State of the Stock Market - 10/21/10

A volatile day today on Wall Street, as stocks started the day higher, fell from around 11:00 to 2:00, but then bounced into the close and finished very close to where it started overall.   The early move higher did take the S&P and retail sector to new highs, but those highs did not last long.  Volume appears to be heavier than yesterday on the Nasdaq but flat on the S&P.

Technically, this remains a very news-driven market and as such, it is hard to look at the technical picture without taking it with a grain of salt.   Things are very volatile and will remain that way as long as these earnings reports continue to come (and we have another large wave tonight).   I would not be stuck to any one outlook right now as really, anything can happen.   We have yet to breakdown and the trend remains up, but there are a few worrisome signs out there that have me cautious.

As you know, I've been talking about the breadth indicators I use (via Stockbee) and how they've been flashing warning signs for a few weeks now.   Those warning signs remain, but another one turned neutral this week after being bullish since the beginning of September.   It did the same thing back in mid-March, but never went bearish and eventually the market went higher for almost another month before topping out.   Perhaps it will do the same thing now.   That's really what I am watching for - further deterioration here on this signal would have me looking to get short, but I will wait for it.  I am not going to anticipate it.  

 

 

I am back to 100% cash after selling my ALGN position for a small overall gain near the end of the session today.   With earnings coming out after-hours and some less-than stellar action intraday, I had no desire to hold through earnings.   I guess I am lucky, because it is trading down about 15% from its close right now.   The key reports I was watching today are mixed - AMZN and INFA look to be down while RVBD, SNDK, and CMG are up.   Probably another day of volatile trading is in store overall for tomorrow.  

I will update you if my signals change, but as of now they are neutral and so I remain in cash.   I would not be surprised of some chop here that eventually leads to higher prices, but a lot of signals are pointing to a top potentially forming here, so be very careful.   Good luck Friday.