Tuesday, December 7, 2010

State of the Stock Market - 12/7/10 - "Short-term Fatigue"

Not a great day today on Wall Street, as stocks started the day hot and simply faded from there.  After selling off the opening gap, the market tried to bounce back slowly into the 2:00 hour, but some late selling came back in and stocks did end up closing at their lows for the session.   Not a killer by any stretch, but the action is a sign that the market might be a bit tired in the short-term and could use some consolidation.   Volume was heavier.  

Technically, when you look at the chart of the Russell 2000, it is quite easy to see that stocks were extended this morning and the gap up was taken as a chance to book some gains from last week's move higher.   There isn't anything wrong with that - it's completely normal - but what it tells us is that buying at this point might get you in trouble.  The Nasdaq and S&P both put in similar reversal bars today but neither was as extended as the Russell was. 
Russell 2000
Chart from Telechart, Courtesy of Worden Brothers, Inc.

I have said for the past few days that a pullback to the short-term moving averages should be seen as a good buying opportunity and today doesn't change that outlook.   If you are already long or were long since last week, there is no reason to sell here unless you are looking for only smaller profits.   Now if the short-term moving averages are broken and volume gets really heavy the next few days, then yeah, obviously today meant something.   But as of now, there is no reason to think today's action was simply a market getting ahead of itself. 

Good luck Wednesday - we need some consolidation and perhaps the rest of this week will give it to us.   Take care.

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