Tuesday, January 4, 2011

State of the Stock Market - 1/4/10 - "No Follow-Through, No Major Selling"

We saw some selling today on Wall Street, but it is was not major selling and it is hard to tell yet whether the action was simply some consolidation after yesterday's pop to start the new year or the start of a more serious pullback.   Stocks sold off from the get-go and by lunchtime, the Nasdaq was down almost forty points from its opening high.  They did rebound a bit to take back some of the losses and close in the middle of their intraday range.   Indecisive is probably the best way to describe the action, as the bulls couldn't do much but the bears didn't take control either.   Volume looks like it will be heavier and that will give the market a distribution day.

Technically, both major indices did hold support today and in the case of the Nasdaq, also closed yesterday's gap.  My main signal remains bullish, but another distribution day soon could turn one of the two secondary signals to bearish.   In addition, the action in small caps and gold were very disconcerting today and gives traders reason to pause a bit here.   Gold flashed both a caution and sell signal today and looks quite bearish here, although to be fair, we've seen several breakdowns like today since October with gold and none has led to much further selling.

GLD

I took two long positions early this morning based on the breakouts I saw in my scans last night, and still hold those.   Stops are in place as always and I'll find out tomorrow if they are hit or not.   I don't like the action I am seeing today in names like CMG, ZQK, GMXR, TRGL, and most importantly, LULU.   For a leading stock to have a breakdown like that one did bears watching - it is certainly not a good sign for the bulls. 

LULU
 Charts from Telechart, Courtesy of Worden Brothers, Inc.

Overall, there is no reason to sell anything yet if you have been riding the trend up since early December, but based on a few things, you may want to tighten some stops to protects profits just in case we see some follow-through to the downside.   Heavier volume selling tomorrow would likely have my signal putting me in cash, but we can't anticipate that - we just have to wait for it.   Good luck Wednesday. 

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