Sunday, October 11, 2009

State of the Market - Weekend Edition - 10/11/09

Hi, readers. I apologize for the lateness of this post, but I've been busy around the house this weekend. Anytime you move into a new house, there are a lot of things to take care - changes to make, big and small. Well, I've done a lot over the last six months but as winter approaches here in the Northeast, one project I still have is finishing off our basement. That is what I've begun doing and spent much of this weekend attaching studs to the wall and then cutting drywall for those studs. I would say I am somewhat handy - certainly not an expert - but I like doing things around the house and learning as I go, so we'll so how it turns out. Anyway, that has taken up a lot of time this weekend and is a main reason for the late post.

I am just going to share some thoughts here as I just went through my scans. I apologize for not putting a video out, but I am just too tired right now and there aren't a ton of great setups out there that are worthy of putting in a video, so I will just share what I see.

The S&P and Nasdaq continue to climb higher as they are now up five days in row but volume continues to be weak. Volume came in much lower on Friday and overall volume continues to lag the volume we saw the previous week when there were three or four days of selling in the market. This could be worrisome, although it is more noticeable on the S&P than Nasdaq. The S&P is still below the former uptrend line I have been mentioning for three or four days now and until it clearly gets above that, I still think a possible top being formed here is a possibility.

The numbers to watch for the Nasdaq are 2141 and then 2167. For the S&P, watch 1070 and then 1080. We are still in a position where a lower high could be put in here if we don't climb any further than the first numbers mentioned in the prior sentence, so that bears watching. Both the financials and crude oil are following the same path as the S&P - they also remain below their former long-term trendlines and it is hard to be overly bullish until they get above them. I would consider shorting these two sectors via ETFs if we see a big break on heavier volume.

Two things I will be paying special attention to over the next few days are the VIX and the U.S. dollar. The VIX is in a position where it has a lot of support (around 22.50) and could bounce, but at the same time if that support level is broken to the downside, we could see a big move higher for the overall market. I have no way of knowing whether it will bounce or breakdown, but I will be watching. The VIX has been moving sideways since mid-July while the market has continued to climb. On the surface, that is a negative divergence for the overall market. The dollar continues to find some support a little below $76 as it bounced from there on Thursday. Same deal as the VIX - if this level breaks, then I think the market runs. If the dollar moves higher from here, the market sells off. I have no way of knowing which of those two occurs.

I don't see a ton of interesting setups on the long side right now which makes sense with the market being up five days in a row. The longs I tried last week did not work for me but that was partly because of less than ideal entry points. Ones I would watch for various reasons include VVUS, CATM, HOLI, GOL, MBFI, RODM, LNET, ISLN, HGSI, and CRMT. On the short side, TNDM, BAC, AIRM, DRI, DST, and PPD are ones that would interest me if we get some selling. There aren't a ton of setups out there on the short-side yet, at least not that I see.

Overall, with the market being overbought in the short-term, I would certainly not be surprised at all if we get some selling soon. The indices are certainly showing some reasons to be bearish. Since there aren't many short setups however, I remain more neutral than anything else. Again, pay attention to the VIX and U.S. dollar as I think they will give us big clues as to where we head from here. Hope this post helps you out and best of luck this week.

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