Monday, September 28, 2009

State of the Market - 9/28/09

We had a bounce-back session today on Wall Street, as stocks started the day strong and continued strong throughout most of the session. They faded at the end of the day and did not finish at their highs, but still closed with good gains. Volume however was very weak and that is a little disconcerting.

Technically, if you watched the video this weekend then you knew today's bounce wasn't a real surprise. We were sitting on several support levels, particularly on the S&P, and the dip buyers came out in force as they have for a while now. The main concern I have is that volume was so much lower today on this bounce. I didn't expect huge volume but there really was a major drop off today so that is something to watch. Wednesday's reversal highs were at 2167 for the Nasdaq and 1080 for the S&P, so those are number to watch to the upside. Those are a ways away however and it may take a few days before we get a retest.

As I discussed this weekend, the strength of the bounce will tell us quickly if last week was simply a normal pullback or the start of a topping process. I think it is still too early to tell for sure over a longer-term time frame, but short-term I remain bullish (today's volume not withstanding). Unless you believe we are just going to go over a cliff here, (which today kind of proved is not likely), then this topping process will take a while, if we are topping here at all. Dip buyers have been rewarded for the past six months and because of that, it will take a few failed bounces before sentiment changes. That's why I haven't been shorting anything for a while. Wait for some confirmation to the downside. We haven't gotten any and in fact, today was possible confirmation that this rally has more legs to it. Ride the trend until it ends and as of now, we haven't seen any reason to believe it is ending.

I entered two positions this morning near the open as I wanted to be long for a possible bounce. The tough part was that there were so many setups that interested me, I had a hard time choosing which to go with. I entered CGA at $12.20 and BX at $13.86 based on their overall setups and what I looked at as their risk/reward ratios. As has been the case this year, I ended up missing out on several other, better trades today. We had many winners today from the weekend's video (it's hard not to when the market is up) - T$$$, L$$$, C$$, P$$, and E$$$ were all up over 5% today, while the only stock lower was (of course) CGA. I am still watching several stocks from the weekend list and may start one or two more positions depending on how the market moves from here.

So overall, a good day although the low volume casts a little darkness over the gains. It would be nice to see more gains tomorrow as this would give more credence to the idea that last week was simply a normal pullback in an uptrend. If for some reason we reverse and close below Friday's lows, then we may have to start looking at this market differently. Take care and good luck Tuesday.

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