Friday, September 4, 2009

State of the Market - 9/4/09

Another up day today on Wall Street, as the bulls took control of a rather lackluster session early on to push the market sharply right before lunchtime. From there, stocks basically moved sideways, but didn't give back any of their morning gains and closed near their highs for the day. Volume however appears to be lower for the second straight day, which is not what you want to see given the heavy downside volume we saw at the beginning of the week, particularly on the S&P. Perhaps the holiday weekend gives the bulls an excuse, but you would still like to see heavier volume on a big up day.

Technically, we are now above the short-term moving averages on both the S&P and Nasdaq and the possibility of a head and shoulder top setting up here looks less likely that it did a few days ago. Without getting lower than we did to test some important support levels, the setups just doesn't look that promising if you are a bear. It is still possible, but looks more likely on the S&P than the Nasdaq. The sharpness of the bounce of the past two days also takes away the possibility of a bear flag forming here, at least from where I sit. I don't know if this means it is an "all-clear" again for the bulls, however. If you look at the XLF for instance, it does look like a bear flag is being formed here, and I don't know if we really take off without the financials. Two stocks I would watch on the short side are GS and MS, as both are bellwethers and both are forming bear flags here as well.

In terms of individual stocks, ELGX poked above its downtrend line today and I would have probably started a position if it wasn't for the lack of volume in the move. Perhaps if it gets above $5 volume will come in, but I would have liked to have seen more today. The biotechs continue to move as JAZZ was up big today but I still wouldn't hold any of these overnight and being back at work, daytrading isn't going to work for me. BEXP looks like it would have been a very good buy a few days ago as it pulled back to its 20 day moving average.

More than anything, I just think this bounce shows how uncertain things are out there. There are bullish and bearish signs out there and when you consider that we've gone basically nowhere the past two months, it remains tricky out there. My mantra remains the same - daytraders are probably loving this market but it remains much more difficult for swing traders or position traders. Hopefully we'll get some consistent movement one way or the other, but right now, it just isn't happening. Take care and enjoy the weekend.

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