Monday, February 7, 2011

State of the Stock Market - "Time for a Little Rest??"

We saw a good (but not great) day on Wall Street today, as stocks spent most of the morning session climbing higher but then let some of those gains disappear as the session came to a close.   Volume appears that it will come in lower.  This along with the afternoon fade is significant mainly because it coincides with a breakout attempt to new highs for both the Russell 2000 and the Nasdaq.  Ideally, we would see a lot of strength today that gave a sense of strong buying coming into the market.   We were indeed up, but I don't know that I can say I get that sense of strong buying from the action overall.  

 S&P 500
Charts from Telechart, Courtesy of Worden Brothers, Inc.

I did make two long entries today early in the session - both were on the watchlist published Sunday.   However, I once again saw several breakout attempts fade (much like the market today) including one of my positions, and this is a bit troublesome.  This has occurred after breakouts as well.  It's not every stock, but names today like UCTT, CALX, EV, BIDU, MGIC, GMCR, HSFT, EXPR, and XXIA were weaker than I would hope for on a strong overall day.   In my long watchlist, I also don't see very many "explosive" moves - the highest percentage move out of all 176 stocks in the list currently was 8% today, and only 15 were up more than 4%.  Again, given the overall action, those number "should" be higher.

Basically, we have a market where some things are working but from my perspective, there isn't a whole lot of rhyme or reason to why some work and some don't.  I used the analogy last week of shooting fish - in early January, it seemed like lots of stocks were working and trading was like shooting fish in a barrel.  Now, it is more like shooting fish in a swimming pool - there are still chances to make money in this market, but it has become much harder.  Personally, I would much rather being heavily involved with the market when it is easier to make money.   I expect some of the whipsaw action to continue.

Overall, I have a slightly bullish bias but will likely keep a large chunk of my account in cash until individual stocks start acting better as a whole.  We are now up five out of six days (and the down day was a 0.06% loss) on the Nasdaq since breaking down two Fridays ago so I would suspect some rest or perhaps a quick pullback soon.  We'll see I guess.   Good luck Tuesday. 

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