Tuesday, March 9, 2010

State of the Market - 3/9/10

It was a tale of two markets today on Wall Street, as stocks rose strongly and steadily through the morning and into the early afternoon, but then abruptly fell from there and gave back nearly all of their earlier gains. A late bounce took a little bit of the sting off of the afternoon action, but things were not very good from 2:30 to around 3:25, and we'll have to see if this is sign that the market is getting tired up here. Volume was significantly higher today than yesterday, but based on ETFs like SPY and QQQQ, most of the volume came in around 2:30.

Technically, we've been overbought for a few days now and certainly are in a position where we could pullback. Does it have to happen? Of course not. The market kept churning its way higher or at the very least sideways several times in 2009, most notably in July. It could happen again. With the S&P closing in on its former highs, I still think it is likely however.

As I said yesterday, just sitting in this area for a few days and not doing much of anything would give the market a chance to work off some of that overbought condition and gather itself for further price gains. I would love to see some action like we saw about two weeks ago, starting on February 18. Maybe we pullback to the 9 day moving averages around 2295 and 1125. If we pullback further that that, it would probably be even more beneficial in the long run but I don't know if it will happen. I continue to believe a pullback should be bought.

The individual charts I am seeing also push me to think we sell off a bit soon - saw some reversals today and stocks that are not following-through on breakout attempts. I sold all of my long positions yesterday, and when I see the action in CPSL, SEED, AMCF, and ZOOM, it tells me I made the correct decision in the short-term. That being said, I have many, many charts that I would jump all over with a few days of rest. There are a lot of stocks that look like they want to go higher - they are just very extended. I just can't chase them and because of that, I will stay away from longs for a few more days. It's possible we just keep moving higher and I miss out, but that's a chance I am willing to take.

To back my short-term outlook up, I took one small short position in QID today at $17.88. This is a test position and I have a tight stop on it in case it doesn't work. If it does work, I'll take profits in a few days and look to get back into some long positions. Besides QID, I am totally in cash.

Good luck tomorrow - I have a feeling we should be able to tell early on if the late action was something to take notice of or just a blip for the bulls. Again, I am looking for a three to five day pullback, but what I look for (or want) I rarely get, so be aware. Take care.

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