Wednesday, January 6, 2010

State of the Market - 1/6/10

We saw a pretty boring session today on Wall Street, as stocks started the day basically flat, chopped their way sideways for most of the day, and ended up mixed, with the Nasdaq ending lower and the S&P ending just slightly higher. Volume appears to be lower today.

Technically, not much happened today so the situation remains very similar to yesterday. The S&P is at the top of its channel and will either bust through to the upside soon or pullback a bit from here. If we do pullback, I would expect the 1115-1120 to act as some short-term support. The Nasdaq has had a very tight range for three days now and a break of that range will likely signal where we head from here - watch 2313 and 2295.

Oil continued its sharp ascent today and remains very much overbought. Crude did close at a new high for 2009 but I think a pullback in this area is very possible so I would be careful chasing names right now in this sector. Financials were up again today but are also overbought in the short-term so you may want to be careful there as well.

I went into today with the mindset of taking some profits in some or most of my open positions and I did do just that - luckily I got a little more bounce in the first fifteen minutes or so of trading that let me book decent gains. I sold RINO at $32.21 for about a 14% gain - just felt the momentum was weakening a bit. It could still go much higher however and I will continue to watch it. I sold IMAX at $14.37 for about an 8.5% gain - felt it was a little extended and momentum was weakening. I sold MTG at $6.34 for about a 5.5% gain - just no momentum there and couldn't clear resistance the way I had hoped it would. Finally, I sold SEED at $13.43 for about an 8% gain - same as others - felt resistance was weakening a bit. As I stated yesterday, I am still in "take profits when I get them" mode as I think a lot of stocks are extended and don't want to give up a nice first week of the year on a sharp pullback.

I did enter one other position today - NLST was acting well pre-market and I entered soon after the open at $5.56. It went up nicely, formed a bullish flag pattern, and then looked like it was breaking out again around lunchtime. I hesitated a bit there which was a mistake, but when it went to new highs, I added to my position at $6.02. This couldn't get going much higher than that, and although it consolidated bullishly, it eventually pulled back too far for my stop, which was hit at $5.70, giving me a small 1.1% loss. I probably set my stop too tight but seeing how quick this moved a few weeks ago, I wanted to see that immediate, powerful action upward and when it didn't do that, it makes sense to get out.

There were a few setups that I have pointed out here the past few days but missed out on today like CEU, CMFO and CTFO but after making a lot of trades early, I thought better of doing much more than I did. I saw some reversals in the hot China names today like CAAS, CSIQ and RINO, and names like TSTC and NEP (shown last night) are extremely extended, looking almost parabolic. Because of these things, my gut tells me there is a pullback coming soon. There seems to be too much easy money being made in these momo names right now. I could be wrong of course. If you continue to play these, that's probably fine - I will as well - but be ready to get out at a moment's notice just in case we do pullback quickly. Don't be left holding the bag.

That's about it for today - I am back in cash and probably will proceed cautiously over the next few days. A pullback wouldn't be a bad thing right now - it would let some of these hot names cool down a bit and provide new, lower risk buy points. We'll have to see what happens. I'll be back later with a watchlist of stocks I will be paying attention to tomorrow. Take care.

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