Tuesday, June 15, 2010

State of the Market - 6/15/10

Another fun day on Wall Street today as what happened yesterday continues to have no effect whatsoever on what happens today.   We saw the market test and in some cases break through key resistance yesterday only to reverse and sell off hard, frustrating (I would guess) a large percentage of bulls and emboldening a large percentage of bears.   So what does the market do today?   It moves higher by almost 3% in the case of the Nasdaq, frustrating a bunch of bears and emboldening most bulls.  The volatility continues.   The market started slightly higher today and just climbed slowly and steadily from there with the market closing at its highs for the day - the intraday action was actually not volatile at all.   As of now, volume is heavier on the Nasdaq and S&P, but not above average on any index.

So where are we at and where do we go from here?   Let's look at the first part of that question.   Today likely qualifies for an IBD "follow-through" day since the Nasdaq and S&P had a large percentage gain and volume was heavier than the day before.  This doesn't mean the market is going to take off from here - all you have to do is look at June 2 and see what happened after that FTD.   What it means is that there is a good chance that the market rallies further.  We'll see what happens - I have explained my opinions about this idea before on this blog - the fact that I really want to see a huge surge in volume across the board on a FTD - but it is what it is.   

Technically, the markets have now clearly broken through their two month downtrend lines.  That is good. The S&P has made a closing "higher high", although it is also a bit worrisome that both the Nasdaq and Russell 2000 failed to make new closing highs today as well (the Nasdaq came within two points of doing so).   We are also as overbought as we have been since this correction began back in April, with the S&P showing a 94 RSI(2) rating, the Nasdaq showing a 97, and the Russell 2000 sporting a 98 rating (all out of 100).   The McClellan oscillator is around +275 as well, the highest its been since March of '09.   None of this means we can't keep moving higher - I am just putting this out there as facts that need to be considered.

 All Charts from Telechart, Courtesy of Worden Brothers, Inc.

I made no trades today and am actually still in both of my shorts (FCX and CRZO).  That may change tomorrow as FCX came very close to being stopped out, but we shall see.  I thought about adding a few more shorts intraday but had a feeling that this melt-up would occur so I passed.   Not many of the stocks on my long watchlist did anything today - both CROX and SKX were up nicely but in the case of CROX volume was only average and both stocks have been up now six days in a row.   Does that sound like a place you want to buy a stock?   I have to pass.   The other leaders out there like NFLX, BIDU, DECK, SNDK, VMW all have charts that are not very attractive either from a buy perspective.  They are strong stocks, but the setups aren't there.   Some rest or consolidation here would help in this regard.

I don't want to make it seem like I am really bearish here - I am not.  More than anything after today I would classify myself as neutral.   I have two shorts on but remain mostly in cash.   As of now, none of my signals have turned bullish but it looks like could change soon with a few more days of buying.  If they turn, then I will concentrate only on going long.   As it is, this is still a tough market to trade frequently and less is probably best.   A small pullback here would be super but a continued melt-up is going to be tough to play.
All I am doing is just trying to lay out the facts here and tell you that it is important to remain disciplined here.  Chasing stocks can get you in trouble, and just because things look great at the end of today's session doesn't mean tomorrow is going to be great - all you have to do is go back one day to remind yourself of that idea.
We remain in a very volatile environment with options expiration coming Friday, so I'll wrap up this wrapup by saying don't be surprised by anything and keep your options and mindset open.  Anyone that is super bearish or super bullish and really confident in their position is likely setting themselves up for trouble. Take care and good luck Wednesday.

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