Friday, May 6, 2011

State of the Stock Market - 5/6/11 - "Toppy"

Following a reversal Monday and heavy selling Tuesday and Wednesday, this market has had every possibility to bounce.   It tried Thursday and failed mightily, with the Nasdaq closing about thirty points off of its intraday high (and that was only because of a late bounce).  Today, with positive news via the jobs number, the market ran hard in the morning and then once again gave it all back.  At its lows, the Nasdaq gave back another forty points off of its intraday high today.   This is not really what you want to see if you are a bull.   In the grand scheme of things, all today likely did was relieve some oversold conditions on the market as a whole.

I was quite optimistic going into today.   I added two long positions early in the session (CYOU at $41 and DANG at $22.50 - surprisingly I am still in both as both acted well today).   However, by the end of the session, I was out of the other two long positions I had (ACOM and AXTI) and put a short on in NFLX around $231 and another in DECK around $88.  

Maybe we do bounce from here and maybe this week was just a shakeout, but most signs continue to point to a top being formed here.   Weak intraday action from the overall market.   Long-time leaders that are weak and look quite toppy (BIDU, NFLX, OPEN, DECK, SOHU, MCP, PNRA top my list - no pun intended).  How about PCLN, a long time leader, selling off on a blow-out quarter??  Parabolic runs by some commodity sectors followed by monstrous sell-offs.   This is not typically action seen in just small, short pullbacks.  

There is still some support below with the 50-day MAs for the major indices as I discussed yesterday, but I raised cash today and if you haven't done so already, I would recommend doing the same thing.  If the market stabilizes, you can always get back in, but right now, again, most signs are pointing to a correction here, the length and severity of which is unknown.  I didn't even talk about the Greece rumors and such.  Be careful.  

Don't know if I'll do a video this weekend or not, but either way I hope you have a great weekend and good luck next week.


Clay Franklin said...

Hey Mac,
Thank you for this market update.
What pervrnt would you say stocks would likely go down?
I tend to buy and hold so I still have RAX & others like Goog.
I read a article that said the largest gains over decades tended to be on one day so of you timed the market you tend to miss the big days. It is interesting. I can really see protecting my $ more by having tight stops and playing a few stocks like RAX as it moves. Looking at charts like AAPL BIDU PCLN long term it can be 1,000 of % gains just holding the "right stock". So I need to decide if to raise cash or plan for end of year prices. Worst thing would be to sell after everything dropped a bunch and then be in cash on a big rally day.
I really appreciate your updates.

P.S did you get my email from last night with the survey response?

Anonymous said...

Really like your weekend videos

Mac said...

Yes, I did - thank you.

In terms of timing, it really depends on what type of investor you are. I am more of a swing trader and as such i will hold stocks for a few days to a few weeks, then move on to another stock. If you buy the right stock at the beginning of a bull market and have the patience to hold onto through the entire bull market, you are right - you can get gains of 1000%. It's very rare that happens however and much more difficult than books make it sound.

Since we're in the third year of this bull market, I would rather be safe than sorry. I am not saying that we won't break the recent highs at some point this year, but there is a lot of bearish action out there so based on that, I have to lean that way and protect what i have.

It again really depends on your timeframe. I hope this helps.

Anonymous said...

hi mac

i set my stop loss in the half section (09:30-13:30) in case if dow retreats below +80points (0.5 of thursday drop). so at 13:27 when dow was only rising 75points, i ran away. no overnight longs unless dow stays above thursday DO.

a normal pullback just shouldnt be like that.