Tuesday, October 12, 2010

State of the Stock Market - 10/12/10

Not a bad session today on Wall Street, as stocks fought back from a weak open to close slightly higher and continued to find support at a key short-term moving average.   The day started poorly, but after about twenty minutes, stocks found a bottom and bounced strongly.  They moved sideways in a very tight range from 11:00 to 2:00, but as the final two hours of trading started, stocks started moving up again and closed with gains.   Volume looks higher on the Nasdaq and close to yesterday's totals on the S&P.

Technically, stocks keep chugging along and keep getting support at their 9 day moving average, and as long as this occurs, there is no reason to fight it.  My only worry right now is that the indices seem to be wedging up a bit again, but it doesn't mean anything until we see the breakdown.   In fact, retail continues to consolidate in a very bullish manner and as one of the leading sectors right now, a breakout here could lead to further ramping on the overall market.  

S&P 500
Russell 2000
Charts from Telechart, Courtesy of Worden Brothers, Inc.

This is not to say I don't have my worries about this market.   The breadth numbers I follow continue to flash many warning signs - the numbers continue to get stretched past levels from which corrections typically occur.  It is important to recognize these warning signs, but not let them totally control your thinking.   They can continue to be stretched further and further - they simply are saying that the market has moved enough that a correction is likely soon.  They do not say when exactly it will occur.

Personally, I continue to believe that we will see a major, heavier volume, one-day selloff at some point that takes us through the short-term moving averages and that that move will be the signal that this rally is over for the time being.   However, that move hasn't occurred and until it does (I repeat) there is no reason to fight the market.   Stay long, take some profits when you get them, and keep your stops in place to protect yourself when/if that big move occurs. 

I started a small position in ALGN today at the end of the session ($19.93) due to the higher volume it showed today.   I have noticed that this higher volume has recently led to breakouts and I am hopeful it will occur here, although there are obviously no guarantees.   It also classifies (I believe) as a pocket pivot candidate and as such I decided to enter.   I continue to hold IDSA but that's it for now.   With the warning signs flashing, I don't want to get too aggressive, but I also don't want to fight the market.   It's a delicate balance that I am doing the best I can to make. 

That's about it for today - with earnings coming in now, it should be an interesting few weeks.   I am expecting a pullback at some point, but it may be from five percent higher than we are now, so again, don't fight the move until it proves to be over.   That's the best advice I can give.   Take care and good luck.


positiontrader said...

ALGN looks great Mac. Might get in on a break of 20.

I am seeing a rounded top being formed on S&P, quite similar to April, in case we consolidate at these levels any longer. What say you? Thanks!

Mac said...

A rounded top is possible here - the angle of ascent seems to be decreasing right now instead of the market moving up, pulling back slightly, and then moving up again. But it's been that way since March of 09 so who knows?