Monday, March 21, 2011

State of the Stock Market - 3/21/11 - "Bear Market Bounce or Follow-Through Day??"

We finally saw a bounce that stuck today on Wall Street, as stocks gapped up on positive international news and rallied hard from there for the first half hour or so of trading.  From there, however, they simply moved sideways or slightly lower and did very little for the rest of the session.   The major indices did finish with large gains across the board, but volume looks like it will be below average.

Technically, today could perhaps classify as an IBD-type follow-through day, but the big problem is volume.   Due to options expiration, it is unfair to compare today's volume to Friday's inflated levels, but it is fair to compare them to Thursday's levels as well as the 50 day moving average.  In both respects, today's volume appears lacking.   You really want an overwhelming feeling of buying pressure on these follow-through days, and given the market rallied for the first half hour and then just leveled off, along with the lighter volume, doesn't give me that impression. 
Nasdaq
S&P 500

I made one trade today, entering QID early in the session.  I may very well take a loss in this as I am completely aware the market can keep rallying from here, but I think it is worth the risk (and my losses will be relatively small anyway).   The market has moved from deeply oversold to now a bit overbought and I think there is more risk chasing longs here than getting short.  I still see more short setups out there than long setups, and with the damage done over the past two weeks, I'll take my chances on that side for now (albeit in small doses until we do get some downside confirmation). 

The only ETFs that really went above key levels today are the OIH and XLE.  The rest still look bearish overall and have lots of resistance above to deal with over the next few days. 
XLE
OIH
 Retail
Semis
 Materials
Financials
All Charts from Telechart, Courtesy of Worden Brothers, Inc.

If today was the start of a bullish move higher, there will be plenty of time to get in as setups emerge.  As it is, there were only 189 breakouts today and that is not a very impressive number. Most of the data out there still points to a bearish market, so I would remain in cash until we see further evidence from the bulls that they are once again strong.   Perhaps that will come tomorrow - if we see more gains on Tuesday, I will definitely reassess my position. 

If the bulls aren't back in control, we'll look back and likely see today as a very good shorting opportunity.   Too early to tell for sure which one it is - pay attention over the next few days and we should get some clarity.  I lean toward this bounce soon petering out, but I've been wrong many times before.  Good luck Tuesday.

7 comments:

DrVanNostrand said...

I can't find any long setups I like Mac and when I look at the SP I see a lot of resistance here maybe we get the gap and crap tom. When you say there were 189 breakouts are you refering to new highs?

In any case I am looking at shorting into a rally if we do gap up, maybe I get run over but based on the lack of long set ups experience tells me the short side is the higher probability trade.

Anonymous said...

Mac,

Would you add to your short generally or do you fold it completely at certain level ?

BTW, thanks for the daily update. I make it a point to read your update when the closing bell rings.

Mac said...

Doc - I agree - very few longs. Everything seems to point toward this being a very weak bounce. That of course means we'll be up ten straight days, right?

Anonymous - I never add to a losing position. Occasionally I will widen the stop but usually I admit I timed it wrong and get out quickly. Shorting exacerbates the timing issue however because it is much harder to time a short perfectly.

DrVanNostrand said...

haha yeah Mac this mkt its like that Seinfeld episode where George does the opposite of his every instinct...we should prob be running some monster longs in this mkt with some triple levered ETFs!

Anonymous said...

hi mac

luckily the gap is high enough so that i cant enter any shorts otherwise i will be squeezed badly. i agree mac that the volume is a big problem. im observing for major top divs on min/hourly charts but not yet happen. if it keeps a minor swinging up in the early next morning with top divs happen, i will take action accordingly.

mini-me

Alan said...

SP500 found support at the 100 day, and now is at the top of a down channel with the 50 day as over head resistance. other to be interesting tomorrow.

Steve said...

Appreciate the sector comments Mac - very helpful ! - Steve Clem