Monday, August 9, 2010

State of the Stock Market - 8/9/10

An up day on Wall Street, with stocks slowly climbing throughout the day, but if the market makes gains but no one is trading, does it matter?   The reason I say that is that today's session was one of the lightest volume days of the year.   I don't have the final totals yet, but it was a very slow day, and I illustrate this fact just to remind you that we are in a very thin trading environment right now and it is hard to trust moves and patterns in an environment like that.  

Technically, the Dow moved slightly past its resistance levels from June, but could not close above them.   The S&P and Nasdaq continue to stay below their resistance levels as well but are very close.   The numbers to watch (and I think everyone is watching them) are 1131 for the S&P and 2341 for the Nasdaq.   The Nasdaq still has resistance at 2307 and that is more of an important level for the Naz this week.   I get the sense that a lot of traders are expecting a breakout here and it will be interesting to see if it holds in this ultra-thin August environment.  

I pointed out last night in the video that a breakout followed by a reversal would not be surprising here, and I still hold that view.   If you look at both main indices, a bearish wedge can no doubt be seen on their daily charts, with resistance being possible around 1140 and 2355 on the S&P and Nasdaq respectively.   The 1140 number in particular is one I am watching because sticking with the theme of screwing as many traders as possible, a breakout above 1131 would like bring in many buyers and a false breakout and reversal at the top of this wedging pattern would certainly frustrate many.   This obviously isn't a guarantee, but I think it is certainly a possibility this week.  

 Chart from Telechart, Courtesy of Worden Brothers, Inc.

I made no moves today and remain mostly in cash.   There were stocks moving higher today (EBIX and CNAM were posted last night and both were up more than 5% today) and those that didn't basically just consolidated another day.   I still have those on my watchlist and will continue to look for long possibilities - I am just not jumping into a bunch of stuff here willy-nilly, that's all.   My numbers remain bullish and if the market breaks out and holds it, that will be a very good sign for the rest of the summer into fall.   For some reason, however, I just sense that in this low-volume environment, it's more likely that we get more chop rather than a nice, smooth breakout that takes us much higher.   We'll see what happens.   Stay agile and stay careful, as it still is a tricky market.   Good luck Tuesday.

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