Monday, August 23, 2010

State of the Stock Market - 8/23/10

What started out as a positive session turned into a very bearish one today on Wall Street, as stocks rose early for about 20 minutes before falling hard and giving up all of their gains and then some.   Around 11:00, they found a bottom, but the bounce was very weak and very slow and ended as the final hour started, with stocks falling again into the close.   I don't have the final volume totals but it looks close to Friday's levels.

Technically, the 9 day moving average proved to be important as both the S&P and Nasdaq climbed up to that level almost exactly before reversing lower.   Right now, the markets are below all of the moving averages I use and until they get above them, I can't even think about getting long.   We're still forming a range here, particularly on the Nasdaq, and with the moving averages forming the top of the range for the S&P, I think it is going to be much harder for the bulls to break us out of the range than it will be for the bears to take us lower.    

I think the Nasdaq holds the key to this market over the next few weeks - the 2155-2160 level is of utmost importance for the bulls right now.   This number corresponds with the July 20 low and has been tested now four times in the last two weeks if you count today.   There was a subtle difference today, however - the previous three times, the market bounced right off that number and closed a good bit above it.   Today it closed at its lows.   That's why I am expecting a breakdown below that level soon.   The more something gets tested, the more likely it is to eventually break, and I think we're getting near that point.  

We are still in the midst of summer trading however, and because of that, I do worry of another whipsaw on a break through the lows shown in the above chart.   I said Friday that this is a market full of weak bulls AND weak bears.   Today certainly proved the weak bulls part.   The bears have another opportunity here but have to advantage of it.  

I made one move early in today's session, covering BIDU at $80.41 for a 4.75% gain.   I almost covered my LVS short pre-market as it looked to be opening above my tightened stop loss level, but I held to see what the open would bring and because of the fade, I still have both AAPL and LVS short and will continue to hold them, although my stop losses will be tightened to breakeven after today.   AAPL in particular looks poor here as it started to breakdown from a bear flag.  In hindsight, I should have kept BIDU but I was expecting a bounce around the 8/12 low.   I did start a short position in AMZN near the close today at $126.75 - forming a bearish wedge here and if the Nasdaq breaks down, I think this will follow.  

 All Charts from Telechart, Courtesy of Worden Brothers, Inc.

Good luck tomorrow - hopefully you have playing defense since August 11 and haven't been hurt too badly with this choppy move lower.  My numbers are still bearish and until we get above the moving averages, there is no need to try and be a hero on the long side.   We should be able to tell tomorrow if the bears are stronger and ready to take over the market or if they are just as weak as the bulls.   If so, we're in for more chop.   Take care.

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