Tuesday, August 17, 2010

State of the Stock Market - 8/17/10

What started as a very positive day on Wall Street ended with a lot of questions, as stocks opened with gains, consolidated nicely, and then really took off into lunch.  By 11:30, stocks were up well over 1% across the board and after a brief consolidation through lunch, they tried to break out again in the afternoon.  At this point, however, technicals took over and stocks quickly ran out of steam, falling slowly at first and then a little quicker in the final hour to close in the middle of their range.   Volume appears to be close to yesterday and overall not very impressive. 

Technically, I talked about a bounce this weekend and so far, it is playing out like I expected.  The S&P was able to climb above its 50 day moving average today with ease, but hit resistance around its 9 and 20 day moving averages (near 1098).   The Nasdaq got as high as its 50 day moving average but also hit resistance at that point and sold off - this was also mentioned as a good possibility in the video.   If the market climbs above today's highs, then I will have to reevaluate my outlook, but with the late fade, I still think the benefit of doubt has to be given to the bears based on last Thursday's breakdown.  

Charts from Telechart, Courtesy of Worden Brothers, Inc.

Although the market was up nicely for most of today, I still really had no interest in going long at this point.   One of my two main breadth numbers did turn bullish today, but the other remains in bearish territory, so I am sitting out and am still of the opinion this is simply an oversold bounce like I talked about this weekend.   Some of the stocks I mentioned yesterday did have good sessions today (NANO, EDR, HXL, EBIX, RDWR) but with the exception of NANO, volume was not that impressive on any of the others.   Then you also have stocks like SOLR and INFA - two stocks that posted super breakouts yesterday.   You would expect good follow-through for both with the market up well over 1%, right?   Well, think again - INFA reversed well off its highs and finished lower for the session while SOLR was down over 7% on a downgrade.   These are two prime examples that it remains a very difficult market.

I did reshort BIDU near the close at $84.58.  My stop is in place and if I stuck to my original plan when I shorted it last Thursday, I still would have my original position.   The last three days for BIDU look like a weak bounce to me and the fact that it could barely finish positive on a great overall day for the market was telling.   I still have my AAPL short and also added a short in LVS at the end of the session at $29.83.   As you can see in the chart below, it is at the top of a long time channel and breakouts have been very poor in this market, so I thought it was a good candidate.   If we keep bouncing tomorrow, I will likely be out of these, but I accept that possibility - actually, in the back of my mind, I kind of expect it the way this market has been this summer.

Charts from Telechart, Courtesy of Worden Brothers, Inc.

Overall, the bulls haven't really proved much to me so far this week and I was not impressed by the late action today.   I am not saying we are going to rollover - there is a good chance this whole week will be choppy - but I think we will head lower before heading much higher than we are today.   Good luck Wednesday.


ppmoore said...

Good market analysis.

At the moment I'm just day trading - buying and selling the same positions intraday.
Comgratulation, I noticed your site in the list of the best voted blogging sites:

Mac said...

Thanks PP - yes, I got an email about that. A lot of good blogs on there.

Day trading is probably smart right now - swing trading is certainly hard.