Thursday, July 29, 2010

State of the Stock Market - 7/29/10

An interesting and volatile day today on Wall Street, as stocks rode quite the roller coaster up and then down and then back up to finish with small overall losses.   The market started off positive but that open was quickly and harshly sold off, with the Nasdaq falling over 50 points from top to bottom by lunchtime.   A little before 1:00, the trend changed and stocks rose just as steadily as they fell in the morning, climbing throughout the afternoon to take back all of the losses by 3:00.   The last hour was not nearly as strong as I hoped for, with stocks giving some of the bounce back, but all in all, it was a positive day.  

Technically, today looked quite bad early on but it turned out to be a relatively positive technical day.  Both the Nasdaq and Russell 2000 got low enough this morning to test their 50 day moving averages and then bounced powerfully off of those levels, which is obviously good to see.   With the morning dip, this pullback probably went farther than most anticipated (especially with the strong open) but it is always good to put a little fear into the market to test each side.   The bottom line is that dip buyers came out when the market was down and that leads me to believe that we can expect further upside from here - at least that's what seems likely. 

Because of the volatility, I ended up making quite a few trades today.   Due to the morning gap up, I decided to exit my SDS and QID positions pre-market basically flat, as I really did think the pullback was likely over based on the open.   I entered SKX last night at $38.00 and expected good things based on its pre-market action, but that also surprised me by reversing hard after the open and stopping me out at $37.93, again basically flat.   I decided that cash was probably the best play at that point, as I saw many earnings plays reversing hard to the downside as well.
When the reversal took place in the afternoon, I reversed my thinking as well and went long three stocks as starter positions - UCTT at $10.80, ISLN at $16.97, and ZQK at $4.57.   I had been planning on buying this pullback when I felt it had played itself out, and so I stuck with the plan and started some longs.   There are many others that look quite good here and I have cash at hand but for now, I will see how these act before getting more aggressive.  I have my stops in place and want to see some immediate follow-through with these plays.  I also like to keep money in hand for potential earnings plays. The winner in that respect today was clearly CTXS, which I posted on Twitter last night but passed on because I didn't think the growth was that impressive.   I could have gotten in at $49.50 or so last night, and it will close above $57 today.   Not bad at all.

Chart from Telechart, Courtesy of Worden Brothers, Inc.

Nothing surprises me anymore, but I hope to see some further strength tomorrow as a sign that this truly was a buying opportunity today.  I would have really like to have seen the strength last all the way into the close today - that's why I want to see an up move start tomorrow.  If we don't get it, it is very possible we chop around in a new range between today's lows and Tuesday's highs - boy, that would be frustrating.   Overall, the line in the sand has now been drawn in my opinion at today's lows and as long as those hold, the bulls remain in control and you have to look long.   If you need setups, feel free to email me - there are plenty out there, many of which I have shared on Twitter.   Good luck Friday.


positiontrader said...

You think the expected bad GDP numbers had a hand in the weak close and are already reflected in the market Mac? Thanks!

Mac said...

Honestly, no clue. I was thinking maybe the late selling was due to people reconsidering stepping in front of that number tomorrow. To be honest, I don't trust any number given out anyway as I think they're all doctored. We'll see - an upside surprise could send us much higher.