Thursday, June 24, 2010

State of the Stock Market - 6/24/10

Short-term oversold conditions simply didn't matter today on Wall Street, as stocks sold off for the fourth day in a row, and sold off rather hard.  Stocks started the day lower and sold off further for the first half-hour of trading.  They then formed a bear flag, broke down again, and hit a temporary bottom around 11:00.   They worked their way higher from there and it looked by mid-afternoon that a potential reversal was at hand.  However, the 2:00 hour brought the sellers back in and stocks tanked from there right into the close, finishing at their lows for the day after a feeble bounce attempt failed late. 

Technically, the volatility continues and it remains a difficult market.   Stocks have gone straight up (June 8-21) with little or no consolidation and now are going straight down with no consolidation either.  Rational thinking traders (like me) have trouble making sense of these moves because they happen so fast and go so far, but we are in a very irrational market right now.  Eventually, buyers will come in and stocks will bounce a bit, but I have no good way of knowing when that will be.  Technical indicators seem to be of little help right now because this seems to be a market with little volume and with that lesser volume comes these extreme moves and volatility.   I expressed several times back in May my fear that volatility would actually increase as volume decreased due to the summer trading environment and unfortunately that seems to be true. 

The RSI (2) indicator I showed in the charts last night is as low as it can get, but it (like every other indicator) is not perfect and could just stay in this low range as we continue to sell off here.   Other oversold indicators like the McClellan are not yet at extremes.   The past four days has retraced a little more than 60% of the move from June 8-21, so there is still room to fall from here before the 2140 and 1040 levels that everyone knows about could be tested once again.   Will we get there?   I wish I knew.  I expected a bounce today and guess I still do at some point - a straight drop down from 1125 to 1040 on the S&P is hard to believe but it seems now like that could happen.

Although I was tempted to buy the dip today, I passed and remain in cash.  Frankly, I don't have the guts to buy this dip because I know that there is a good chance I would be stopped out tomorrow on another gap down.  The moves we're seeing are so extreme that this particular selloff could be long from over.  That being said, there still are charts on the long side that I am watching and that look OK - AZPN, ARMH, CROX, AAPL, ENTR, APKT, RDWR, ARST, SKX, PWER, and UAUA have all held up relatively well.  I would love to be aggressive here with some of these names, but I just can't - this market remains extremely tough, especially for swing traders, and the motto "less is more" remains very practical.   The less you do right now in terms of trading, the better you likely are.   Take care and be careful out there.

1 comment:

Anonymous said...

here are some that look relatively good

pvr, arlp, tgp, cpno, wpz, mwe, mpa, hcp, sjt, aone

plinkmeyer@yahoo.com