Monday, November 15, 2010

State of the Stock Market - 11/15/10 - "Caution is Warranted"

We saw a flat day today on Wall Street, at least according to the closing numbers.   However, under the surface it was quite a negative day given the circumstances, with stocks not being able to hold a bounce even after selling off a good amount last week.   Stocks did start slightly higher, but although they rose a bit throughout the first half of the session, the action was choppy and at no point did it seem real buyers were coming in to push the market up.   Around 2:00, stocks began to fade and fade they did, all the way into the close, with all of the indices finishing at their lows for the day.   Volume as of now looks to be lower.

If you watched my weekend video, you know I preached caution this week, and I believe that holds true even more after today.   The bulls had a nice chance to push this market back up after getting hit last week, and they just couldn't do it.   Any bounces we saw intraday last week were quickly sold off as well, usually the next day.   This all marks a subtle change in character for this market, one that bears watching (no pun intended.)

Technically, the lows from Friday remain of utmost importance, and if those levels of 2506 and 1194 on the Nasdaq and S&P are broken, then I continue to believe this market will fall further, probably down to the 50 day moving averages on the main indices.  Those two indices remain perched right on their 20 day moving averages for now but couldn't bounce today. Yes, we are short-term oversold, but overbought/oversold hasn't mattered that much for a while now, so I don't know why now would be different.   Don't just assume we are going to bounce because we're "oversold".  If more selling comes in tomorrow, then I think you could see the market really crack in the short-term.  

The numbers I follow breadth-wise continue to deteriorate and if we see any more heavy selling this week, I believe they will turn fully bearish.   Right now, the bulls need to make a stand and push this market back up - otherwise this pullback becomes a little more serious.   I remain neutral overall but with further selling, I will start to look at some short positions - not yet however.   Overall, caution is very much warranted here and I said in yesterday's video, there really isn't a whole lot to do here other than stay in cash and wait to see if the bulls put up a stand.   Don't be a hero.  Good luck Tuesday.

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