Tuesday, July 12, 2011

Market Thoughts from Vacation...

Greetings from Deep Creek, MD.   Nice place - first time here.   It's been a good week here so far but it would have been better if the market cooperated.  Instead, it has been a pretty tough out there.  Although I haven't been following every little move this market makes, I have traded a bit and just thought I would share some thoughts for the rest of the week. 

Friday was a very bullish session based on the intraday action, but the past two sessions have been about as bearish as you can get.   Here are the facts I am looking at...
  • The Nasdaq picked up distribution days both of the past two sessions, their first since June 17 (I am not counting June 24 due to index rebalancing).   You never like to see back to back distribution days.
  • The breadth signal I use has now dropped below 2, which would indicate at least a "cautious" or "neutral" stance on the market here.   
  • My main signal flashed a "caution" today and could turn to a "sell" with another move lower today.
  • From June 27 until July 6, the market closed at or close to its highs EVERY single day.   The market has now closed at its lows two days in a row.  
  • We are now oversold and in an area where we could bounce.  (below -2000 on my Telechart custom indicator)
What does all of that mean?   Well, certainly things could be changing here quickly.   Perhaps this is just a dip before the two week uptrend we saw from June 27 continues in all of its glory.   Based on the action I am seeing, I have my doubts that this is "just a dip".   I have tried to play a few stocks the past two days and have had hardly any luck.   My stop losses have been hit and I am seeing no follow-through in momentum-type names.   This is a change as well from last week when stocks were flying up and acting super. 

We're also back to a market where news is dominating things, whether it is Europe's debt issues or the start of earnings season.   This will obviously make things volatile, but as I look at the news being traded, I can't quite see what news will help push this market back up.   Exactly what solution is going to be found that cures all of the ills that have infected Europe (and perhaps the U.S. soon)?   All I can say is that the earnings reports coming out better be (in my best Larry David voice here...)  "pretty, pretty good". 

Be cautious here.   I still have a few stocks I am watching on the long side that have held up or look like they want to move higher, but I haven't had much luck with them the past two days so I am much less inclined to play little pops intraday hoping they amount to much more.   It's a little too late to short anything in my opinion, and shorts are actually bouncing all over the place too (look at BEXP and SOHU - two of my favorites, but all over the place.)

My outlook from here is "less is more".   I will trade earnings moves if I find them, but I think the next few weeks is going to be difficult.   It would not shock me to see the market fall right back into the 2600 level the next two weeks, (from which of course it will bounce straight back up into the 2900 level, right?).   It is the summer and volatility is the norm, and August is usually the thinnest month of all in terms of volume, so it's not going to get easier. 

Be careful is all I can say.   We may bounce tomorrow because we're oversold, but until we start closing well again, little bounce attempts don't mean anything.   The burden of proof is back with the bulls from my perspective.   Good luck the rest of the week.   Back to the lake for me. 

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