Wednesday, September 23, 2009

State of the Market - 9/23/09

We had a pretty typical "Fed day" today on Wall Street, with some very volatile trade late in the session that makes interpreting the action more difficult. Stocks started flat but fell quickly for most of the morning, mainly due to a sharp drop in crude oil. They stablized before lunch and rose back to their opening levels where they moved sideways until the Fed decision came out around 2:15. At that point, we saw a very sharp pop followed by a very sharp drop which is pretty normal on these days. However, that very sharp drop was never reversed, and stocks fell throughout the final hour in very bearish fashion, with the Nasdaq falling more than thirty points in a little over an hour. Volume looks to be lower as of now but with the late selling that could easily change when the final totals come in.

Technically, today COULD be a technically significant day. I say "could" because you just never can put too much stock into what happens on a Fed day. That being said, the reversals we saw certainly look bearish, particularly on the Nasdaq. That 2150 area I've been mentioning as important for the Nasdaq was broken past today, with the index getting as high as 2167, but we closed more than 35 points below that high and also below the wedging pattern. So the Nasdaq attempted to breakout above a wedging pattern and overhead resistance from 2008 but closed well below both and that is not good. Short-term, watch around 2120 for potential support - if that happens to be broken, I would guess the 2060 area could be tested.

The S&P doesn't look quite as bearish as the Nasdaq today but it did close below the wedging pattern it has been holding above and is right at its 9 day moving average. Support could come in here, but if we get further selling tomorrow, I would expect the 1040 level to be tested.

Oil, after bouncing up yesterday, fell right back down today and that was a major story today. The move lower today has it looking like it wants to breakdown from this coil pattern, as the long-term uptrend line was pierced to the downside today and based on the USO chart, it was pierced on much heavier volume. If we see follow-through there, it would most likely be quite bad for the overall market. The dollar was up slightly today but not enough to cause this spike down - that was caused by supply and inventory news. This breakdown is what should worry the bulls the most in my opinion.

I made two trades this morning based on the individual charts, entering JAZZ at $9.69 and PLX at $7.77. Both were shown in this weekend's video. Both are biotechs which I normally don't trade much but both made moves early that I thought were worth pursuing. Both looked pretty good until the late selloff hit. To raise some cash (although I still wasn't heavily invested at all), I ended up getting out of JAZZ at $9.66 (pretty much flat) and took my small profits in XTEX at $5.33 for about an 8% gain. I was willing to hold XTEX longer but with two gaps in two days plus the reversal today, I thought twice. I will keep it on the list however. I am still holding KONG and PLX but have tight stops on both.

There wasn't much else from my watchlist moving this morning, and my long watchlist was smaller in general which is why there was no video last night. YRCW had a great move today and it did come up in my scans this week, but I thought it needed more rest for this flag so I didn't really consider it and it wasn't on my list today. That was obviously the wrong assessment - tremendous breakout from the short flag pattern today. Keep this one on your list to see if it setups again.

I've been saying now for the past week or so that although we are certainly in a position from which we could see a significant pullback, we also have not seen any clear signals that have told us that pullback will happen, so "ride the trend until it ends". Well, today may have been the first signal that tells us trouble is on the horizon. Today wasn't the end of the world, and with it being Fed day, who knows if it means anything? It could be significant, and if we get more selling tomorrow, then I think we can put more credence into today's action. I would tighten stops if you are long and perhaps start raising cash if you are heavily invested. I am not looking to short yet, but will keep my watchlist ready there just in case we are beginning to top. As of now, it is too early to say that's happening for sure, but it wasn't a great day. Take care and good luck Thursday.

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