Wednesday, August 11, 2010

State of the Stock Market - 8/11/10

We saw a very poor session today on Wall Street, as stocks gapped down to start trading and continued to sell off for the first hour and a half of the session.   Around 11:00, stocks leveled off, but no real bounces took place the rest of the day - it was just a sideways move that had stocks closing near their lows for the day.   I don't know as of now if volume will be heavier - it looks like it will be at least close to yesterday's totals.

Technically, I've been warning of this potential bearish wedge pattern for a few days now and we sliced right through that today.   The S&P barely held its 50 day moving average, but the Nasdaq cut through its 50 day with ease and the look of the indices is certainly a bearish one.  I've been waiting for a move to take place - a lot of traders have - and after today, it looks like that move will be lower.   In addition, the main two breadth indicators I follow gave sell or short signals today, and that is significant as well.  

Since my indicators gave me the signal, I had to follow it today so I did short AAPL this afternoon at $250.35 and BIDU at $84.21.   Both are fairly large positions but my stops are in place (a little bit larger than usual because I'm sure this market will gyrate over the next week and not make things easy on the bears either).   I did not short at the start of the day because I wanted to see how things played out, but with the lack of any sort of bounce taking place along with my numbers giving me the green light, I went ahead and followed the plan.  I was stopped out of my LIWA position in my IRA at $8.55 for a 5% loss.

Charts from Telechart, Courtesy of Worden Brothers, Inc.

Hopefully you weren't too hurt from today's move lower.   I've been somewhat cautious for over a week now for many reasons (which is why I was mainly in cash the past week) and I guess today proved those feeling correct.   Based on what I see, I believe today will mark the start of another move lower.   I don't know how much lower we will head - we'll evaluate as it happens.   Notice how for the first time in a while, no dip buyers showed up today.   Not good.  Bottom line for me is that the tide has turned for the time being and as such, you have to adjust your strategies.   Good luck Thursday.

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