Friday, November 6, 2009

State of the Market - 11/6/09

In yesterday's post, I stated that "my guess is we do see a big move tomorrow, but I don't know which way it will be because it will likely be news-driven." Well, I couldn't have been more wrong, because although we had the news event early, the market did nothing of significance today after vacillating early on. All of the action took place in the first hour and a half, as the market opened lower, ran higher off the opening gap, and then fell back down to test the lows. From there, stocks grinded back to their morning highs, but could never break past them and finished only slightly higher for the day. Volume appears to be lower once again, continuing the trend of the week.

This is the shorter Friday post so I will hold most of my thoughts until the weekend. I made no moves today and am still in SRS - I didn't think being agressive in adding shorts was smart before the weekend. I am seeing quite a few bear flags out there (for instance, the S&P, Nasdaq, small caps, XLF, and IYR all look like bear flags with bearish volume patterns) and as I've said this week, most signs do point to lower prices. We are also looking at a potential right shoulder being set here if the indices roll over, although after the July fake-out, I don't know if I trust a similar setup here. It's just a matter of trusting whether all these signs will actually matter this time, because we have seen them before several times since March.

I'll be back at some point this weekend likely with a video - many of the short setups I have watched this week continue to look quite good and I am guessing there will be more in my scans after I go through them. As for longs, I didn't have many at the beginning of the week, and I don't know that I'll have many now either. We'll see. Enjoy the next few days and I'll be back tomorrow or Sunday.


Jason said...

Im thinking we can see a bit more upside on Monday, maybe a reversal day. The pros of this market are few. Notice that the last bearish head and shoulder pattern the SP500 and DJIA put in back in June/July wasn't supported on a relative strength basis by the Nasdaq 100, and the Nasdaq 100 led the the rest of the markets higher in July. Also, the Russell was holding itself betetr to the downside than the DJIA and SP500. This is not occuring here, what I am seeing is the Dow outperforming the Nasdaq, sp500, and even the Nasdaq 100. A day or two and the DJIA could be above the prior highs, when has the Dow led a rally? Defensive stocks for downside risk.

The Russell isn't holding itself either, and while i'm not too concerned about it usually, there is a huge disparity this time that cannot be ignored. Next is the volume; again not too concerned usually because volume can always pick up, but im seeing some interesting patterns. The selloffs during the end of September and October averaged higher or equal volume on the downside than on the previous upleg. Volume, even though declining every day, is fairly strong right now, but the downside volume continues to be strong even back to the end of August, with the upside volume weaker in comparison. The only change I see here is that this time the market hasnt been as willing to support the itself at a higher low, retesting the lows set in the beginning of October with the same amount of volume/interest.

Also, the amount of stocks participating in the recent selloff has been the most since early July. On the flipside, the amount of stocks participating these last five days in the up move are the lowest in at least 7 months, and Im seeing many similarities to the small upleg from 6/23 thru 6/29, but with worse volume patterns and less stocks participating. The financials have been weak, and continue to underperfom. Energy is a bit weak right now but holding, and arguably took over for financials in the recent push higher in mid October. There was also a selloff in Oil with some volume Friday which is concerning because the idea that a stabalizing/strengthening economy will support Oil prices. This is all under the hood, and the indices can move back to the old highs if they want to, but it may be who wants out first scenario after this weekend. What are your thoughts?

Mac said...

Very in-depth and insightful comment Jason. I agree with all of what you said - all of those arguments and observations make total sense. Once again, however, it looks like as of this morning this market wants to move higher and ignore all the evidence out there for us technical traders that a further pullback should occur. It doesn't make any sense, but then again, when has this market.

Jorge said...

Thanks for your insightful report on how the market is currently holding up. That's why I feel uncomfortable investing in today's uncertain stock market. There is hardly any security with any stocks out there.