Tuesday, May 4, 2010

State of the Market - 5/4/10

The roller coaster continues.   A day after posting very impressive gains, the bears came out to play in full force today on Wall Street, as we saw about as nasty a day as you can get.   Stocks started the day lower, fell further from there until lunchtime, and then moved basically sideways with very little bounce into the close.   Important support on both the Nasdaq and S&P were sliced through with ease.   Volume was much heavier.   A bad day all around.  

Technically, the support around 1180 and 2450 was broken today but the market did manage to stay above its 50 day moving average around 1168 and 2403 respectively.   I discussed in the weekend video that I thought the first break of those first support levels could be a fakeout with so much support below and a history of dip buyers coming in for quite a while now.   I stick by that feeling for now, as although I don't discount us falling further tomorrow, there is more strong support for the S&P at 1150 and I would suspect we bounce if the market gets that low.   It's possible we fall off a cliff here and blast through all downside support, but I doubt it will happen like that.  If we do bounce, I don't think it will be a permanent bounce - I am looking for a reflex one from which to possibly get short.   I passed on taking any shorts today.

Believe it or not, I actually took one long on today - PMI at $4.99.   I look at this chart and see a key level at $5, and it seemed to have gotten some support in that area today as it bounced off its 50 day moving average.   Longer-term, this looks like it is retesting the neckline of a massive inverse head and shoulder pattern and I will take a shot it holds this area.   I will be out however if it doesn't.

 Chart from Telechart, Courtesy of Worden Brothers, Inc.

Overall, this remains a difficult market to trade overnight in anyway because it is still being hijacked by the headlines.   Friday looked awful.   Monday looked tremendous.   Today looked awful.   I am sure a lot of traders got chopped up if they have held overnight the past week or so.   Basically, you just have to guess what the news will be when you wake up the next day.   That's easy, right???  Until things settle down, it makes it tough to trade aggressively - being cautious is the better play.   I'll take a few small shots here and there as I see them, but overall I am planning on remaining mostly in cash the rest of this week.   If we get a reflex bounce from here, I will look to play it short, as I think longer-term we may have a more serious pullback in store for us.   You know how that line of thinking has gone the past year, however, so who knows?   Good luck Wednesday - you'll probably need it.  

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