Monday, August 31, 2009

State of the Market - 8/31/09

Not a good start to the week today on Wall Street, as a big drop in the Shanghai index (mentioned here in the video yesterday as a possibility) led to a gap down to start the day. The selling was intense for the first fifteen or twenty minutes of trading, but from there basically nothing happened. It was kind of a weird day that way - the S&P stayed in about a four point range from 10:00 on, and the Nasdaq stayed in a ten point or so range as well. Stocks did bounce slightly into the close to finish near the top of their intraday ranges, but still finished with losses. Volume looks to be lower as of now so the indices may avoid a distribution day.

Technically, the beat goes on in this choppy, directionless market. Both the S&P and Nasdaq closed below their former breakout area around 2015 and 1018 (obviously bearish) but the fact that the bears once again couldn't take this thing any lower than they did tells me they are still rather weak here. In terms of support, both major indices finished near uptrend lines from the beginning of July so I do think it is important they hold in this area. The 20 day moving average for the Nasdaq is around 1990, so I would watch that as a number.

Oil had another major down day today and based on the USO chart just barely broke through a lower trendline starting at the beginning of July as well. It is in an area where it needs to hold as well. Your guess is as good as mine as to whether it does or not. I will keep an eye on it however. Financials were only down a slight amount today and showed some relative strength.

I continue to have little confidence in this market, either short or long, from day to day and remained in cash today. I am really hopeful that September brings some more "normal" trading because I think August was just weird. I want to go back to a post I wrote at the beginning of this month when I said August would likely be a chopfest....

"I don't know why - call it a hunch - but I am thinking that the month of August is going to be a difficult one to trade. Volume will likely contract even further this month as traders get in their final vacations (me included) and I just think we could be in for a lot of volatile chop, which is never good to trade. Perhaps that's good in that some significant sideways movement could set us up for a really big move come September."

Turns out I was right with that prediction for the most part. The first trading day of August (8/3) we closed at 2008 on the Nasdaq and 1002 on the S&P. Today, the last trading day in August, we closed at 2009 on the Nasdaq and 1020 on the S&P. So the S&P rose a bit while the Nasdaq was completely flat. There has been some movement both up and down in that time period, but the swing setups have been difficult. Again, I hope we can get some more "normal" trading conditions going soon, and that some setups will start showing up soon as well. To be honest, I am getting a little bored, but it is what it is and I can't fight the market. If it isn't giving me many opportunities, trying to force them will only lead to problems.

I will go through my scans tonight as I always do, but for now it seems like we continue to have a market full of weak bears and weak bulls, and that is not exactly a good combination. The weak bears showed their face Thursday, came back today, and in between we saw the weak bulls come out to play on Friday. Until one of them gets some guts and take charge of things, I am guessing thing will remain tricky. I don't know what else I can say. We'll see what September brings us I guess starting tomorrow. Good luck and take care.

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