Monday, August 24, 2009

State of the Market - 8/24/09

After four straight days of gains, the market finally took a rest today, ending up basically flat for the session. However, the day did not start off that way - as has been the case recently, the market opened slightly higher but took off upward for the first few hours of trading, all the way up until lunch. From there, however, the market started to pullback, perhaps getting a bit ahead of itself, and that pullback lasted all the way into the close with a few failed bounces mixed in. All in all, a day that could have been much worse but flat for the bulls can probably be considered a victory here. Volume looks to be about even with Wednesday's and Thursday's levels from last week. Comparing to Friday's options volume is not something I normally do.

Technically, the market certainly had reason to rest a bit after being up the four days last week, but the only worry for bulls here is that today's action put in quite the bearish reversal bar on the daily charts. We've seen them before during this entire uptrend so it might not mean anything at all - we'll just have to watch the rest of this week to see. The Nasdaq did hold above its former resistance around 2015 but just barely. Obviously, you would like to see these breakout areas hold, especially so soon after the breakout occured. For the S&P, that number to watch would be 1018.

I have talked about some divergences recently in these posts that had me less than bullish, and one mentioned Friday was that financials and retailers failed to break out on Friday even though the indices were doing so. Well, today saw XLF reverse and close below its breakout level around $14.60. Retail still never broke to new highs, even during today's morning trading. I still believe this is worth watching as a potential warning sign for this rally and its ability to continue. Oil was up slightly today bucking this trend but I will continue to watch this to see if it can hold its former resistance around $73.40.

As I said this weekend, I made no trades today as I just didn't find anything worthwhile and had a gut feeling that buying here, especially with early strength, would not be smart. Turns out that was correct, for at least today. Tomorrow could be a different story - the bulls could bounce back strong and negate those reversal bars that are probably going to be seen on quite a few individual stocks after today (BAC, GS, AAPL - some of the big boys). The only stock that did much of anything today off last night's watchlist was CNXT, which did have a very nice breakout. So there are a few stocks working right now.

Speaking of GS, I posted on Twitter today that I see a potential head and shoulders pattern setting up on this chart, and today's reversal certainly doesn't dispute that. If it climbs over $167, then I think the setup would be negated, but much like I said GS could be a clue for the breakout we saw in July, perhaps this is another early warning sign for this rally. Just saying.

It may seem boring to be in cash here, but I am comfortable with the play as I continue to stand by my call at the beginning of August that it would be a very choppy and volatile month where we probably won't go anywhere. There continues to be a lot of action for day-traders, but for my style, it has been harder. I may have missed some plays, but we'll see how the rest of this week goes and see if it turns out that I really didn't miss anything at all except some stress.

After today, I am interested to see if the bulls can keep their death grip on this market. The bears have a setup to possibly run with for a few days, but they haven't been able to do much of anything for a long while now - that's why I am staying neutral here. Perhaps if we see more selling tomorrow and fall back into the consolidation area, we will get that pullback I thought was coming at the beginning of last week. We'll see I guess. Take care and good luck tomorrow.

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