Thursday, October 8, 2009

State of the Market - 10/8/09

We saw some upside action today on Wall Street, but the action was much more impressive early on in the session than it was late. The market started higher after Alcoa reported better-than-expected numbers, but had a very sharp pullback within the first twenty minutes of trading. The market was able to right itself and from 10:00 up until around 12:30 did nothing but move sharply higher in impressive fashion. From there, however, the market just faded for the rest of the session, closing in the bottom half of its intraday range and with a distinct lack of momentum. Volume appears to be higher but not above average.

Technically, I mentioned 2140 and 1070 as key numbers to the upside during Tuesday's post, and today we got as high as 2139 on the Nasdaq and 1070 on the S&P before reversing lower. That could be meaningful and those numbers obviously become important levels to watch over the next few days. In addition, the S&P, XLF, and USO are all continuing to ride the bottom of their former long-term trendlines and were unable to close above those today. This could also be meaningful. I was optimistic when I saw the early action but did not like that close at all given the technical picture I see.

Given the early action, I entered two trades today - CBAK at $4.53 and later in the session FIRE at $23.07. CBAK was showing very strong volume early on so I went in at that point hoping for some quick momentum. It had some but closed off its highs and I don't think I will hold it unless it follows-through tomorrow. FIRE has been on my watchlist for about a week but I was not able to catch it perfectly as it attempted to breakout due to being at work. I entered around lunch as it consolidated nicely into an intraday flag, but from there it did nothing but drift lower and the daily chart looks very unimpressive in terms of its breakout. Unless this follow-through as well, I don't expect to hold it long. I did miss a nice move in XRTX as I was away from the computer when it broke out and I judged it to be too far extended when I did see it. Not much else on my watchlist did much of anything today other than bearish reversals in CBRL and ELOS.

Overall, we continue to be in an interesting spot here as although we saw some nice early action that looked like higher prices were on the horizon, it once again faded late and the technical picture I've been describing the past two days is still present. I am obviously long a few positions after today but the longer we go without being able to clearly bust through those former uptrend lines, the more bearish I will lean. If we close above today's highs, especially on some higher volume, I think we can believe this rally has another leg in it. Right now, it seems to be ever so slightly weaker based on price action and volume than it has been in previous recoveries from pullbacks, and because of that I remain neutral and open to either side of the market right now. Take care and good luck Friday.

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