Monday, August 2, 2010

State of the Stock Market - 8/2/10

A very good day on the surface for Wall Street today, but a confusing one for yours truly as many stocks did not act the way they should on a day with such large gains for the overall market.   Most of the action took place in the first half hour of trading, as stocks gapped up, and after a very brief pullback off the open, shot up again.   They drifted sideways until lunchtime, when they fell slowly, but a little before 1:00, they bounced back up slowly and steadily, going to new highs around 2:30.  The market pulled back into the close but still finished with large gains.   Volume, however, was pathetic unless there was a major push during the final minutes and I certainly didn't sense that.

Technically, the action looks very positive for the major indices.  The S&P (by closing above 1120) has made a higher high and has stairstepped its way higher nicely since July 1.  It faces a little resistance at 1131, but besides that, it does has some room to run if it wants to do so.   The Nasdaq has yet to make a higher high and needs to close above 2307 to do so.  I never like to see the Nasdaq and Russell 2000 lag the S&P, but that is what is happening now.   Financials (as shown in the weekend video) staged a move over $15 and above the neckline on an inverse head and shoulders pattern and that is certainly a positive for the market.

For my trading, it was just a weird day.  I went in fully long with UCTT, ISLN, IGTE, and CSR as my positions.  Normally, I'd expect to be very happy being fully long with positions that all recently released very positive earnings reports (a catalyst) before the market went up over 2% in that session, but I ended up being stopped out of nearly all of my positions and am basically where I was at the start of last week.   My positions, along with many others I followed today, simply faded their gap opens even when the market did not, and many put bearish looking reversals or false breakouts in today.  I was stopped out of IGTE at $17.57 and made a measly 1% on that trade.   Late in the session, I was stopped out of CSR at $5.68 for a 1.6% loss.  It hit a high of $5.86 around 10:00 and looked good, but simply gave it all back and more, just like the others.

I made one trade in my IRA today - LIWA (a copper play) at $9.89 overall.  With FCX breaking out, I thought it would work and I like the chart - it has been going sideways for a while and has some support underneath with the moving averages.   Just like the others, however, it didn't act well in the face of an overwhelmingly positive market, which is worrisome.

I fought the urge to take profits at the open today because the overall market looked very good from a technical perspective and there were so many stocks in my weekend scans that looked bullish that I thought there was no reason to act hastily and take profits too early.  Of course, the market had other ideas.  I honestly don't know what to think for the next few days, as the overall market looks like it definitely wants to continue higher, but in terms of individual stocks, I just don't see many I am interested in after today's action.  It's not because those stocks are extended either - very few are.  I was just very disappointed with the way many small caps stocks acted today and I take that as a potential warning sign for the next few days. 

We'll see what happens tomorrow - I am very close to be stopped out of my two other positions and kind of expect to be anyway after the way they acted today.   If that happens, I'll move on and not worry about it - not much else to do.  I'll be frustrated but who hasn't (consistently) felt that way the past three or four months. I have a few setups I am watching but not nearly as many as I had going into today.   It's hard to say "I am hesitant" after a day when the market was up so much, but that's how I feel.  My gut is telling me that today wasn't nearly as strong of a day as it appears to be on the surface.  I hope I am wrong.  Good luck tomorrow. 


positiontrader said...

Its funny you state that Mac. I have exactly the same feeling about the action today and can't explain it via charts, which all look bullish. We shall see.

Mac said...

The index charts - yes, they look bullish. However, I just didn't see the strength I expected to see in individual stocks, most of which were coming off decent sized pullbacks.

The Rogue Investor said...

I have been skeptical of this rally for the same reason: volume.

We've only seen 4 days of increased volume when the major indexes closed near the highs in the last couple of months.

As always though, you can't fight the trend.

Mac said...

If you look at February through the end of April, that entire rally came on much lower volume, so it can happen. I was more bothered by the action in a lot of names.