Thursday, July 2, 2009

State of the Market - 7/2/09

Just about as bad a day as you could get today on Wall Street, as poor employment numbers started the market off on a bad note and the selling just picked up from there. In a pattern that has occured each day this week, most of the action was found in the first thirty minutes, with stocks selling off hard. From about 10:00 on, they moved basically sideways without much movement intraday. However, unlike Monday and Tuesday, where stocks did stay slow into the close, stocks started to fall again in the final hour of trading today (much like Wednesday) and closed near their lows for the day. The only good news for the bulls is that volume was once again very light, although not that much lighter on the Nasdaq.

Technically, the only moving average that was not broken to the downside today by the S&P was the 200 day, and that is only a few points away from where we closed. Today certainly looks like the downmove that completes the right shoulder on the head and shoulder pattern I've been harping on for a while now. A break below the neckline around 890 (which also corresponds with the 200 day MA) would confirm this pattern and be very bearish for the market over the next few months. The Nasdaq also broke short-term support today around 1815 and is now approaching the 50 day MA below around 1770. Since this also corresponds with its May highs and June lows, a break of this number would also be very significant.

Oil led to the downside today and based on the action in USO, XLE, and OIH, it certainly looks like a top has been put in there. Since they have led us up, energy topping is a big problem for the bulls out there. Financials were weaker today and the XLF did break its 50 day MA - discussed this last night in the video. A break of $11.30 would form a lower low and confirm a top as well for this sector in my opinion. Retail was also very weak today and looks to have had a technical breakdown with RTH getting below $75.50 today. Key lateral support was broken there. When you add up all of these breakdowns, it certainly doesn't paint a good picture for the bulls.

There were a lot of breakdowns as well in individual stocks today. Out of the stocks I showed in the video last night, everyone was down at least 2% with the exceptions of RIMM and EZPW. Those two, along with AMZN, FCX, SPN, and GMCR, bounced back a bit off their lows of the open and don't look quite as weak as the others. But there were plenty (ANF, TS, NILE, AFL, WLL, JOSB) that broke support in a strong way and look very bearish now.

Overall, it looks like the patterns I've been discussing for about two weeks now were indeed telling us something, and there were no outside forces that could keep the market propped up today. I still have a feeling there will be some chicanery next week, but based on the move today and actually over the past two weeks, I think it can be assumed we are indeed topping in here and any bounces are now shortable. A break of 890 on the S&P would confirm this top and that may happen soon. Hopefully, you've been following along here the past few weeks and haven't been hurt by this selloff, but if you are still long or looking to go long, I would certainly be cautious right now.

Good luck and enjoy the Fourth of July weekend! I'll be back at some point with some thoughts.


Julien M. said...

I totally agree with your comments, nice objective view of the markets move .. thanks for thoses great posts and videos

Anonymous One said...

I didn't short in the 910 to 930 range which is when I probably should have! We commented back on forth on it and though I didn't follow you every day, from what I can, you didn't short either.

So now what? Short at 890 or wait for another bounce up to between 910 to 930 range?

I guess I've become very conservative and can't pull the trigger. Though, it for the same reason we commented on. Because I still don't trust that the patterns that used to work will work. I have the bad feeling that if whoever is propping up the market stops, everything will collapse!