Monday, October 7, 2013

Thoughts About Today, Idiotville D.C., and What Tomorrow May Bring

Going into today session, both the Nasdaq and S&P had finished either at the top of their intraday range or well off the lows after heavy selling in the morning for the previous seven sessions.  We saw repeated strong attempts by the bears to bring this market down, and nothing they did seemed to be able to stick.  The repeated stands put up by the bulls over the past week in the face of no positive news coming from our nation's capital was or at least appeared to be very bullish.   Today was different.

Seeing a decent sized gap lower this morning was nothing new.   Seeing bulls respond by buying the dip at the open and pushing the market well off the opening lows was also nothing new.  The reaction however we saw from 10:30 on was new.  It was a lot different from anything we have seen over the past seven sessions.   There was no more bounce.   There was no more closing near highs.  What we did see was a selloff into the close.  We saw a close at the lows of the session for the first time since Wednesday, September 25 by my count.  We saw the S&P close below its fifty day moving average.   We saw the Russell 2000 close below its twenty day moving average for the first time in over a month (September 6 to be exact).  We saw the Nasdaq come perilously close to doing the same.  

To summarize, today seemed to be a character change for this market.   This is only a guess on my part, but it felt like the bulls, after defending key levels so many times over the past seven sessions on the expectation that Washington would come to an agreement and make everything better, got tired.   They just couldn't do it.  They were worn out.  That bears watching (no pun intended).

I hope to heck I am wrong because I would like nothing more than to get back on margin fully long and have stocks run into the end of the year with me on the train.  Unfortunately, I am getting the sense that we are in for a rough week or two coming up and that cash might be a good option right now.   Wall Street has been trained over the past few years to expect the news that it wants to hear - you need not go past the most recent Fed announcement when many feared a taper and what we all got instead was more QE. 

Did Wall Street expect this mess in Washington to be fixed relatively quickly, even if they realized that there may be some posturing on both sides?   I know I did.  I've been trained too.  Maybe I am the only one.  This situation however seems a little different.   There is no deadline where a deal has to be done by a certain date, unless you throw the government shutdown together with the debt ceiling issue.   This uncertainty could go on for a while because of that.   Both sides seem to be dug in pretty well.   What exactly is going to be the catalyst to get a deal done?   Right now, one catalyst that stands out in my mind is a big move lower on Wall Street.  That may force their hand a bit.  This idea was discussed very nicely in an article I read today by Reformed Broker, although it was put out before trading today and didn't have the benefit of seeing today's action.

I am still very hopeful for a year-end rally from which I can get crazy long and ride a wave higher.   There are still a good deal of stocks holding up very well even with the action over the past week.  Some cracks are starting to show however.

LNKD has been one of the true leading stocks for 2013.  It closed below its fifty day moving average today on heavier volume.

NQ has everything you could ask for in a stock - great fundamentals, great relative strength, and a breakout from a historically bullish high, tight flag pattern.  It looks poised to break below its key $20 breakout area tomorrow morning off of a secondary after-hours.

On September 26 and 27, TSLA made all-time highs on lower volume.  Last Wednesday and Thursday saw it slice through its short-term moving averages on extremely heavy volume and recover slightly the past two days on much lighter volume

Again, I hope I am wrong but I sense that the next week or so - perhaps the rest of the month of October - may be a difficult one.  Maybe I am biased because I had a rough day trading today, getting stopped out of most of my long positions.   Perhaps that is telling me something too.   I am mainly in cash here except for two shorts I put on today.  I am ready and willing to get long if the market tells me to do so, but my watchlist for tomorrow is rather barren compared to what it has looked like over the past few weeks.  

Be careful here.  This mess in Washington could go for longer than most think, and it may take Wall Street sending a clear message of dissatisfaction through selling shares to get them working toward some sort of agreement.   The bulls gave it their best fight and perhaps they have some fight left, but based on today's action, I think they are simply worn out.   Trade accordingly. 

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