Monday, October 25, 2010

State of the Stock Market - 10/25/10

The market finished with gains today on Wall Street, but from a purely technical perspective, the action was not very bullish, as stocks reversed their earlier gains and put in bearish reversal bars all over the place.   The action was very positive at the start of trading today, with stocks gapping up and moving higher for the first half hour or so of trading.   They pulled back quite a bit from there, however, and moved mostly sideways for the rest of the morning and into the afternoon, getting some support from the opening gap.   The final hour was not bullish though - stocks fell to lows for the day and ended up well off their highs.   Volume looks to be heavier than Friday's very low totals.

Technically, the market looks tired here after the intraday action.  The Nasdaq has a POTENTIAL island top set-up in place today after the gap-up, but it only matters if there is follow-through to the downside, starting with a gap down tomorrow.   The gap on the S&P was much less pronounced but nonetheless the reversal bar is in place there as well.   The trend in my opinion is still up until the short-term moving averages I've been harping on for a while are broken convincingly, but today may be another warning sign that caution may be smart here.
 S&P 500
 Charts from Telechart,  Courtesy of Worden Brothers, Inc.

My numbers are still neutral overall and the main breadth indicator I showed the past two days has yet to turn bearish.   However, I continue to watch for a sharp deterioration in these numbers and if I see, I will look to put some short positions on, most likely through index ETFs.   Right now, the market seems to be just kind of hanging out - not selling off, but not moving convincingly higher.   If we don't get heavy selling over the next few days, I continue to expect more choppy consolidation until the market decides what it wants to do.   Those choppy, sideways moves are the worst so be careful right now.

I didn't make any moves today and remain totally in cash, but we did see some nice movers from this weekend's video.   AAU was up a nice 13% today, and TSTC moved up another 4%.   There were some movers from the earnings video (RDWR - 7%, VISN - 7%), but since those report later this week, I would hesitate to enter before the news comes out.   That video was mainly to show stocks worth watching ON the news being released.  

We'll see if any earnings reports tonight or tomorrow morning affect things, but overall my outlook is cautious.   The trend certainly hasn't ended yet and could just continue chugging along, but don't be caught hanging on too long when it does change, because the warning signs continue to be out there.  Good luck Tuesday.

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