Tuesday, April 27, 2010

State of the Market - 4/27/10

An interesting day today on Wall Street, as we saw the type of selling we haven't seen in a very long time.   The market held up just fine for the first hour and a half of trading today, but at 11:00, things fell apart and stocks fell sharply.   They tried to bounce a bit from 12:00 to 2:00, but couldn't and just drifted lower back to the morning lows before crashing through them in the final hour and closing at the lows for the session.   Volume looks to be heavier than yesterday as well.   Both the Nasdaq and S&P posted 2% losses today and the action looks more serious than the few past episodes we have had recently of one-day selloffs.   I think this one could have legs.

Technically, it looks like the uptrends have been broken on both the S&P and Nasdaq as their 3 month trendlines were sliced through today.   The S&P broke its 20-day moving average as well today - I believe this will be the first close below that level since February 23.  The Nasdaq looks like it will close right at its 20 day and it is very important it holds this level.   I guess it's possible that the markets bounce right back up over the next few days, especially with so much news still out there, but with the levels that were broken today, I have to assume the market is ready to pullback at least a little further than where it is at after today.  

Sector-wise, we saw some damage as well across the board.  Financials got rocked and I will be watching $15.70 as a key level of support on XLF (right around its 50 day moving average).   Both XLE and OIH reversed their breakout attempts from late last week and look like they will pullback as well.   Crude oil looks weak as well as USO will close below its 50 day moving average today.  Retail fell sharply as well and is at a key technical level.  The only thing that seemed to do well today was the dollar and gold, which is kind of odd in that they typically trade opposite each other.

I remain in cash and after today I am going to hold off on any longs for the time being.   I have been wrong recently following these selloffs, thinking they had a good chance of developing into something more serious but then nothing happening.  At the risk of being wrong again, I will say that I think today's selloff seemed more serious to me and could very well lead to further pullback.   If we get more heavy selling and then reverse higher, I will start back to the long side, but for now, I think being careful with longs is the smarter play.   If you're aggressively long right now, I would certainly be tightening my stops.

On the short-side, I put three shorts in the video from this weekened (HOV, SPF, LEN) and suggested looking at them on gap ups Monday.   Hopefully a few readers out there profited from this idea - I watched HOV Monday morning but didn't have the guts to take it then.   I have to look through my shorts tonight - I am sure there are many breakdowns out there.   It's just a matter of confidence - do I take shorts with so much news out there this week knowing the market could turn on a dime?   It's a tough call - one I may make by just staying in cash.   There are times I suppose to try and be a hero - I don't know if right now is one of those times.   Just playing defense might be a better plan.  Good luck Wednesday.

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