Monday, January 11, 2010

State of the Market - 1/11/10

We had a mixed day to start the week today on Wall Street, as a positive open was quickly sold off, but traders came in to buy the dips once again and allow stocks to close off their lows. Highs were put in pretty much at the opening bell and from there stocks fell for the next forty-five minutes. They put in two failed bounces before righting themselves during the lunch hour and slowly climbing back for the rest of the session. The S&P was slightly positive for the session and outperformed the Nasdaq which was slightly negative. Volume was lower, at least from what I can tell right now.

Technically, the S&P continues to grind its way higher along the top of its upper trendline, getting just slightly over it but not breaking out in a strong manner. It's overbought a bit short-term and the chart has me a bit worried overall - I don't like the way it is kind of just griding higher. Meanwhile, the Nasdaq fell back into its range from last week and is sort of wedging up as well. I would like to see a powerful up day soon - who knows if we are going to get one.

Financials had a nice consolidation day today - something I talked about on the weekend video. Gold had a little breakout today but oil did not follow, pulling back a bit. USO however is also consolidating fairly well in this area near its former highs and that is bullish as well as long as we don't see further selling come in.

I went into the morning with four long positions and looking to add more, but in the back of my mind I also had this sneaking suspicion that things weren't going to be easy today. After reading some blogs last night, all of which said basically the same thing I saw in my own scans and put in the video Saturday (namely that there were so many attractive setups out there), I started to worry a bit. I didn't read one person that didn't think we were going to have a great Monday and I felt the same way. Rarely in the market do things work the way you expect.

The opening was quite anti-climactic - I kept looking for stocks with strong early volume but just couldn't find many. I then noticed that a lot of the momentum names were reversing. I actually decided to take profits on RINO at $32.23 for a small 2% gain and also on NANO at $12.70 for a 6% gain, although I just moved my stop up on that one and let it ride rather than selling on my own.

At that point, I quickly changed my plan (sometimes you have to as a trader) and actually looked for a short or two to play. I had a list of CAAS, SOLF, and FUQI as potential plays that gapped up and looked very extended. My idea was a good one, but my choice was a bad one. FUQI was a much weaker stock and that's the one I should have chosen (would have worked out well) but I didn't - went with CAAS at $25.89. I was stopped out later at $26.65 for a 3% loss. Don't ask me why I chose that one - probably rushed my decision making a bit.

I did have a nice move in CHINA which I started Friday at $2.70 but KONG just sat there today doing nothing. I started a position in FEED at $5.37 at the end of the session as I like the daily chart. Those are the only positions I currently have.

It was kind of a weird day overall from my perspective as I didn't have much move on my watchlist other than the stocks I mentioned in the video needing a little more rest - names like SORL, CALI, and TASR - and I wasn't going to trade these without that rest. CHNR did breakout nicely but it wasn't until around lunchtime that we got a boost in volume so I missed that. SEED also popped big this afternoon at 3:00 and ran more than $2 in an hour, but unless you were watching all day (which I can't do) it was tough to catch these moves without chasing. By the time I was at my computer to see it, it had already moved $1.50 or so. Lots of stocks reversed well off their highs as well(NANO, EGI, ABAT, THM, ATLS, VCI, RINO).

Overall, I think I kind of see a mixed bag out there right now. I am still seeing several momentum stocks getting to that possible parabolic point where a pullback could be very sharp if it comes (CAGC, CAAS, SOLF). I am seeing some reversals on what looked like nice setups that don't look very good. Throw the seemingly overwhelming bullish sentiment and I think there are reasons to be start being cautious. At the same time, I am seeing dips continue to be bought on the overall market and select stocks continue to put in gains. I guess the best description I can give to the current environment is that it is a stock picker's market. If you find the right ones, you can make a lot of money, but if you buy the wrong ones, you can get in trouble. I guess that's always true however.

For the rest of this week, I plan on continuing to look for longs to play as long as the market doesn't break down, which it has yet to do. Ones I will watch in particular after a quick look through my scans include PHX, SPAR, ARST, CPBY, PDO, and REV. Just be careful in what you choose, and my profit targets are still short-term oriented overall. I am more cautious today than I was going into the week. Take care and good luck Tuesday.


positiontrader said...

Nice play on CHINA Mac! There is something about this market that's making me more and more nervous each day. It all just seems a little too easy. Every momentum stock seems to be breaking out. I dont hear or read pretty much anything on going short. All news is pretty much being ignored. Everybody just seems a little too "relaxed", if you know what I mean.

I am still exclusively long but have cut back on my position size. I know we kinda discuss this every week but one day, we are in for a massive day of pain.

BTW, check out PAL and SWC if you get the chance. Palladium made new 52 week highs today and I am in both.

Like I told you I had really liked KONG and had even mentioned it in my blog, with your name of course, but absolutely no volume today.

Good Luck tomorrow!

P.S.: Nice job sticking to your new year's resolution of taking profits a bit quicker so far! :)

Mac said...

Good job on PAL and SWC - SWC had a pretty nasty looking reversal today but in this market those typically bearish bars haven't mattered much. Still myself, I can't get past them - got out of NANO today because of that.

I agree that it pays to be a little cautious here - wrote about why today. A pullback doesn't have to happen but sharp ones usually occur when no one is expecting them.

We'll see with KONG - pattern still looks good but doesn't have any momentum.

Lee said...

Shorting FUQI seems reasonable, yet I do not trust the sharks who control that stock. I think they take it higher, and I am long currently BTW.