Thursday, June 10, 2010

State of the Market - 6/10/10

An interesting day on Wall Street today as stocks were up a large amount but made those highs on what appears to be weak volume.   I said the following in yesterday's post...

"I showed some long setups last night in case we bounced but I also mentioned how it would take a move above 1110 and 2270 to get me really bullish.   Maybe it still happens (today's action looks very similar to 5/26 and the next day we saw a 3.7% move so who knows?) but the proof is in the pudding."

You may think today is the "proof" - the all clear signal to go out and buy stocks.  However, due to the striking similarity between the past three trading days and 5/25-5/27, I have to maintain my stance that we are just in a volatile range here until either 1110 and 2270 get broken to the upside or until 1040 and 2140 get broken to the downside.  Following May 27, the market sold back off, moved up again two days in a row, and then fell hard.   I would not be surprised to see the same thing happen here, especially considering the volume levels on today's trading, which also strikingly (or should I say eerily) similar to those three days.  Oh yeah, the three days from then match up day-wise as well - Tuesday, Wednesday, and Thursday.   Kind of spooky if you ask me. 

Due to the overwhelming volatility of the past month or so, I have been in cash, but that doesn't mean I have been doing nothing.   One thing I have tried to do is tighten up my overall market timing system and make it a bit more mechanical.  It was a weakness I recognized and wanted to work on, especially in an environment controlled more and more by machines rather than humans.  Looking back at 2009, I realize I was going too much by feel and ended up missing a large portion of the rally from March.   My signal is still clearly bearish as of now and that is another reason I am hesitant to chase anything like today's rally.  

We are just lacking buying pressure.  Today was a prime example.  Just not really enough breakouts for such a large percentage day (I don't have the final numbers yet but will share later on Twitter).  Theoretically, IBD could call this another follow-through day, but again, with such underwhelming volume, I don't know that they should.  If we keep moving higher and volume comes in and we get over those important resistance levels, I believe the numbers I look at will take care of themselves.   Until then, however, I have to continue to wait and be patient.  If I get the "signal" to start going long, I'll be sure to share it.

That's about it for today - as always, if you're out there trying to trade this chop, best of luck.   If you're like me and sitting on the sidelines, our time will come soon - just continue to be patient.   Take care.

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