Thursday, July 30, 2009

State of the Market - 7/30/09

Wall Street has seemingly been waiting for a breakout for the past few days to new highs for the year, and today they got it, at least early on. However, the action for most of the day and in individual stocks left a lot to be desired, and in my opinion the bulls should be very disappointed today - I know I am. The day started with futures up big and the market did gap up at the open. It climbed sharply higher from there for about an hour, with the Nasdaq clearly breaking to new highs and the S&P doing the same. From about 10:30 to lunchtime, the market drifted lower very calmly, bounced back and forth for a long while in the afternoon, and then started tanking in the final half hour of trading. It was a precipitous drop, with the Nasdaq falling to new lows for the day, and although they tried to bounce it back up into the close, it didn't work and stocks finished at their lows for the day. All in all it was a very disappointing finish to what looked like a very promising day. Volume looks to be heavier on the Nasdaq but possibly lighter on the S&P.

Technically, the Nasdaq gapped to new highs which would normally be super but the fact that it closed at its lows means we could be looking at a pipe or island top here. A break below 1979 would be quite bearish in my opinion. The S&P held up a little better but looks similar to the Nasdaq in that if it breaks 982 to the downside in the next few days, we could be looking at a pipe or island top. I hope I am wrong but I can't understate how bearish I believe the intraday action was today. More on that in a second.

I did make some trades today as the early action looked great and I saw a ton of earnings related stocks moving quickly. I entered AMSC first pre-market at $30.20. It posted a big beat on its earnings ($0.12 vs est $0.00 plus raised estimates) and was gapping out of a base so I went with it. For the first hour or so of the day, it acted as well as a stock could act - moving higher, resting briefly, then moving higher again, all the way up to $36. Near its highs, I was up 20% but based on the overall action, I fought the urge to take profits as I thought this could be a multi-week winner. As has been my luck this week, that was the wrong decision, at least as of now, as it faded the rest of the session and finished well off its highs. I still have a gain in it, but my guess is my stop will be taken out tomorrow and my gain will be minimal. Very frustrating action there because everything looked so good early on - both the market and the stock were acting perfectly. Perhaps if it didn't run up so much I wouldn't have been willing to give it room to pullback.

I also entered SPWRA at $32.975 as it broke out and ASIA at $19.97 on an intraday play. ASIA reversed and I was out at $19.55 with a 2% loss. SPWRA acted OK and I am up slightly, but volume was not overwhelming and I was hoping for more. FSLR is up after-hours so maybe I'll get a little bump tomorrow.

I was stopped out of my ISRG position totally in the afternoon at $226.10 for a 17% gain. This earnings trade worked well but the past few days it has been wedging up on lower volume and that is usually a good sell signal. I've been thinking about selling this for a few days now, and I tightened my stops intraday and they were hit. Overall it was a good trade.

I had my watchlist ready to go this morning and was ready to make more moves, but I am glad I didn't. One more negative about today's action was that I saw very few stocks breaking out and moving up even during the morning hours when the market was moving nicely. The only moves I saw were in the earnings plays, and those (BABY, SHOO, FIRE among others) all faded greatly and closed well off their highs. I probably should have paid more attention to this during the day because in hindsight, it was a warning sign. A technical breakout on the indices that is not accompanied by nice-looking stocks breaking out is a negative divergence that I wish I would have picked up earlier.

We'll see where we go from here, but I am basically in neutral mode after the late action and don't plan on doing much of anything tomorrow other than perhaps get rid of my last few positions. This was a perfect setup for the bulls to take this market much, much higher (with the nice consolidation early this week) and although they finished with gains, I think those gains are very misleading. Perhaps they can right things tomorrow, but if we get more selling, we could be looking at a top here. The market is never easy and today proves that. Keep your options open right now - cash is probably a good one until this gets sorted out. I certainly wouldn't short yet, but going long looks risky too. Take care and good luck Friday.


dave said...

Today was kind of like John Feinstein's book title about golf: "A Good Walk Spoiled". Actually, Feinstein "borrowed" the title from Mark Twain.

However, latter August's stk mkt will be more like Twain's "The Celebrated Jumping Frog of Calaveras County".


Mac said...

I gotta brush up on my literature there for the comparison - most of the books I read nowadays fall into the "Green Eggs and Ham" or "Grover Goes to the Farm" category. :-)