Tuesday, September 29, 2009

State of the Market - 9/29/09

We got a pullback day today on Wall Street, although stocks started higher and things looked good early on. Then things got a bit weird. At 9:59, the Nasdaq was around 2141. Literally two minutes later at 10:01, it was around 2120 - a huge 20 point drop in under two minutes, supposedly due to consumer confidence numbers. The market bounced back a bit from this sharp fall, but fell to further lows by lunchtime. They bounced back into the middle of their intraday range in the early afternoon, but could break through that gap around 10:00 and faded into the close, giving the market small losses overall. Volume appears to be heavier which would give the market a distribution day.

Technically, we saw a slight change of character in this market from all of the previous bounces off pullbacks we have had since March. What I mean by this is that if you look carefully at the first day of rallies off pullbacks (6/24, 7/8, 8/18, and 9/3), we always had immediate follow-through. Stocks kept moving higher off the pullbacks with very little if any rest, which showed at each of those times how strong the bounces were going to be. The times we didn't get immediate follow-through following a three-day or longer pullback were 5/14, 5/26, and 6/18. The May period was a time of sideways action overall for the market, but the June example did lead to more selling two days later. I am using the Nasdaq chart here by the way.

My point with all of those dates is that tomorrow could be a key day. I want to see the bulls take this thing higher tomorrow and get the rally moving like they have up to this point in the overall move since March. We did see a change today with the lack of immediate follow-through to the upside, and if we get more selling tomorrow, it will indicate even more of a change from what we have seen since March, perhaps giving us a signal that this pullback is different from the others and we have more selling in store. Like I said yesterday, for the most part dip buyers have been immediately rewarded by this market for almost six months now, and if they don't keep getting rewarded quickly, then some worry might pop up.

Because of this, I am kind of neutral for the next couple days and will be watching 1041 on the S&P and 2085 on the Nasdaq as support if we get more selling. As long as we hold above those, then perhaps we can still rally, just in a choppier and slower manner than we have seen in the past. If we get below those levels, however, then we will have put in our first lower low since July 8, which probably would be meaningful. So overall, to answer the question of "are we topping here?", I can only say, "perhaps, but it is too early to tell". Ideally, if you're long, you want to see the bulls step up tomorrow, especially after fading rather badly today.

I actually did enter one more position today - PDS at $6.50. I thought this was a pretty low-risk entry due to the reversal yesterday and the support levels it was sitting on, but it closed slightly lower today. None of my positions did much today and I may be out of them soon. I like to see a move higher quickly after entering positions, particularly in pullback plays, and right now I am not seeing that. BX looks more like a small bear flag after today, and CGA closed below its 50 day moving average today as well - not very bullish action there. My stops are in place and if they are hit, then I accept it and will move on with the small losses. I however will still not look to short anything until we get a lower low on the major indices.

There was some very nice follow-through today in two stocks shown in the weekend video - L$$$ and E$$$. Too bad those weren't the two I went with yesterday. I have not see much follow-through in the others however and perhaps that is a sign as well for the overall market direction. We'll see if they start moving soon - I want to see that or I would start getting a little worried as a bull.

That's it for today - I will not be posting tomorrow as I have to have a medical procedure done after work and will be gone for most of the evening. I hope everything goes well and comes out normal but won't be around to write, so I'll catch everyone on Thursday. Take care and good luck Wednesday.

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