Wednesday, February 17, 2010

State of the Market - 2/17/10

A relatively slow day today but a positive one nonetheless, as stock started slightly higher, pulled back to flat before lunch, and then climbed steadily back in the afternoon, closing with gains for the second straight day (fourth on Nasdaq). The intraday action was not all that exciting as stocks moved mostly sideways, but I guess you can't complain anytime you see the market move higher. Volume however looks to be very low once again.

Technically, we are at an interesting point as the Nasdaq, the S&P, and many other sector ETFs are right at or right below their 50 day moving averages. For the Nasdaq, the number is 2229, and we closed at 2226 today. The S&P is a bit below its 50 day moving average (1108) at 1099 but also has some lateral resistance around 1104 to deal with. We're looking at the longest period of time spent underneath these averages since the bottom last March, so regaining them might be harder than July and November of 2009. Both mid and small caps climbed above their 50 days today which is good in the sense that they continue to outperform.

Sector-wise, IYR, SMH, XLF, and XLE are all right below or right at their respective 50 day moving averages as well. OIH, USO, RTH, and GLD are all slightly above their 50 day moving averages. With the exception of SMH, all of these have ridden up to these important technical levels on lower volume (in some cases, much lower). Typically that is not a good sign. In my year-end review, I said I am going to try not to pay as much attention to volume but old habits die slowly.

I didn't make any moves today in my accounts and remain in cash. CAAS looked OK early on but I passed as I wasn't overly impressed with the early action. CAGC (posted on Twitter yesterday) had another monster session today but I expect it to pullback soon. Too bad I missed it. I did see a few bad things today - a few sharp reversals in stocks like SEED and CSIQ which makes me think it pays to be cautious here. SEED rose $0.60 in about 15 minutes this morning, only to give every cent back during the rest of the session, closing at its lows. it sure seems like some games were played there.

I am hesitant to do much of anything right now - some of it may be a lack of confidence, but a lot of it has to do with our technical position. We are still not really that overbought, but I don't know if the two major indices and all of the sectors mentioned earlier will be able to overcome their key moving averages without an increase in volume. Do they really have the firepower to do so is a question I am asking myself. A slow few days here underneath this resistance would be nice to see in my opinion - let's rest and regroup, and then move higher. A lot of the recent runners also need time to rest as they are quite overextended. Maybe that is what has me a bit worried - looking at charts like CAGC (two gap up in a row).

We'll see what happens I guess, but I will likely remain mostly in cash for the next few days. I'll keep looking for long setups, and I don't plan on getting short, but for some reason I think agressively buying here is not the right plan. It's not the right time. I don't know why - just a gut feeling. Of course, the way I have been going, that probably means you should all go out and buy everything in sight. Whatever happens, best of luck Thursday.

1 comment:

Doctor Stock said...

An excellent analysis... you're exactly right. Those 50 day moving averages are key to knowing which direction we'll go in the near future...