Thursday, July 8, 2010

State of the Stock Market - 7/8/10

An interesting day today on Wall Street, as the bulls started the day very strong.  Stocks were up a good amount in the first ten minutes of trading, but that follow-through from yesterday quickly faded, and stocks chopped their way lower for most of the rest of the session.   There was a bounce-back into the close but the two major indices closed near the top of their intraday ranges and with decent gains.   All in all, not a bad day at all for the bulls - I expected worse based on the action mid-morning.

Technically, both this weekend and yesterday, I discussed some potential resistance areas to watch now that the markets did get through their necklines on those head and shoulder patterns.   As of now, the Nasdaq is still below its 20 day moving average around 2200, but the S&P finished right near that level around 1070.   This is where I felt the market had a chance to reverse and begin another move down, but it didn't happen today, so I may be wrong.  As I said yesterday, it is entirely possible for the markets to move all the way up to their 50 day moving averages - I would be surprised by it, but for the past two months, we've seen nothing but moves straight down (usually farther than people expected) followed by moves straight up (usually farther than people expected) with very little consolidation along the way.   There is no reason it can't happen again.  Perhaps we are just in the middle of another one of those straight shot moves - this time up.  

I did make some trades today as the S&P got near 1070 as I felt I had to test my thesis of the past week or so.   I entered AMZN short at both $116.51 and $115.27 for an average price of $115.86.   This is a large position but it is my only position and I am not planning on holding it if it goes against me - my stop is in place and I will honor it.   I really however liked the setup and as it gapped right into resistance today around $117, I took a shot.  I mentioned CREE in yesterday's post as a possible short and am kicking myself for waiting too long today - it gapped right into its 50 day MA, but I hesitated to see how it acted from there and it reversed too quickly.   Perhaps some of you took that trade today.   I also entered some QID ($18.71) and SDS ($35.01) for my IRAs, again testing my thesis.   Stops are in place there as well because I am certainly aware we could still move higher from here.

We'll see where we go from here, but overall today was good for the bulls in that they didn't give anything back from yesterday's big move and they certainly had a chance to do so this morning.  I did see reversal or partial reversal bars in quite a few stocks today (NFLX, CRM, AAPL, SPRD, BIDU, CREE, TSL, F, CVGI) and the overall market is right near important resistance, so perhaps stocks need to consolidate a bit before moving higher.   We are also getting overbought in the short-term, so I wouldn't chase any longs here.   Interestingly, IBD put the market back into rally mode last night as they said the NYSE composite posted a follow-through day yesterday.   The past two FTDs have failed quickly, but perhaps this one will be different.   If it is, then I will respect it and look only at long positions.  I need to see some more evidence in order for that to occur.   Right now, I'll sit with the positions I put on today and let the market tell me if I am right or wrong.  Until then, the rest of my portfolio will stay in cash.   Good luck Friday.

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