Tuesday, January 25, 2011

State of the Stock Market - 1/24/11- "Confusing Action"

We are in a tough, choppy market environment right now, and this was illustrated perfectly with today's action on Wall Street.  After putting in a nice session yesterday, stocks started the day lower.  From there, however, there wasn't much follow-through from the bears to the downside and stocks just chopped back and forth until the final hour, when some short-covering pushed stocks up to their highs for the session.   The indices finished flat overall but it was a positive session in that stocks did not get hit hard at all when they very well could have been.   Volume appears

Technically, it's hard to get a read on which way we go next as neither the bears nor bulls seem to be interested in taking control this week.   My signals remain on "sell" but a move above last Friday's high on the Nasdaq would likely have these changing to at least a "lookout" signal on the long side.  

There are a lot of divergences out there right now, and I don't know whether to view them positively or negatively.   I discussed yesterday how the Dow and S&P were moving higher (or at least resting) with the Nasdaq and small caps not confirming.   That continues - for how long, I have no idea but it is not something you see that often.   Commodities via oil, gold, and silver have been crushed this week (along with the dollar), but the S&P along with XLE and OIH have barely budged.   That doesn't make much sense either.   It's been a weird few days here and it's hard to make sense of things overall.

I did add two small short positions today via ETFs but if we move higher tomorrow, I will likely be out of them quickly with small losses.   I am not overly bearish because I know this market likes to screw with people, but I have to follow my system at least somewhat. I remain mostly in cash and that's probably a good thing overall.   The two long candidates I was watching from afar today (PWER and SODA) put in frustrating sessions today in that they looked strong early but then faded late and closed weakly.   Does that make sense?   Breakout when the market sucks early on and then give it all back when the market rallies in the afternoon?  Solar stocks (which looked great yesterday) were absolutely crushed today.  Like I said before, it's a tough market right now. 

Since that is the case, it probably pays to remain cautious overall.  I need further evidence of strength from the bulls before committing any money to the long side, but my stops are tight on short positions because the bears look weak too.   Sometimes the market doesn't give many opportunities to make money, and maybe this week is one of those times.   Good luck Wednesday.

1 comment:

Anonymous said...

WRT divergences, there's another blog that argues that divergences don't matter until broad market money flow reverses direction. Which begs the issue of how to measure this money flow. (They use a proprietary tick by tick calculation.)

Any thoughts on this? I have not been successful with standard indicators (such as Money Flow Index or On Balance Volume) on the broad ETFs. I suspect because the ETF volume itself does not accurately reflect the broad market. Haven't found anything on stockcharts.com either.

Any ideas?