Friday, January 15, 2010

State of the Market - 1/15/10

Not a good day at all on Wall Street today, as stocks did not like what they heard from JP Morgan and Intel and sold off right from the start of trading. The drop in the first hour was the quickest, but from there stocks continued to fall throughout the rest of the session, just in a slower manner. They did manage to bounce for the final hour, bringing stocks off their lows of the day, but they still finished with large losses. Volume was much heavier today, giving the indices their second distribution day of the week, although to be fair options expiration probably had a lot to do with the heavy volume.

Technically, the S&P held its 20 day moving average again today around 1130 which also corresponds to its uptrend line from the beginning of November. It looks to be very important that this level holds or a test of the 50 day moving average around 1110 looks to be a good possibility. The Nasdaq also found support at its 20 day moving average today but has several layers of support around 2260. This is also a very important level because a move below it would likely mean a test of the 50 day moving average as well around 2210.

Sector-wise, financials saw some more distribution today with heavier-volume selling but the overall consolidation pattern it has been forming for little more than a week now is still intact. Watch $14.85 on XLF for possible support. USO got rocked again today, breaking below its 50 day moving average. It is quite oversold right here so a bounce wouldn't surprise, but Wednesday's bounce attempt got sold heavily the past two days, so I don't know if I want to play this area or not. Retail is still moving basically sideways but as I look at it today, I think the possibility of a rounding top is starting to come into play.

Based on what I saw as very poor reactions to what seemed like positive earnings, I tightened my stop this morning on CPBY to right below the opening level and eventually that was hit, getting me out at $6.45. I think I may have made about a 1% gain or so on that, but certainly nothing to get excited about. At that point, more on a hunch than anything else, I went into some QID at $18.55. I figured I would get out if it broke to new lows, but it was in a very low risk position so I went with it. Turns out that was a good play. I haven't really been looking for individual shorts recently so I have been forced to go into the inverse ETFs again even though I wanted to stay away from them this year. I am playing them much different however so hopefully that will help. I did post RINO last night on Twitter as a very good potential short and it turns out I was somewhat correct in trying to short CAAS back on Monday - I just mistimed that one. I don't know if I have the stomach to be honest to short these Chinese stocks, at least not right off potential tops.

As I quickly look through my scans, I am once again puzzled by this market. Based on the overall market action today, I would have expected many more severe breakdowns that I saw. I didn't, however. These are the stocks that I would say had pretty bad technical days today - VISN, CPBY, NZ, CAAS, KNXA, ASYS, TIVO, RINO, and JASO. I actually expected much more. It is true that some stocks started breaking down a few days ago, but I was just surprised. I saw several as well as I scanned that looked good to me. I guess that kind of leaves us with questions on both sides right now.

We'll see where we go from here but I really do think it could be either way. The bulls do need to right this thing quickly, and the fact that they haven't had much momentum this week (they never could get back all of Monday's losses) is not a good sign. I will continue to give them the benefit of the doubt as long as I see good individual setups, but there are certainly a lot of warning signs out there. A lot depends on earnings and so far, the market hasn't received them all that well. I talked about sentiment earlier this week and it is certainly possible we are in a situation where anything but perfect reports are going to bring disappointment, and that is going to be tough for the bulls to overcome.

That's it for right now - I'll be back this weekend with some further thoughts and hopefully a video. Take care and enjoy the weekend.

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