Thursday, February 25, 2010

State of the Market - 2/25/10

Another crazy day today on Wall Street, as stocks followed up a very strong day yesterday by crapping the bed at the open. The market opened sharply lower today and below their short-term moving averages, but the selling did not intensify as the day progressed. Instead, stocks moved sideways in a fairly tight range through the lunch hour and into the early afternoon. Right around 2:00, they took off to the upside and were able to regain much of their earlier losses. The Nasdaq and S&P were close to going positive and did finish near their highs for the day. Volume looks to be slightly higher than yesterday.

Technically, we are still kind of chopping around here below the 50 day moving average but the action of the past two session has me leaning more bullish than bearish as of now. I said late last week that if the market can just rest near its 50 day moving average for a few days, it could set itself up for further gains. It hasn't been what I would call a "quiet" rest, but the patterns look bullish overall as of now. We've worked off most of the overbought condition and I see a lot of flags on the indices, albeit choppy ones. I will be watching 1108 and 1112 on the S&P and 2234 and 2251 on the Nasdaq closely, as moves above those levels will set up a potential move to new highs for the market.

Sector-wise, things also look more bullish than bearish to me right now. SMH, XLF, IYR, Transports - all look like they are resting here for a move higher. Gold and oil have pulled back a bit and also look like they could move higher. One sector to pay special attention to is retail, as RTH broke to new highs today and is outperforming the overall market. I didn't watch things to carefully today but I would guess there was some sort of news that pushed this higher. I have to go through those sectors tonight looking for possible setups.

I am still 100% in cash, as even though a few days ago I said I would look at getting short if the market broke below Monday's lows, I thought better of it given the massive gap we saw today. I will be looking for potential longs now only - seems to make more sense to me. After a cursory look at my scans, here are some names I think might be worth watching, although I'll have to do more work tonight.

PRAA, BEBE, KLIC, SFN, WINN, SMCI, CPSL, NFP, MERC, RDWR, PODD, PCLN, MED, AEZ

That's about it for now - with this market, since the setups look more bullish, it probably means we'll crash tomorrow, but I gotta go with what I see. I am not loading the boat here, but things look better than they have recently in my opinion. Trade accordingly. Good luck Friday.

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