Tuesday, July 6, 2010

State of the Stock Market - 7/6/10

The rally that everyone seemed to be expecting came and went pretty quickly today, as stocks started the day much higher, but the bulls just didn't have the strength to keep a rally attempt going more than an hour or so.   After gapping up, stocks ran hard until around 10:15, when the S&P just got slightly above the key 1040 number.   That number proved strong enough to reject stocks and they sold off hard from there, with the S&P losing 24 points from top to bottom and the Nasdaq losing almost sixty points from top to bottom.   They bounced things a bit into the close and did finish positive across the board, but the action intraday was anything but positive.  Volume appears to be lower.

I continue to see a lot of people expecting a bounce and talking about how the market is due to move higher from here.  If you are looking at a very, very short time frame, you may be right.  However, none of the indicators I look at point to extreme levels of fear or extreme levels of selling occuring at any point over the past week.   Actually, today's open was about the worst thing that could happen for the bulls.  Typically, playable bounces occur in bear markets off of extremely negative readings.  Important reversals occur when stocks sell off hard intraday only to be rescued later by true buyers attracted to the extremely low prices.  When those extreme levels aren't yet acheived and then the market gaps up big, all it becomes is a chance for more people to get out of their long positions, which is what we saw today

Technically, not much to say today that I didn't say in yesterday's video.  Hopefully you weren't buying the gap this morning.  I continue to believe we are back in a bear market and in a bear market you'll see days like this.   You'll see markets fall to what seem to be oversold levels where they "can't go any lower" and then still move further south.  You'll see former support levels as well as moving averages become resistance instead of support.  You'll see former leaders sell off and for the first time in a long while not bounce back.  (As I look at the watchlist of stocks I shared in part three of the video, I also see a LOT of bear flags forming and nice patterns developing from which to get short.)   We're seeing all of the above right now, and all of this evidence shows the market has clearly changed, at least to me it has.   You have to change your trading as such.

As for tomorrow, I don't know why, but I kind of think they will try to bounce it a bit more again (so I did not start any shorts today) but I don't expect the overall outcome to be much different that today - we're still going lower.  Ideally I would rather short around 1060 or so on the S&P but this market is so weak, I don't know that there is much chance of us getting that high.   As it is, another day or so of higher trade would be tremendous for allowing these short setups to develop even further.  (Make sure you check out the vids if you haven't seen them for those setups). We'll see if we get it.   Good luck Wednesday.


Anonymous said...

just found your blog. I found your analysis very compelling and insightful. will check your site daily. best regards to the family


Mac said...

Thanks Rod - always nice to have a new reader. Hope you continue to follow the blog.