Thursday, September 10, 2009

State of the Market - 9/10/09

Well, so much for "sell the rips" - the market just keeps going up. We had another up session today on Wall Street, as stocks fought off a very small amount of selling at the open to rise steadily for the rest of the day, allowing the Nasdaq and S&P to close clearly in new high territory for the year after barely doing so yesterday. Volume was lower for most of the day but there must have been a surge late because it finished higher and above-average for both major indices.

Technically, we are at the top of wedge-like patterns on both the Nasdaq and S&P, but maybe it doesn't matter anymore. This remains an area where we could get a big pullback (according to a normal way of thinking) but it is possible we could also break out of this wedge pattern to the upside and see some real acceleration to this uptrend. I still have a hard time believing that will happen, but a lot of things have happened this year that I had a hard time believing so anything is possible. For the Nasdaq, it is possible for a run up into the 2150 area where important lows were made back in '08. For the S&P, those lows would be around 1200, which is a significant amount higher than where we are right now.

Although the bulls keep rolling here, I will point out the same setup I have been pointing out this whole week - the financials still look bearish here to me. They have not broken out to new highs yet unlike the indices and have bounced for five straight days on weaker volume than the distribution we saw last week. This still looks like a textbook bear flag pattern, and it has yet to be voided. Perhaps it will be soon, but this chart along with along with BAC, MS, and C don't look promising. On the plus side, GS has broken out and did so today on heavier than average volume so maybe the financials will catch up soon.

The dollar did not bounce today and therefore oil moved higher once again, but it is still holding the bottom trendline for the time being on its downtrend channel (using UUP here). If the dollar breaks even further, then perhaps we get that breakout move in the overall market out of its channel as well. Looking back over this year, if I had one thing I could do over again, it would be to simply track the dollar and trade opposite of it. Maybe that's why I've been so confused this year - is this rally simply an inflation trade? It is certainly possible.

UUP vs S&P 500
Chart Courtesy of Telechart, Worden Brothers Inc.

The only other bearish note I can point out here is that there are slight negative divergences in the Moneystream right now for both the Nasdaq and S&P as neither has seen a new high in their moneystream along with the new highs in price they have established this week. I've seen these divergences before and they haven't mattered much, so maybe they won't matter here as well. We are also quite overbought in the short-term, but again, does it matter?

I was stopped out of my small SDS position from yesterday at $42.07 for a small loss - no big deal in that it was more of a tester position than anything. I don't want it to seem like I am totally bearish here - I do have a watchlist for some longs, but once again none did anything today and that is why I remain in cash on the long side. CVGI, AM, OWW, F, IEC, and ISLN are all stocks I have been watching this week for a sudden move upward. They all look like possible bounce plays to me off of these pullbacks or consolidations. In hindsight, I found some good setups last week when we had the big drop but didn't play them at that time as I was watching for a bounce at a lower level. That was obviously the time to buy and once again, I missed it.

I am still watching those financials as possible shorts but I am very hesistant to do so now as I don't want to get my face ripped off by another July-like move upward that just doesn't stop, which we are possibly in the middle of right now.

My Steelers open the NFL season tonight so that's what I'll be doing tonight - no late post. Best of luck Friday to wrap up the week.

No comments: