Tuesday, September 1, 2009

State of the Market - 9/1/09

We finally saw some follow-through today on Wall Street, as the bears fought back against an early rally attempt and sold this market off hard, putting the current uptrend in great doubt. The day started with a higher for a little more than half an hour, but that bounce quickly faded around 10:30, when stocks basically just fell off a cliff. They traded lower until a little before 2:00, but from there all they did was move sideways with no bounce, and actually closed at their lows for the day. Volume appears to be heavier (particularly on the Nasdaq) giving the market another distribution day.

Technically, today SHOULD be a significant day for a number of reasons. The two month uptrend lines were broken today on both major indices, and the market closed well below their 20 day moving averages. That has happened only once since the beginning of July. Given that we also saw similar technical breakdowns in the financials and energy today, again this SHOULD be a meaningful session, likely signally a correction is in store. I bold-faced the word "should" simply because with this market, you just never know.

Based on the charts, I would expect the market to pullback at least to their 50 day moving averages where they may bounce(around 965 on S&P and 1920 on Nasdaq). If we get to those levels, we will be oversold enough to get a bounce going. The question then will be whether that pullback is worth buying or if it is better to wait for a bounce to get short from. As always, I will try to let the individual charts lead they way, and since I haven't seen many nice long setups recently, I am leaning to a more severe pullback. Therefore, I am in short mode, looking for setups over the next few weeks now that it looks like we finally have seen a breakdown. I don't think heavily shorting at this exact moment is very smart, but if the selling continues over the next few days, a bounce would likely be a good opportunity to get short.

This remains a tricky market, but today was good in that it could at least get a tradeable move going over the next few weeks rather than the chop we've seen in August. I have been waiting for a move like this, a sign if you will, and I just hope the market isn't teasing us like it has over the past month. The bears certainly seem to be in control after today, and because of that, it pays to hold off on any buys and start tightening up your short watchlist. From the video this weekend, GMCR, STEC, CTRN and SHLD all broke nicely today. It's too late for those, but BKE and DDRX are two that look like possibilities if the selling continues tomorrow. I'm still keeping my eye on that head and shoulder setup in GS as well. Just be sure to take profits quickly because I guess we get a reflex bounce toward the end of the week.

If I find any other interesting short setups in my scans, I'll share later. Until then, good luck and take care.

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