Friday, August 20, 2010

State of the Stock Market - 8/20/10

It was the tail of two markets today on Wall Street, as from the open to 11:30, stocks sold off and in the case of the S&P and Russell 2000, broke their lows from earlier this week.  From 11:30 on, stocks rose slowly and steadily, taking back most of their earlier losses and in the case of the Nasdaq, finishing positive for the session.   Volume was lower than yesterday.

Technically, I said yesterday that Monday's lows were the key, and those did hold across the board today on a closing basis.   That could be good news for the bulls, but they haven't shown any real strength over the last few weeks either, so more than anything, I think it means we are going to chop around a bit longer before getting a real move of significance.   The bears had their chance yesterday and today to do something big, and just couldn't do so.   The bulls had a chance Tuesday and Wednesday to move this market higher and squeeze a lot of shorts, but couldn't.   What we're looking at is a market filled with weak bulls and weak bears, and when you have that, you have (say it with me now....) a choppy market.  

Surprisingly to me, I am still in all of my shorts (AAPL, BIDU, LVS) after today.   I tightened the stops when I saw the market open lower but none were hit yet.   That may happen early next week, and if it does, I will not be upset.   As I look at my main account, it is pretty much the same as it was three to four weeks ago, and my last fifteen trades have all been very small gains or very small losses.   This remains a market that is very difficult to make large amounts of money in - the opportunities are there but they are few and far between and you have to pick just the right stock to do so.  

Longer-term, I still think we head lower barring any rescue from the Fed or Washington, but short-term, I am not sure.   We've carved ourselves about a 100 point range on the S&P and 200 point range on the Nasdaq this summer, and over the past week, it looks like we are carving out a very small sideways range as well.   If the market breaks above its 50 day moving averages and the highs of this week, the bulls could run into September.   If today's lows are broken convincingly, then the bears could take us down to at least the summer lows and perhaps much further given seasonality.   If you're not invested right now, all you can really do is wait for one of those two things to happen, and pray we don't just get a giant whipsaw when it happens.  Oh yeah, you're pretty smart too not being invested.  

 Chart from Telechart, Courtesy of Worden Brothers, Inc.

I won't be around this weekend because my family is heading out of town so I don't know that there will be a video up, but this summary is longer than normal so maybe that will take care of the outlook for next week.   Enjoy the weekend and good luck Monday.

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