Wednesday, August 19, 2009

State of the Market - 8/19/09

After a seemingly very bearish down day on Monday, we had another bounce back session today on Wall Street, as although futures were down pre-market and stocks did open lower, they put their lows in at the open and bounced for the first hour or so up to flat for the day. After consolidating until lunchtime, there was a huge spike higher a little after noon (sort of out of nowhere) that took stocks to new highs and past their lows from last week. From there, stocks basically went into consolidation mode with a slight downward bias into the close, finishing slightly off their intraday highs but still with decent sized gains. Volume appears to be higher on the Nasdaq and lower on the S&P.

Technically, I said yesterday that 992 and 1962 would be interesting resistance points for the S&P and Nasdaq, and the bulls were able to push past those today. So does that mean going back to a bullish short-term outlook makes sense here? I have to be honest - I really have no clue right now with this market and how it's acted this week. The very bearish breakaway gap we saw on Monday below support has quickly been filled, but it was filled on volume that was much weaker than the distribution day on Monday, at least on the S&P. What that distribution day also did on Monday was setup a situation where, if it was indeed just a one-day drop and we are going to move higher from here, we will likely be approaching the former highs in an overbought state, which is not a great setup as well. If we would have just moved sideways like the previous two week, it would have been a great setup for a breakout higher. Alas, nothing can be easy in the market, can it?

One of the big pieces of news today was Warren Buffet's big editorial piece in the New York Times about the amount of debt our country is taking on and how it will destroy the dollar. Well, I am guessing he had a short position in the dollar or something - why else would he write this piece yet have no problem with positions of his like WFC and GS getting billions in government money via taxpayer bailouts - and the dollar did respond today as you would expect. It was down a good amount, which in turn caused oil to spike once again. I said yesterday that oil had made a 3% or higher move in six of its last fifteen session - make that seven of sixteen after today. I don't trade the commodity markets but on a technical basis, it has to be tough from what I see right now. The USO chart has been anything but smooth over the past two months.

We'll see where we go the rest of this week, but your guess is probably just as good as mine. With options expiration on Friday, we will likely continue to see many games played and that is why I plan on doing nothing the rest of this week. I really don't have a good feel and when that's the case, I admit it and take a break. If you are intent on trading this chop, I would focus on the dollar/oil relationship, because it continues to drive the market direction for the most part. We don't have that much longer until August is over, and the way it is going so far, I think we will all be happy for that. Good luck and take care.


CW, Portland Or said...

Warren...where have you been for the last six months. This administration started printing dollars the day they came in office at unprecedented rates. Man this guy seems to be so selfserving. He promoted O and has stood behind him and his policies from day one. Why come out now with concerns?

Mac said...

Agreed. I would bet he has some short position on and is now manipulating those.