Wednesday, June 30, 2010

State of the Stock Market - 6/30/10

Yesterday I did two posts and discussed in both the good possibility that we are officially back in a bear market.  Well, if you had any doubts, I think today should officially change your opinion.   In what was another terrible session for the bulls, the market couldn't put in a bounce early on of more than a few points after being taken to the woodshed yesterday and chopped sideways for most of the session.   In the last forty minutes, however, the bears took total control and sold the market off very hard, with the Nasdaq losing thirty points in less than an hour.  The market bounced back very weakly into the close and the action shows how feeble the bulls are right now and that's the key - there just aren't any buyers out there right now.   Without buyers, it is hard for prices to do much of anything but fall. 

I am kicking myself a bit today because most of the session, I sat there amazed that the bulls couldn't push the market higher at all and kept thinking, "man, I should put some inverse ETFs on here because this market is going to fall further."  For some reason, I didn't - the only move I made was shorting some GMCR at $25.72 late in the session.  It is hard to short a market that has fallen so hard and so swiftly but today it was the right move.   The real scary thing is that along with the market, a lot of stocks are just now breaking key support levels and since the bulls seem to be on vacation, their falls through those support levels could continue to be swift. 

Are we oversold right now?   On some measurements, yes, we are, but on others such as the McClellan Oscillator (which is not even below -200 yet although I don't have today's final reading) we aren't yet at extremes.  I'm sure you've heard this before, but oversold can always become more oversold, and I would not be surprised to see that happen here.   Don't just think that because we've fallen so far that we can't fall further.  We certainly can and with the jobs number coming out tomorrow, there may be a good chance that we will.

In terms of strategy, the key right now is to play defense, not try and catch these dips, and save your capital for better opportunities.  Trying to be a hero right now is just stupid. We will bounce at some point. I don't know when that will be and frankly I don't care that much.  With the damage done over the past week and a half, any bounces will likely be capped not too far above the key levels of 1040 and 2140 on the S&P and Nasdaq.   We've officially gone from a "buy the dip" market in 2009 to a "short the bounce" market in 2010.  Play accordingly.  

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