Wednesday, July 8, 2009

State of the Market - 7/8/09

Sort of a choppy day today on Wall Street, as the bulls started strong, had a lot of problems for most of the session, and then fought back at the end to close basically flat for the day. After getting beaten down very badly yesterday, the market opened slightly higher, but that didn't last long. About an hour into trading, stocks started to fall and continued to fall until the lunch hour started. They bounced for about an hour, pulled back again for about an hour to test the morning lows, and when those held, the bulls bounced the market into the close. Volume was sharply higher today but I believe the late bounce will help the market avoid a distribution day.

Technically, after having the neckline for the head and shoulders pattern broken around 887, the last line of defense for the S&P today was 875,. That was tested severely but did end up holding by four points. Ideally, you would like to see a much stronger bounceback from that level if you are a bull. It's possible they bounce thing higher sometime this week, but if we get back up to around 900-910, I think it would be a very good shorting opportunity.

On the Nasdaq, a bullish reversal was also put in today but I don't think it will mean much. I am watching the 50 day as heavy resistance over the next week or so and if they can bounce it up, I think it would also make a great shorting opportunity. The number to watch is 1774, which just happens to be the breakout highs from May and a very important number overall. It is funny how these things align sometimes.

In terms of sectors, energy(XLE and OIH) put in another reversal much like Monday, but Monday's turned out to be meaningless, so I don't know if today's will prove to be different. Crude itself (USO) got absolutely murdered again today and is very oversold. I would expect a bounce back very soon - there looks to be some support around $32 for USO if anyone out there is a risktaker. Retailers (RTH) are hanging on by a thread here and could be forming a little bear flag. Financials, after hanging on yesterday, joined the party today as XLF broke key support as well around $11.30. Couple this with bellwethers like GS breaking their 50 day moving averages, and you continue to have a picture that looks quite bleak.

I continue to be in cash here and am expecting a bounce sometime over the next two days. I don't know yet if the bounce will be strong or not - I would love to see us get back up toward the numbers I mentioned earlier in this post. It is not a given, because we are not as oversold as we could be, but it wouldn't surprise me. The VIX had risen over 8 points in five days before reversing a bit today, and that is a big move there.

Overall, I would say just be careful here if you are planning to short. I will wait for a better chance, although I continue to have no interest in going long anything right now. I have some work to do tonight on my scans, but I will try to get some ideas up later in video form for you to think about perhaps early next week if we get that bounce. Take care and good luck Thursday.

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