Wednesday, October 13, 2010

State of the Stock Market - 10/13/10

Another bullish session today on Wall Street, as positive earnings news pushed stocks higher from the get-go and they continued to rise throughout most of the rest of the session.   Around 2:15, they hit a high point and faded into the close, finishing in the middle of their range, but overall it was another day of gains.   Volume looks to be heavier. 

I am not going to spend much time today talking about the technicals of this market.  Gold continues to take off.   The two major indices continue to chug higher.   Financials faded their gap up in a big way - perhaps a sign.   I am also curious why retail has not broken out yet, especially on a day like today.   My breadth numbers are majorly stretched.  With earnings now in play, all of this may matter and it may not matter.  Who knows?

Instead, I am going to take a different perspective today when analyzing where the market is.  This may be odd, but I am going to compare our current market to an episode of Seinfeld, still one of the best TV shows of all time.   If you ever watched the episode where Jerry tried to buy a new car with Elaine's help via Putty, you also know that Kramer went for a test drive with one of the salesman with the sole purpose of seeing how far they could drive without filling up for gas.   They got to the "E"on the gas gauge, then moved to the left off the "E", and then moved even further to the left of the "E" before eventually running out of gas and coming to a halt at the side of the road.   They had no way of knowing exactly when the car was finally going to clunk out from a completely empty gas tank, but they knew it was coming.   The further they went, the more they expected it to stop, but until it actually stopped, they were simply waiting for it to occur.   It was a mystery.   I really think that is where we are at right now.

The market has moved a great deal and has yet to really "stop for gas", so to speak.   My breadth numbers continue to get stretched and point to a correction coming soon.   I just don't know when.   This move could last much longer that we think just because the market can always do whatever it wants to do.   So much like Kramer and his companion, we have to be expecting a pullback (perhaps a sharp one) but also refrain from trying to predict when it happens (if that makes sense.)

I added a bit to my ALGN position today at $20.40 but overall that action wasn't the greatest breakout.   I was hoping for more, but the heavy volume yesterday was a good sign of a pending move.   We'll see if it follows-through.  I am still in IDSA but have tightened my stops on both positions.   I am hesitant to add to positions any further here or start new ones - we'll just have to see how it goes.   For instance, IDT is a stock that I believe will flash a pocket pivot today, a day before earnings, which as I discussed last night can be a sign of a positive breakout.   I just don't know if I want to add that risk right now with where the market is.   I have to think about it to be honest. 

Good luck tomorrow - it should continue to be interesting.   Stay long but be sitting right by the door ready to exit at a moment's notice because I think that's the only thing you can really do right now.   Take care.


Anonymous said...

A great analogy!!!

Anonymous said...

makes ocmplete sense. "markets can remain irrational longer than you can remain solvent"