, DAN, JNS, VITA, FCL, SWHC, CPKI, ANR) and a few consolidating nicely (UNTD, OGXI, RIGL). I don't see myself playing too many of these right now without first getting a pullback in the overall market, but we'll see. Earnings are remaining my main focus. JDAS is one I see right now after-hours that I am going to do a little research on right now.

That's about it for now - if you're buying here, just realize that things could turn on a dime and we are overdue for a pullback, but in a market that makes little rational sense, maybe that pullback won't ever come. Good luck Tuesday.

*** I did start a position in JDAS after-hours based on its earnings release. Entry was at $19.89 and $19.99. Not a real large position but the potential is there based on the numbers. We'll just have to see how the market acts tomorrow.

No comments: