Thursday, November 18, 2010

State of the Stock Market - 11/18/10 - "Overdue Bounce"

A big day today on Wall Street, as stocks finally bounced back from their recent beatdown and oversold conditions to put in a strong session with large gains.   Most of the intraday action took place during the first hour of trading, and from there stocks just moved sideways or slightly lower in the case of the Nasdaq.   Volume looks heavier but was not heavier than Monday's totals.

Technically, today wasn't a surprise, although I have to admit that after yesterday's lackluster performance and so many news "question marks", I fully expected more weakness.   Now we have to see if today was the start of higher prices once again, or if it was just a relief bounce that will lead to further selling.   Both the S&P and Nasdaq bounced right back into their short-term moving averages and that is an interesting stopping point for today's action.   If we see follow-through tomorrow to today's bounce, then I think bulls have reason for optimism.  However, if the markets pause or move back down, then I think today will look more like just a relief bounce and nothing else.   Basically, it's too early to tell.
 S&P 500

Commodities were strong today but gold was not as strong as I would expect, and the dollar looks to be having a completely normal pullback here, which is not good for the bulls.   This recent selling hit commodities hard, and they need to bounce stronger than this if the overall rally is going to continue.
Charts from Telechart, Courtesy of Worden Brothers, Inc.

Today's action didn't affect me one way or the other as I remain in cash.   I debated whether to put some shorts on last night, but since my signal did not officially turn bearish, I waited.   I am glad I did, but the signal did turn bearish today so I am now torn.   You may ask how it would turn bearish on a day where the market was up so much and it's a good question.   Basically, the scans are saying that today's action (although nice) was not strong enough to overcome the strength of the selling we've seen over the past ten sessions.  

We'll see what happens tomorrow, but I may add some test shorts after-hours just to follow what the signals are telling me.  If we get further follow-through tomorrow to the upside, then I think there is good reason to be optimistic and I would get out of any shorts, but until that happens, the burden of proof still lies with the bulls in my opinion.   Today's action just didn't totally do it for me - I remain neutral to slightly bearish overall (although am willing to change with proof).  Good luck Friday.

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