Tuesday, September 8, 2009

State of the Market - 9/8/09

We saw a choppy, slightly higher session today on Wall Street, as trading seemed sluggish overall even though volume was higher. Stocks started higher but slid immediately. They righted themselves around 10:00, went to new highs, but from there just drifted back to their morning lows through lunchtime. They started to move back toward their highs around 2:00, but couldn't quite get to new highs for the session, closing right at those morning levels. Volume looks to be higher than Friday but not above-average as of now.

Technically, there isn't much to say that I didn't say this weekend - we are in a choppy market and it is going to be hard to trust any possible breakout or breakdown that occurs over the next month or so, at least for me. The breakdown we saw last Tuesday has been totally reversed, but we are now overbought in the short-term after being up three straight sessions and I am expecting a pullback soon just because that's how it's been lately. Buy the dips and sell the rips has worked out as well as anything else over the past month or so. Let's say we do continue to move up toward the highs of two weeks ago. By the time we get there, we will be very overbought and faced with another potential breakout during overbought conditions. Perhaps this time will be different, but everytime we've faced that scenario since the beginning of August, it hasn't worked out well.

The head and shoulder setup remains a possibility on the S&P with a reversal soon but on the Nasdaq the setup is now sketchier. 1039 and S&P and 2059 on the Nasdaq are the levels that need to be overcome for the market to begin a serious, consistent move higher. If I had to guess, I don't think we will get there, but that's just a guess or hunch.

I pointed out this weekend that the financials were not bouncing as strongly as the overall market and that could be a warning sign, and as I look at the XLF chart, it looks like a very clear bear flag is being formed there and perhaps a right shoulder on the head and shoulder pattern. Perhaps it is just consolidating sideways, but I will continue to watch this and the stocks that go with them (BAC, GS, MS) very closely. Goldman cleared a little resistance today (barely) but MS and BAC both continue to look bearish to me.

The big story today seemed to be the U.S. dollar falling to new lows and gold moving above $1000. Oil responded in kind and moved up about 4% today, but still is basically in the same range it's been in for a while now, much like the overall market. Gold looks quite overbought to me in the short-term, but it is always possible for it to move higher still. Over the longer-term, it wouldn't be surprising at all. Right now, I am about a third of the way through Ron Paul's new book called "End the Fed" and I would recommend it to anyone that wants a strong understanding of how the Fed (and the government) operate hand in hand with each other. The dollar has been devalued for over 100 years now and it doesn't look like it is going to change in the next 100 years either. But I digress...

This market has been so choppy that I believe it is going to take a while before we get some smoother trade - individual stocks need to smooth out as well as the indices. Not many of the stocks I had on my watchlist from this weekend did anything today and I continue to find fewer stocks that are showing high Balance of Power (BOP in Telechart) levels that show accumulation. So as boring as it is, cash remains where I am at. It is certainly possible we are still in the process of forming a meaningful top here, but it isn't certain. If it happens, there will be plenty of time to short and I plan on doing that if we breakdown. If I start seeing more setups from the long side, then I am going to assume we are going to move higher overall. Unfortunately, I still don't see much short or long right now, so the market remains a mystery. Maybe my scans tonight will give me some clues. Take care and good luck Wednesday.

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