Thursday, December 10, 2009

State of the Market - 12/10/09

An up day on Wall Street today, as stocks rose for the second straight day, although not as impressively as they looked to be early on. The day got off to a good start with stocks rising quickly for the first ten or so minutes of trading. From there, however, it was just a chopfest, as stock fell, rose, fell, rose, fell and bounced slightly one more time into the close to finish in the middle of their range. Volume looks to be lower once again.

Technically, the story remains the same for the big two - the Nasdaq and S&P are still locked in this trading range. Until the range is broken, it is hard to predict for sure what is going to happen next. I still tend to think a top is being put in over the longer term but I've thought that several times this year and have been wrong. Around 1115 and 1085 are the numbers to watch for the S&P for a breakout or breakdown, and 2214 and 2160 represent the key numbers for the Nasdaq.

I mentioned yesterday that a lot of the movement for the rest of the week will likely depend on how the dollar holds up - a consolidation phase here off its recent bounce would be bearish for the overall market, while a quick trip back into its downtrend channel would be bullish for the overall market. The dollar did bounce back off a weak open today and based on its daily chart looks to be consolidating here - UUP is developing a nice bull flag. If we see a breakout, I would expect some major short covering in the dollar and a break of the market's trading range to the downside.

The only problem I see with that setup is that the main areas that would be affected by a rising dollar and therefore the best areas to short are commodities, but they are still very much oversold right now. Oil fell slightly once again today and although I am expecting a relief bounce soon, I know it doesn't have to happen. Gold is also quite oversold but once again, there has not really been a strong bounce back after being sold off so hard last week. Perhaps that is telling - very oversold stocks that don't bounce when stretched to the downside typically lead to further selling and further oversold conditions. Just something to think about.

I made one more small trade today, going long VISN at $10.94. I like the flag it is forming here and have a clear area to get out at near the short-term 9 day moving average. I am anticipating a bit and that can get you into trouble, but I won't be sticking around long if this doesn't work right away. I am still in TSTC and SEED, but neither have bounced off their 9 day moving averages the way I like to see in strong momentum stocks, so I may not have those for much longer either. We'll just have to see - right now I am sensing a lack of momentum. In addition, a few stocks I was watching had very slight breakdowns today (CEU, PNCL, CHBT, OPLK, and LUV) so that bears watching.

All in all, today was a pretty boring day in that we didn't get much intraday movement and very few stocks that I was watching did much of anything. If this market has new highs in its future, I think it has to get it going much more impressively than it did the past two days. The low volume and lack of momentum tells me that perhaps we are set to fall again. However, until the range is broken, I don't know how comfortable I am about getting short. I think the dollar matters a lot right now and as always, watch it carefully. Take care and best of luck Friday.


Anonymous said...

Mac, I found that momentum foreign stocks (ADRs) do not move much when our market goes up huge. After hour, APWR, HEAT and SEED all went up. See if they can move up tomorrow. I regret I did not take profit this morning and I will centainly sell tomorrow. Thanks, Elena!

Anonymous said...

Mac, I meant to ask you whether APWR, HEAT and SEED charts are looking already to you. I hope they will go up tomorrow. The market is making me very nervous. Thanks, Elena

Anonymous said...

Mac, I learned SEED is on naked short list. So I sold SEED, but $1,000 too early. Maybe you should stay in for bigger profit once short covering starts.