Friday, August 21, 2009

State of the Market - 8/21/09

The bulls made it four for four today on Wall Street, as we saw once again a slightly higher open turn into some frenzied buying during the first forty-five minutes of trading today, which took the S&P to new highs for the year and the Nasdaq very close to new highs as well. From there, however, it got quite boring, as stocks consolidated in a very tight range for most of the rest of the session until the final hour - for instance, the S&P had a 3.5 point range for about a four hour period today. As the final hour started, stocks started to move up and finally did break to new highs for the session, but it was a brief pop as stocks drifted back down to the top of their consolidation into the close. They still finished with large gains but the late day pop that many likely expected never materialized. Volume was higher as expected on options day.

Technically, we did have the breakout in the S&P over 1018 and for the Nasdaq over 2015 and I have to respect that as bullish. However, with the late fade, the Nasdaq just barely made it to new highs. We'll have to see if IBD puts the market back in "rally" mode after today - volume was heavier but it was also options expiration so that tends to skew things. The percentage gains were also lacking a bit for a true follow-through day. The ETFs that I focus on - USO, XLF, RTH - all attempted to break to new highs as well but all faded a bit and did not close at new highs. That is a divergence that perhaps bears watching. Short-term, we are a bit overbought now and since we are sitting right above heavy resistance, it may pay to be careful here.

If you follow me on Twitter, you know that I had my shares of doubts intraday with today's move and I said yesterday that I didn't plan on trading today as well, so I didn't. I don't like the way I can't find any really, really attractive setups right now. That bothers me. Maybe I am just missing some - please feel free to share any setups you think I may be missing. I also don't like the way the top of the IBD 100 (which should the top stocks in this market) all look crappy - for instance, CISG, CFSG, FUQI, NTES, GMCR, EBIX are all stocks that I wouldn't touch with a ten foot pole based on their charts, except on the short side. Typically, that is a big warning sign - when leaders start to show major cracks. I will say that many of those stocks are China-related so maybe I need to look at them in a different way.

Intraday, there were several things I didn't like about today's action. I didn't like the way the S&P was clearly breaking out but the Nasdaq, financials, and oil had trouble clearly breaking over their resistance levels. I also saw stocks like BAC and HIG trying to break out above key resistance levels but struggling to do so on very low volume. I realize I may be looking only at the negative here and not focusing on the positive movement in the indices as a whole, but I can't just ignore these typical warning signs that I see. I kind of felt today was lacking even though we were up big on a numbers basis. All the buying took place in the first hour (options related?) and then stocks did nothing. I never got the sense that there was massive buying going on - maybe I am just looking at things the wrong way. If the attempted breakout in the final hour gained steam and we closed up 2-2.5% on a late push, I would have been much more impressed.

The weekend is here so I am going to cut this short for now. I will be back at some point over the next few days with more thoughts after I go through my scans once again looking for clues and trying to figure this thing out. I am still in cash and pretty much as neutral as I can be. I am not planning on shorting anything - that seems to be a death wish right now - but unless we rest and nicer setups start showing up, I will not be going long either. If you're going heavily long here, good luck, but just realize there are some divergences that bear watching here. I stand by my claim in early August that this entire month would be choppy and difficult to trade. I could be wrong of course - won't be the first time - but I am sensing we could still see a bull trap much like the bear trap we saw on Monday. Take care and enjoy the weekend.

1 comment:

MACDaddy said...

I'm glad the market went higher as I feel this will setup some nice negative divergences on many indicators by the time September comes around.