Wednesday, February 23, 2011

State of the Stock Market - 2/23/11 - "More Very Weak Action"

We saw another down session today on Wall Street, as there was immediate follow-through to yesterday's heavy, heavy selling.  Futures were higher pre-market, but they faded as the opening bell drew near and from the open, stocks fell hard through the morning and into the early afternoon.  Around 1:00, stocks did start to bounce, but the bounce faded a bit late and stocks finished only slightly off of their lows.  Volume looks like it will be heavier on the Nasdaq for the second straight day, which will turn my other secondary indicator to a sell signal as well.   All in all, not a very good day.

The past two days were undeniably bad and since my signal are on sell, that is where my bias lies.  However, I am mainly in cash except for a small position in QID and will remain there for the rest of this week.   We are a little stretched to the downside, so I don't know about shorting at this point (short-term).   In fact, I would not be surprised to see a little bounce soon but we'll have to watch closely to see the quality of that bounce.   I also have to take a look at individual stocks closely to get clues as to whether the past few days are just a shakeout or the start of something much worse. 

Overall, be wary of anyone saying that today was the "bottom" and it's straight up from here.  Be just as wary of anyone that is saying this market is going to crash and a new bear market has officially started.   It is just too early to tell.  Both of the most recent "corrections" we had in November and January (however brief they were) were not two-day events.   There was a quick sell-off followed by a week or two of choppy trades and headfakes before the trend ended up resuming itself.  

We could see the very same thing here, but the past two days were much worse that the selloffs we saw the previous two times, so it is also possible the market is indeed setting itself up for a much more meaningful correction.  If that happens, it will likely take time as well with lots of headfakes as well. 

Cash and caution are the words that are most important right now.   There is no reason to be a hero and be super-aggressive when it makes no sense to do so.   Hopefully you've been heeding the warnings given here the past few weeks and kept your stops tight and haven't been hurt too bad from the past two days.   My account is actually close to new highs for the year so I am perfectly content to sit on my hands for a few days.   I would advise you to do the same.   Take care and good luck Thursday.


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