Thursday, March 10, 2011

State of the Stock Market - 3/10/11 - "The Wait is Over"

Over the past two weeks, the stock market has been chopping back and forth in a manic way trying to find some direction.   Along with almost every other trader, I've been waiting patiently for the market to give us a sign as to where it wants to head next.   It sure looks like we got that sign today.   The stock market put in a major gap lower this morning (below key support) and unlike previous selloffs, dip buyers were really nowhere to be found.   The market spent most of the rest of the session moving sideways but did end up closing near its lows.   Volume was heavier, adding yet another distribution day to the total.  

There have been many more bearish signs over the past month than bullish signs, but I (and I don't think I am the only one) have sort of become trained to question those signs because very often they didn't matter over the past two year run.   We saw many heavier volume selloffs and weaker volume rallies, but none led to major tops being put in except last May.   Today however seems to make it clear that this market has been topping over the past few weeks and wants to head lower.   The charts I show below are hard to argue with.
 SP-500
 Nasdaq

 Russell 2000
XLB
XLE
 Charts from Telechart, Courtesy of Worden Brothers, Inc.

I've been preaching that cash is the best option for a while now and hopefully you were not hurt with today's gap down.   I did enter two short positions today at the open (SDS and QID) and will let those ride until the market closes above its 50 day moving average.   That support was tested so many times recently that there is a very good chance it becomes resistance now that the markets are below them.   For the time being, I am staying out of individual stocks on the short-side and will stick with the indices. 

Overall, today was certainly a shot across the bow by the bears and unless the bulls take charge immediately and push stocks back above their 50 day moving averages, I have to believe the top is in.   I have no way of knowing if this will be a significant top or just an intermediate-term pullback, but you must protect yourself either way.   Good luck Friday.

1 comment:

Anonymous said...

hi mac

both FTSE and DAX had at last dropped below their supports by roughly -65pts and -37pts respectively. however, dow was just -2pts below the major support. im going to see if there is any weak intraday bounce to add more shorts.

-2pts is not giving me too much confidence but im still very happy and technical analysis saved our ...
anywayz, wish every1 good luck
mini-me