Wednesday, January 20, 2010

State of the Market - 1/20/0

Not a good day today on Wall Street at all, as a tightening in lending from China along with a stronger dollar and disappointing earnings reports sent stocks down at the open. The selling continued in a very strong manner for the first hour and a half of trading, with the Nasdaq down over 2% at its lowest point. From there, they were able to climb their way back well off their lows for the day, but stocks still finished with large losses. Volume looks like it will be stronger as well (at least on the Nasdaq), which will give the market its third distribution day of the last two weeks.

Technically, it is good that the market held the bottom of its current wedge pattern and its 20 day moving average again around 1130 on the S&P and around 2280 on the Nasdaq. The market is just barely hanging on to those levels however and the distribution we've seen for the past two weeks makes a trip down to the 50 day moving averages certainly a good possibility. It can't get much tighter in the current rising wedge than we are seeing right now so we probably should see a big move one way or the other very soon. That of course means we will go nowhere except sideways for a while, right?

Sector-wise, the financials continue to look good and bounced back from what appeared to be another disappointing earnings report from a bellwether (BAC). A breakout here would seem to be very bullish for the market and I really need to look at this sector closely for some possible setups. Semiconductors (SMH) have pulled back to their 50 day moving average and you would think it gets come support there. Crude oil (USO) did nothing with its positive reversal yesterday and really looks poised to perhaps fall back down to its 200 day moving average around $36, where it also has some trendline support. Gold was hit hard today as well due to a big move in the dollar. As I look at UUP, it is not hard to see a massive inverse head and shoulder bottoming pattern here so that bears watching.

U.S. Dollar

Chart from Telechart, Courtesy of Worden Brothers, Inc.

As you may expect, I made quite a few trades today, getting out of actually all of the positions I started yesterday. I was stopped out of FEED soon after the open at $5.37 for a 3.5% loss. Surprisingly, APWR and CREE (which I entered last night around $59.80 AH - posted on Twitter) bucked the trend and were strong in the face of heavy market selling, so I just moved my stops up on those positions, although taking profits would have been a good idea. I was stopped out of CREE at $62.54 for a 4.4% gain, and out of APWR at $17.31 for a 4.2% gain. I exited ABAT at $4.17 - just a very slight loss there(1%). I was also stopped out of CHINA at $2.62 for a 4% loss.

I was surprised that my account wasn't hurt at all from today's move lower - I think I am up very slightly for the week. I think I am doing a decent job of controlling my losses and have a slightly positive win to loss ratio so far this year. I haven't been able to get that big 20-30% winner yet, however, and that is holding me back a bit. Perhaps I can get a few now that earnings season is upon us - CREE was a decent start but it wasn't a stock that was beaten down and rallying from a low starting point, so I didn't like its longer-term upside as much. The big movers are out there - I just haven't hit on many yet.

From my perspective, this remains a rather weird market in that most if not all of the small-cap momentum names I follow are very oversold and have really pulled back for the past week or two off their highs. Commodities are the same way - oil is oversold and has pulled back considerably now. At the same time, however, the market has not really done so, today not withstanding - we've just been kind of going sideways. I don't know if this is bullish or bearish.

A big part of me keeps expecting a bounce in these momentum names soon and because of that, I wonder how severe of a pullback the market could really have here if support is broken. Seeing so many oversold stocks well off their highs makes it very difficult to get short here. On the other hand, maybe it is worse than I think - maybe the market has been topping very quietly for a week or so and we are about to have a major move lower, regardless of how the individual stocks look. Bottom-line is that it seems to be quite the tough market right now and playing things cautiously remains smart.

I have not gone through all my scans yet, but I will be watching some stocks like CAAS and BEXP tomorrow as they come into what should be strong support and are getting to areas which look like pretty low-risk buy opportunities. I don't see too many shorts other than maybe AMZN, CYOU, and XCO because again, do I really want to short a stock that has been moving steadily lower for two weeks and is quite oversold. So overall, I will probably tread lightly until this market decides which way it wants to go, because right now I don't think it knows. That's what happens I guess during earnings season. Take care and good luck Thursday.

1 comment:

Bearcharts said...

Your penultimate paragraph -- about how maybe we've been quietly topping for a week already and the stealth changeover will soon devolve into a major move -- is one that resonates with me also. I have thought just that the last few days. Maybe it won't happen, maybe we'll spike back up, or whatever. But the danger is there, and it's heightened, and the wise trader would stay apprised of it.