Wednesday, May 19, 2010

State of the Market - 5/19/10

More chop today on Wall Street, as stocks vacillated back and forth all day beginning with the pre-market futures.  It looked like it was going to be another bad day based on the way futures did look this morning, but they rose throughout the morning and stocks opened only slightly to the downside.  After a brief move higher, however, they fell straight through the rest of the morning hours before finding a bottom at lunchtime.  From there, they bounced into the close through the afternoon, and although they still finished with losses, they finished off their lows.  

One interesting trend that is developing is the lunchtime reversal.   Almost to the minute for the past week or so it seems like the market is changing course at noon.   I don't know if it has to do with program trading or what, but if you day-trading, it bears watching.   As a swing trader, it doesn't affect me too much I guess.

My basic thesis right now is that the market will continue to chop around between its 50 day and 200 day moving averages for the next few weeks until finally a break is made.   I would not be surprised to see some sort of pennant formation develop on the indices.   So if you look at that outlook, you might look at buying here as the market did bounce off of its 200 day today.  The problem with that is that I don't have much confidence in the bulls right now and I think that the market is headed lower over the longer term.  We may bounce a bit, but I don't think it's a given.   I do tend to think that another failure near the 50 day moving average is very likely, and so if we get that high anytime soon, I believe I will look to short it.   Overall I continue to believe that downside risk is much, much higher than upside potential and as such I think shorting is the only play if you have to trade (but wait for the bounce before doing so).

The only other area I have mentioned to focus on for the past week had a bad day today - gold broke some short-term support and is now sitting below its 20 day moving average.   I didn't make any moves in gold today and it is getting close to an uptrend line from March, but today's action was not positive and we'll have to see where it goes from here.   Further selling might lead to a nice quick market bounce.   Of course, with the way computers trade, this breakdown might be a perfect time to buy in a Constanza sort of way.  (Seinfeld references there).

Hope you are having fun - I continue to believe that this market is a difficult one to do much with unless you're day-trading so I still sit patiently and just watch from afar.  Good luck Wednesday if you're trading.

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