Monday, January 24, 2011

State of the Stock Market - 1/23/11- "Nice Bounce But Volume Weak"

An interesting day today on Wall Street, as stocks bounced back from last week's drubbing with a solid up session.  The climb was steady throughout the morning, but tapered off during the afternoon, with both the Nasdaq and S&P maintaining their gains but moving sideways into the close.   Volume appears to be lower than Friday's totals, but I do not have the final totals.  

Technically, we have quite an interesting setup overall with a two-faced market.   The Dow (which to be honest I never really look at) continues to chug higher and higher and looks rather extended at this point.  Meanwhile, the Nasdaq and Russell did bounce today but that does not cover up the damage done to these indices last week.   The main question to consider right now is this - is the Dow strong enough to carry the other indices back up with it, or will the Dow eventually succumb to some selling pressure like the Nasdaq and take the overall market down further? 

Charts from Telechart, Courtesy of Worden Brothers, Inc.

Personally, I think there is much more risk going long here than going short.   Perhaps cash is the best bet overall.   I did take a small inverse ETF position today since my main signal turned bearish Friday but that was the limit to how aggressive I wanted to be at this point.   Today's bounce was on weaker volume and was not unexpected given the three days of selling seen last week on the Nasdaq.   If the Nasdaq sees bullish follow-through tomorrow and climbs above Friday's high, I would think twice about my outlook, but as of now, I do think cash or selective shorting remains the best bet. 

Good luck Tuesday - there were a few movers out there today (solar in particular as I mismanage my JKS position) and I do have my eye on two particular stocks right now in case the bulls surprise me and push us right back up to new highs, but I'll wait for that to happen rather than anticipate it.   I think that is a much safer bet than buying these dips and hoping for the best, especially with a lot of earnings coming out this week.  Take care.

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