Thursday, March 25, 2010

State of the Market - 3/25/10

It was the story of two markets today on Wall Street, as the action was very good for the first half of the session, but things really fell apart in the afternoon. The markets started with a gap up open, but basically went sideways for about an hour and a half. They broke out around 11:00, rose quickly, and then moved sideways again through lunch. A spike in the dollar around 1:30 caused the market to drop hard from there, as all bounce attempts failed and stocks finished at their lows for the day. Volume looks like it will be lighter.

Technically, the action was not good today and perhaps we pullback a bit further from here. Numbers to watch for support are 2390 on the Nasdaq and 1160 on the S&P. If those are broken, then a meaningful pullback might materialize for the first time in a long while. Until that happens, however, the bulls remain in control.

Sector-wise, retail and financials were strong this morning but closed very weak much like the market and look somewhat toppy here. It is possible a pipe top was put in today on XLF as it did gap up but we would need more confirmation of that in the next few days. Commodities continue to look very weak as the dollar strengthens.

The biggest worry the bulls have here is that the inverse correlation between the market and the dollar appears to be reestablishing itself, and that is not a good thing. The chart of the dollar looks quite strong here and although it's overextended in the short-term, it certainly looks like it wants to go higher over the intermediate and longer-term time frames. You have to keep a close eye on this to see if the inverse correlation of today and yesterday remain in place.

I was stopped out of my CISG position today around $26.50 for a very minimal gain, but that was all I did. Perhaps I should have given it more room but after two days of absolutely no follow-through, I didn't feel like waiting. It was another weird morning in that I saw the market moving higher but I didn't see many individual stocks that seemed to have strong momentum. CISG is a good example - it had a great breakout Tuesday, and with the market up 100 points mid-morning, it should have been up another 3-4% today - that is, assuming it is a strong stock.

I was following some possible earnings plays as well this morning and I saw the same thing - not much momentum. CAAS and TRIT were two stocks that gapped up a good amount but could do virtually nothing after the open, even with the market up big. If you want a larger example, look at the intraday chart of ADBE, another earnings possibility from Wednesday. It faded yesterday and put in its highs at the open today. I don't know - something still just doesn't feel right to me about the way individual stocks are acting. Perhaps I am just in the wrong ones.

I haven't gone through my scans fully yet today, but the reversal today put a lot of ugly bars on a lot of charts. We'll see if it means anything. I am unfortunately back to cash and although I will keep my mind open on the long side, I don't know that there will be much out there to play tomorrow. Maybe it's best just to take Friday off. Take care and good luck.

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