Wednesday, November 4, 2009

State of the Market - 11/4/09

We saw a messy day today on Wall Street, as the Fed decision had stocks moving all over the place in the afternoon, leading to a close that puts up a lot of question marks. The day started well and stocks were up strongly for the first hour and a half of trading. From there, they drifted lower until the decision came out, at which time things got crazy. We saw a quick move lower, followed by an immediate reversal higher. That move higher met resistance at the morning highs however and from there stocks faded mightily into the close, particularly in the last half hour of trading. Volume appears to be a good deal lower.

Technically, things are messy. Support is still holding around the October lows, but we haven't seen much of a bounce at all from historically severe oversold conditions and that is not very good news for the bulls. The S&P got slightly about its 50 day moving average today but reversed below, while the Nasdaq wasn't able to even get up there. Perhaps the Fed decision put too many traders on pause for a nice bounce to occur, but the fact that it didn't happen is bearish - the longer we go without one, the better chance we have of further breakdown.

The dollar was down today a good amount which is likely one main reason the market was up a good bit this morning. However, there was not a huge spike in the dollar this afternoon that caused the market reversal and that is not bullish either. The market reversed on its own doing, not because there was some hawkish comments in the Fed decision, at least not that I heard. After looking quite nice on Monday, UUP looks somewhat uglier now. I am much less optimistic about a potential breakout in the dollar, and normally, that would be bullish. However, is it possible this market fools everyone and the dollar and the market start heading lower??? Just something to think about.

As you may guess, I made no trades today and remain totally in cash. There is just too much chop right now to do much of anything for more than a few hours, let alone a few days. A break of the recent lows would have me getting short, and I plan on focusing on IYR and XLF for targets if that happens. The short watchlist I had last night still looks quite good overall, so perhaps some individual plays would be a good idea here if we get a breakdown. My favorites include UA, GFA, SPG, FITB, BX, KIRK, WSM, and SMRT. Virtually nothing on my long watchlist moved today, even early on, and that is not a good sign either.

Overall, I am definitely more bearish than bullish right now based on the individual setups I see and the overall market action recently. The longer we go without a strong bounce, the less oversold we become and the higher the chances become of us heading much lower. It is not a given, but it is looking more and more likely. As always, the days following Fed days tend to be volatile, so be careful out there. Good luck Thursday.

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