Tuesday, November 2, 2010

State of the Stock Market - 11/2/10 - "Interesting Setup"

We had a nice up day today on Wall Street, as stocks put in decent gains on lighter volume.   The intraday action was pretty muted, however, as the gains took place mainly on the opening gap and stocks moved sideways from there.   Overall, the gains on the day put us in a very interesting technical position, at least on the Nasdaq. 

As you can see below, the Nasdaq has moved to within two points of its highs from earlier in 2010.   It is amazing how markets can get to key positions at certain points, isn't it?  (This "certain" point is of course likely the biggest news day tomorrow that we have seen all year).  I have no idea what to expect from the market tomorrow but we certainly have come a long way and we certainly could go a lot further if the market likes the results of the election tomorrow and the Fed's future course for QE2.   Will they like it is the question?   I do like the setup of the Russell 2000 much more than the Nasdaq - if the Nasdaq wasn't so extended, I would be much more bullish overall.

Russell 2000
Charts from Telechart, Courtesy of Worden Brothers, Inc.

A "sell the news" reaction is certainly a good possibility tomorrow, but it almost seems to obvious for me.   The main breadth number I follow has turned back to neutral after spending four days in slightly bearish territory.   Basically, the way to look at this is that the opportunity was there for the bears to get a pullback going, but by just having the market move sideways for four, the bulls maintained control of things.   With a positive breadth day tomorrow, the signal will likely turn fully bullish once again.

I remain in cash because I think tomorrow is simply going to be crazy and especially since I can't trade intraday, I want no parts in some major whipsaw action one way or the other.   If you're trading, both CGNX (10%) and CAGC (8%) put in very nice days today and were highlighted in this weekend's video.   We also saw a few breakdowns in names like MMYT and HTHT, so you do have to be careful in what you choose right now. 

Best of luck tomorrow if you're making moves - I will be sitting back and just observing.   It should be quite the interesting few days.   Take care. 

1 comment:

Sal Maz said...

We'll See what the initial reaction to the statement will be today. Usually it leads to the tell which direction the market will move the following day.

Check out WNR. I like the setup as it's being held up by the 9 day.