Wednesday, August 5, 2009

State of the Market - 8/5/09

We got a small pullback today on Wall Street, as traders took some profits from the most recent bull run early on in the session. The first hour or so of trading was nothing but down for stocks, but as has been the trend recently, the bulls were able to bounce things back up a bit into the close at least on the S&P, which outperformed. A pullback in the last half hour took stocks off their afternoon highs, but overall it was a healthy session, given that a pullback was not unexpected and probably overdue. Volume looks to be flat to lower across the board, but I do not have the final numbers.

Technically, the S&P tried for the second day to climb over the 1007 level that corresponds with the November, 2008 high (11/4/08 to be exact). It could be consolidating a bit in this area, and that would be healthy - who knows however if we get some?. Short-term support is around 987 and 982. The Nasdaq pulled back all the way to its 9 day moving average today around 1980 and bounced off of it, so that is a good sign. Just like the S&P, a consolidation here, if even only for a few days, would be very healthy, but who knows if we will get it?

The real story today in the market was the continued outperformance by the financials, which were up big again even in the face of the early selloff. After gapping above resistance around $13.08 on Monday, XLF hasn't looked back and closed with large gains once again today. Today's move put it over its December 2008 highs as well. Before today, I saw some negative divergences here with on-balance volume and moneystream, as neither of those indicators had broken to new highs even though price had done so a few days earlier. Volume lagged both Monday and Tuesday, but rose today so perhaps that will eliminate some of these divergences. As long as this is moving higher, I am going to guess the market will follow. However, a pullback would certainly be beneficial and healthy in this area as well, so be alert.

Oil rested today once again, although it did bounce off its morning lows. Right now, the U.S. dollar and crude oil continue to trade inversely to each other, and the patterns look to be more bullish for crude that the dollar. USO has paused here for three days right under $39.40, while the dollar looks to be forming a possible small bear flag (looking at UUP here for the dollar). Continue to watch this relationship, because if the dollar falls further, I have to assume the market will continue to move higher, whether it needs a pullback or not.

I once again didn't do anything today - I am still holding my JDAS position waiting for it to do something, anything, but that's it. I am more hesitant to play earnings gaps here as I saw more stocks close at the bottom of their intraday range today, stocks like WFMI, TSRA, SCLN, and DVAX. GRMN, PEGA, and CBOU had nice closes, but their intraday patterns were extremely choppy and not the easiest to play due to the volatility. Overall, earnings plays don't seem to be working with the immediate level of success that I would prefer to see. With my family leaving for vacation on Friday, I don't know that I will be doing a whole lot Thursday either, although I will have my laptop on the beach and can make moves. I am just debating whether I really want to do so, especially with my long watchlist dwindling a little each day.

Overall, the story remains the same - we could certainly use a pullback here and may get one, but until it actually happens, the trend remains up. Every time it looks like we are going to get a really bad day, it doesn't materialize, and today was another example of that. Be careful because we are still a little extended and one of these days, the "buy the morning dip" trade is going to be too obvious and hurt a lot of traders, but I am still not looking at anything except longs right now. I just don't know if I will find any I really like that much to jump in. Take care and good luck Thursday.

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