Monday, January 31, 2011

State of the Stock Market - 1/31/10 - "Still Choppy and Difficult"

After a major beatdown Friday, stocks bounced back today on Wall Street, finishing with gains across the board.   The intraday action was choppy, but it was good to see no more further selling come in (at least not yet).  The biggest problem with the action was volume - it was very low compared to Friday's totals and to just the average volume in general.  There didn't seem to be much conviction behind today's buying.

Technically, on Friday I compared the setup we are looking at right now to the one seen back in April of 2010, and today the comparison continued to line up almost perfectly.   This may not mean anything at all, but the weak volume today along with the choppy nature of the past two weeks does suggest (to me at least) that a top is likely being formed here. 
April 2010
Charts from Telechart, Courtesy of Worden Brothers, Inc.

Actually, this choppy action is more bearish than a nasty week or so selloff because significant tops take time and that appears to be what's happening here.   If I were a hard-core bull, I would actually be hoping for a quick, sharp, panicky selloff as I believe those are easier to come back from quickly than a longer-term formation where stocks are distributed slowly.

I made no trades today and will likely remain in cash tomorrow.   If we bounce again, I may consider putting a few inverse positions on to follow the "sell" signal given off Friday, but I still feel (based on the random, ugly action I continue to see in individual stocks) that we're in a difficult swing-trading environment.   Cash is boring, but sometimes it's smart as well.   If you absolutely must trade, keep things small and short-term.  Good luck Tuesday - if I don't post tomorrow, it may be because I don't have power as we are supposed to get hit here in Western Pennsylvania with some ice tomorrow morning.  Hopefully we'll make it through OK.   Take care.


Anonymous said...

Hope your power stays up through the ice.

-loyal reader

Jeremy said...

Thanks for sharing your thoughts everyday, appreciate it a lot

Anonymous said...

Please do not say something like "it was good to see no more further selling come in". Why was it good? Not good at all. Do you and/or people expect these things to keep going up shooting to the moon?

Disclaimer: I am not a shorter, in fact I don't trade indices and individual stocks at all. But I just found the general appetite in stock trading seeing no selling as only a good thing rather unhealthy.


Anonymous said...

Thanks for sharing, I read and re-read your blogs everyday.

Anonymous said...

Thanks for the daily and weekend updates! I have bought some of your picks the past few months and up over 30%.

Anonymous said...

dow bounce target (1196x~11990) achieved just now. im thinking of consolidation tmr. for friday, lets see what will happen tmr first.

remain the mid-term target dow at 1206x ~ early 121xx by mid-feb.


Mac said...

To the anonymous commenter that was talking about the "no selling come in" comment - honestly, dude, I have no clue what you're talking about.

Please don't take that the wrong way, but I am being honest. You say "seeing no selling as only a good thing rather unhealthy". Are you trying to say that not having any selling is a bad thing, as in the market is too extended? I really don't know. Your comment has me puzzled.