Thursday, June 3, 2010

State of the Market - 6/3/10

A mixed day on Wall Street today as the Nasdaq had a nice session with almost a 1% gain but the S&P lagged a bit and had gains of less than 0.5%.   As you probably know by now, yesterday's gains on the Nasdaq were enough to constitute a follow-through day for the overall market, putting it back in "rally mode".   That is good, but it is not enough of a green light for me to start buying everything in sight.  There are several problems with yesterday's follow-through.

The percentage gains were certainly large enough yesterday to warrant a FTD, with the Nasdaq and the S&P up over 2.5%.   Volume, however, was not impressive - Nasdaq volume was just barely higher than Monday and Tuesday's totals and volume on the S&P was actually less than Monday and Tuesday.  I never like to see only one of the indices have a true follow-through day - I would prefer to see a really powerful move where volume is much heavier across the board, signifying a true increase in buying interest.   I don't think we saw that yesterday.  There is also the issue of buyable stocks, or the lack thereof.  There are simply not many great candidates on the long side right now and that traditionally is not bullish on a FTD.   It is possible however that it just might take more time for candidates to emerge due to the volatility we've seen recently.   CRM, CSTR, and VMW are three IBD-type stocks that are out there as potential leaders, but I don't see many more.  Maybe I am just missing them. 

From a technical perspective, the Nasdaq is reaching a very interesting level as it is quickly approaching the downtrend lines that have established themselves during this correction.  The S&P is not quite as close to heavy resistance but it is getting there.  I said in this weekend's video that I would look to short in this area and I will have to decide soon if I am going to put my money where my mouth is or just stay in cash.   With a big jobs number coming out tomorrow, I would not be surprised to see a gap and we'll have to see how we trade off of another big news event.   My guess is that the volatility will be back in play big time.   A gap up might be a good fade opportunity and I have to consider it (although I will be at a funeral tomorrow so I may not be around to consider it anyway).

 Charts from Telechart, Courtesy of Worden Brothers.

That's about it for today - the next few days should tell us a lot about where we head from here.   A FTD is present so I am not discounting higher prices, but I still lean slightly bearish and think this FTD could fail soon.   We'll see what happens.   Good luck Friday.

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