Thursday, March 3, 2011

State of the Stock Market - 3/3/11 - "Unpredictable"

The craziness continues.   We had a massive up session today on Wall Street, as stocks gapped up to start the session and then moved slowly and steadily higher from there.   There were large gains across the board, and volume looks like it will come in a bit heavier on the S&P and about flat on the Nasdaq.   Both indices showed lower volume today than they did during Tuesday's down session. 

Technically, it was an interesting close as both the Nasdaq and S&P closed right at or just below their recent highs of 2798 and 1332 respectively.   You think this is a coincidence going into the big jobs number tomorrow?   On the surface, some follow-through tomorrow that would get stocks above these levels would obviously be very good for the bulls.  Meanwhile, a failure here followed by heavy selling could be another sign that a choppy top is being formed here.   I wish I knew which one it will be.  It is looking however like in order for a real pullback to occur, the 50 day moving average on the major indices is going to have to be cracked, and that has yet to happen.


It's been a very difficult two weeks for swing trading, at least it has been for me.   My account hasn't been damaged too badly - I'm only 2% off of my closing highs for the year and am still up about 16% for the year overall.   It has been frustrating however - getting longs stopped out quickly after starting those positions, then going short and quickly getting stopped out of those as well.   I am now completely back in cash after taking small losses in my shorts of 2.2% (AAPL), 3.1% (FWLT), and 2.5% (JEC) the past two sessions.

The market as a whole has given many conflicting signals this week with heavy volume selloffs followed by rallies, followed by heavier volume selloffs, followed by more rallies.  Really, unless you're guessing and going with a "gut" feel, there haven't been many "signals" as to what is going to happen the following day.   You'll have these type of periods - the key is to try not to let them damage your account too much.   With the news surrounding tomorrow's open, perhaps we're setting up for another unpredictable day Friday.

Overall, I am open to anything the market wants to do here so if we get some follow-through, my signals will turn away from their sell signal and I'll look to establish some long positions as I see them.   I posted some setups this morning and out of the twelve I showed, seven were up 4% or more, with SGI leading the way with a 17% move.   I think that's pretty good. 
Charts from Telechart, Courtesy of Worden Brothers, Inc.

I am not discounting any possibility here, and I don't think you should be either.   We could gap tomorrow and then "sell the news".   We could get hit at the open and then rally past today's highs.  In a choppy, unpredictable market, just be on your toes and ready for anything - that's really all you can do.  Good luck Friday.  


DrVanNostrand said...

You're not the only one getting chopped around Mac its tough to have any conviction one way or another here the bulls don't wanna "give it up" so easily, if at all. I like the PCX setup you pointed out, I suspect there could be a lot of bears stuck in that as pure chartists can argue that there is a h and s top on the pattern. But I think its the lower range of a base finding support at the 50dma after not testing it in a long time. I think the shorts get run over on that one IF the mkt holds up. I also have a feeling we get a small move in the mkt maybe an inside day tom. but thats just my contrarian view b/c everyone on TV is talking about how important the number is....

JP said...

Thanks again for your commentary Mac.

I've been in cash since 2/18, except for one small long position (INT) that I tried earlier this week but got stopped out of quickly.

Today was the first legitimate "follow-through" day that my model (an implementation of Dr. K's MDM from Trade like an O'Neil Disciple) has seen in a long while, which I can't help but see as very positive. I'll be looking through my scans carefully tonight...

Mac said...

Doc - the boring day tomorrow is certainly a possibility. It probably wouldn't be a bad thing as maybe some patterns could set up.

JP - the only question I would have about the follow-through day is whether volume was heavy enough on the Nasdaq to suffice. It would qualify on the S&P for sure. I know Dr. K uses only the Nasdaq to track distribution - I have to check my book to see if the FTD are for any index like IBD does.

JP said...

Mac, the S&P is included when looking at FTDs in the Dr K MDM. is showing that volume was up on both indices, though.

Anonymous said...

so much stress from overnite positions. we hv seen the exact same pattern of dow in last mid-november (16-19nov10). i dun believe history repeats itself in the same way, so i personally, not technically, guess that we may hv another 70~100pts shorts squeeze rally. that would again, brings back dow to 123xx.

as at today, my systems' sell signal is still "on". dear mac, any hints u see on weekly/mthly charts? bullish or bearish?

thx, mini-me

Mac said...

JP - that's what I figured. I just wish Nasdaq volume was heavier than it was. To be below the 50 day average on a FTD is not very impressive.

MM - the "charts" have been saying for a while that we are topping but it hasn't worked out that way, so I find it hard to trust the "charts" these days. This is more of a market you play by "feel" I guess. Heavy volume selloffs followed by weaker volume rallies is historically very bearish. Not so much any more. It just is what it is.