Monday, July 26, 2010

State of the Stock Market - 7/26/10

Another very positive session price-wise for Wall Street today, as stocks had another nice move in the morning, and consolidated throughout most of the afternoon.  They broke down a bit around 2:20, but righted themselves and moved to new intraday highs in the final hour, closing with large gains once again.   The only problem is that volume was quite low and that is not what you want to see as the market moves to new highs.   Perhaps there was a late surge as I do not have the final totals, but at 4:05 as I write this (with a 20-minute data delay), Telechart has S&P volume about half of what Friday's totals were and Nasdaq volume just a little more than half Friday's totals.

Technically, the market put in its fifth day of gains out of the last six sessions, but volume was low today and that is never a good sign after a large run-up.  The S&P bumped into the 200 day moving average several times today around 1110 and managed to close above it.  The Nasdaq was able to clear its 200 day on Friday.   The markets are certainly extended in the short-term in a number of ways but that doesn't mean they can't go higher I guess.  My breadth indicators have turned bullish across the board so that is positive.

I did make some trades today - this morning I entered CIGX at $2.04 as it broke above key resistance.   Being a very low-priced stock, I took a very small position but the chart looked good and it was shown in last night's video.   There were other names I passed on, namely AONE (which has also been shown here several times over the past week) but I am OK with going slowly on the long side.   As I said this weekend, with the market extended, I don't know how prudent it is to get aggressively long at this particular moment.   It's much better to wait for a pullback and go from there in my opinion.

Later in the session, as I noticed the McClellan oscillator moving above +300 (my readings showed +325) and to the highest it's been since January 7, 2009, I thought it was smart to start taking profits on my two positions and I even went ahead and initiated some shorts as hedges.   I sold out of WPRT at $20.57 for a 7% profit.  Then I went into SDS ($32.13) and QID ($16.99) with stops at the lows of the day.   I kept my position in CIGX and just let the stop run its course there, so I wasn't fully short.   I ended up getting stopped out of SDS at $31.79 for a 1.2% loss but I still have the QID (just barely) as the market grinded its way higher into the close once again. 

Chart from Telechart, Courtesy of Worden Brothers, Inc.

We'll see where we go from here but I think if the market keeps running up without a rest like it did at the beginning of June and the beginning of July, then we eventually have a nasty pullback.   You would like to see the market stair-step its way higher, resting for a few days as it moves up - that's what healthy markets do and I am hoping we have finally arrived in a "healthy" market.  That action hasn't happened for a while, however, and maybe it just won't.  Since all of my breadth indicators did turn bullish today, I am not a bear here, but I would like to see a pullback or rest so this move can be maintained to the upside - that's all.  

Good luck Tuesday - I will follow earnings plays for potential short-term trades but will have a hard time initiating any new longs at this point.  Take care.

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