Tuesday, August 25, 2009

State of the Market - 8/25/09

A rather boring day today on Wall Street, as after a reversal was put in yesterday, neither the bears nor the bulls could do anything to claim control over the market. The day started with some strong buying in the first half hour or so of trading, buying that did take the Nasdaq and S&P to above yesterday's intraday highs. Unfortunately for the bulls, that spike did not last and was met with equally sharp selling that took prices down to the opening levels. Stocks bounced back up to their morning highs a bit after lunch, but could not break through and fell slowly for the rest of the session, closing with modest gains. Volume appears to be close to the levels from yesterday.

Technically, as I just said, neither the bears nor bulls did much of anything today. The bears could not capitalize at all on weakness yesterday, but the bulls once again could not get stocks to finish near their highs. I think this paints a muddled picture in the short-term. The morning highs around 2040 and 1037 now stand as a clear resistance point for the very short-term picture. It is possible that we could be forming a little flag pattern here right above the former consolidation area and that after a few more days of rest, the market will regain strength and keep this amazing move going. It is also possible this market is getting tired based on two weak closes in a row and could be setting up for a significant pullback as September approaches. I wish I knew which one was more likely. I am leaning toward the second option and a close below 2015 and 1018 would confirm that view a bit more, but I realize it is not a given.

One bearish technical development I saw today was another sharp drop in oil. Now, I've seen technical breakdowns in oil twice so far in the last month (7/28 and 8/14) and each time, crude just moved up over the next three or four sessions, so I am hesitant to put a lot of faith in another breakdown. As it is, today's move took it back below the resistance it has been trying to clear above $72 which is not bullish. If further selling comes into play tomorrow, then I think the bearish scenario for the overall market becomes more likely. On the other hand, if today's selling is another one-day phenomenon, I would imagine the market keeps moving higher. The dollar was flat today but is a bit oversold so if it bounces, that could affect oil.

No moves once again for me - actually, I spent most of the day at the park with my family. There continue to be a few stocks I am watching, but I continue to believe this is not the right time to be going aggressively long or short unless you're day-trading. Because of that, I'll just remain patient here. I did go through my short watchlist today just to be ready and found a few that interested me - GMCR, POT, XOM, TSRA, BKE, TSL, KIRK, and JST all look like candidates to me now on breakdowns. I am also keeping a close eye on DTO (double inverse of crude oil) and on further weakness in crude itself may start a small position.

That's about all I have for today - I still believe it's a dangerous market right now for longs or shorts, and sometimes sitting out is best. Let's see what the market wants to do and then go with it - whatever direction that may be. That's what I plan on doing, but will continue to use my scans to try and give me some early clues. Best of luck Wednesday.

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