Thursday, May 5, 2011

State of the Stock Market - 5/5/10 - "Tomorrow Will Be Big.."

Today was an interesting day on Wall Street, and by interesting I mean extremely volatile and somewhat confusing.   You had the early morning gap down after three straight days of selling which looked very, very bad at the time.   Then you saw the impressive bounce off of the gap where the Nasdaq turned positive and kept running, and it looked like perhaps this "correction" could be brief and over.   That didn't work, as the late afternoon brought a massively sharp drop where the Nasdaq gave up all of its gains and I started to see talk of "flash crash" on Twitter.   The market bounced a bit into the close to take back some of the losses, but still, it was no doubt a bad day. 

My signals are all either neutral (the main signal and the one secondary signal) or bearish (the other secondary signal) but both neutrals would likely turn with another bad day tomorrow.  We've had three straight distribution days on the S&P and Nasdaq (although today's volume was slightly less, I'm still counting it as a DD) and I really can't remember when I've seen that before.  

Commodities have been killed the past three days - unfortunately for me I was not able to time a silver short and didn't partake in any of the fun the past week in that area.   I would expect a sharp reflex bounce soon but in general, this in no way looks like just a normal, healthy pullback.  

Who knows where we go from here, but nothing would surprise me.   All the major indices remain above their 50 day moving averages and that's obviously a plus.   Trendlines are forming in that same area on all three indices and so support SHOULD be very strong in those areas.   We are also quite oversold in the short-term right now so any further selling has the potential to lead to a powerful reversal up. 

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

So all in all, tomorrow should be a big day.   Of course, we have a major news event with the jobs number being released at 8:30.   If my memory is correct, recent releases really haven't caused major rallies or major selloffs, but the potential is there for this one.   I could see a gap down on a bad number and then a reversal higher on a test of those 50 day moving averages.   Perhaps however that it too easy.  

Be careful overall.   I have three long positions right (no clue how they haven't been stopped out yet) and will hold them until the stops are hit, but besides that won't likely do much tomorrow.   I covered my only short today (CHK for a 6.5% gain) and really won't look on that side of things tomorrow because I think it's too late and too dangerous to short at this point.  Cash isn't a bad option at all right now.  Good luck Friday.

***  I do want to thank those of you that took the time to email me or leave comments about my "questionnaire" the other day.   I appreciate both the comments and the time you spent responding.  To be honest, I wish more readers would have responded, but it is what it is, and the number of responses is probably quite telling in itself too.  I have a lot of thinking to do, but as I said, things will definitely be changing one way or the other over the next few months. 


Anonymous said...

Hi Mac

My comment did not seem to post on the previous post. I appreciate the time and effort you put into the site. I also work a full-time job outside trading. This is really the only site that i use that takes into considerstion trading in conjunction with a fulltime job. The videos and charts you post are helpful as well but I do realize that they take time.

I'm ok with a paid subscription because I get a lot of benefit here. Thanks again.

-Mike H

hannah said...

On the number again with the analysis, just be careful picking a bottom here as the distribution has been heavy and technicals like 50DMA support has been sliced through like butter in many stocks. I'm waiting for some confirmation before taking anything long at this point. I'll be watching copper and the USD for some leading indicators. Small gains are better than losses. Thanks for the post, Mac. Good luck on your future plans. I'll keep watching.