Monday, May 24, 2010

State of the Market - 5/24/10

A very unimpressive day today on Wall Street, as a potential bounce opportunity from Friday was wasted by the bulls and stocks fell with modest losses.   The market opened lower but did move up early on, which was a positive sign.   However, every intraday bounce was sold off and stocks couldn't make much progress higher than where they closed things Friday.   They sold off for most of the afternoon and finished at their lows for the day with an awful close.   Volume was much lower. 

I said in the video last night that the bulls certainly had a good opportunity to produce if nothing else a relief rally early this week as breadth and sentiment was historically stretched to the downside last Thursday.   The fact that they could not do so today is obviously very discouraging.  If we break through Friday's lows soon (as in this week) then I do think all heck will break loose and we could still be looking at an historically significant event.   When a market can't bounce in the face of such extremely negative numbers, it tells you something. 

If you are trying to be an optimist here, you can look back to February 5 of this year for some potential encouragement.   The market had been selling off hard at that point and put a one day reversal in after having a major sell-off the day before (down over 3%).   Coincidentally, that reversal was also on a Friday.   The following Monday, the market went nowhere and I, like many others, were expecting the worst because of a lack of follow-through.   However, after moving sideways for the rest of the week, the markets finally did breakout a bit to the upside the following Monday and went on another major rally.   Could it happen again?  I have learned this year not to put anything past this market.   I can't say I am expecting it but it is something I will watch for as a potential scenario. 

Good luck if you're trading - I am still in cash and am in no rush to do anything.   Gold did bounce a bit today and I will still keep a close eye on it, but that's really it.   Take care and be careful - it's still a really difficult market. 

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