Tuesday, February 23, 2010

State of the Market - 2/23/10

A rough day today on Wall Street, as stocks started flat but fell off a cliff around 10:00 when the Consumer Confidence number came out. After a sharp drop, they drifted lower into the lunch hour, where the Nasdaq tried to bounce back (the S&P didn't join in until around 2:00). That bounce didn't amount to much, however, and stocks fell back into the close, ending near their lows for the day. Volume will be higher on the Nasdaq but doesn't yet look higher on the S&P.

Technically, this certainly wasn't a surprise today, with the market being overbought and fighting against important resistance. The drop today left the indices in an interesting technical position, sitting right above or near their short term 9 and 20 day moving averages. (2210-2215 area on the Nasdaq and 1094-1095 on the S&P).

As long as these levels hold, I would tend to lean more to this just being a rest for the recent run-up. We could move sideways a bit the next few days, form a flag, and then move higher. At the same time, if we drop below these levels tomorrow, I think the odds favor further selling and perhaps a test of the recent levels. So tomorrow could be an important day for the short-term direction of this market. Maybe it will get me back and interested.

There was a little more damage today (perhaps not as noticeable) when you look at the sector ETFs. Financials (XLF) gave back their 50 day moving average today with ease and on heavier volume - not good. Semiconductors (SMH) broke through their short-term moving averages with ease. Both XLE and OIH did likewise. RTH, IYR, and the transports held up fairly well so perhaps it's not all that bad.

I am still in cash but if we get further selling tomorrow I may look to get a little short. To be honest, I have slacked a bit the past week with my scans as I try to get my basement done and just in general had a loss of confidence, so perhaps tonight I can get through and see if any setups are out there for the taking. Overall, I would say it is still too early to know for sure where we head from here, but the bears have an opportunity after today - let's see what they can do with it tomorrow. Good luck Wednesday.

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