Tuesday, July 27, 2010
Market Struggling; I Closed Half my Long Positions
The market rally is really struggling at this point. The higher risk Nasdaqs are well into negative territory while the Dow struggles just into positive territory. The internals of the NYSE show quite a negative slant as well. This market rally appears to be tiring. Now whether the result is just a flat sideways move for a few days, or a major decline phase, it appears the easy money on the upside has been made. I closed half my long position and have the rest to stop out at almost breakeven just below 1100.
Another sign of upward exhaustion is the comparison in the major indices. The Dow is surging higher while the S&P lags a bit and the Nasdaq Composite (and Nasdaq 100 - not shown) lags even more. This tells me that risk appettite is tepid, and combine that with the weak volume on rallies lately, it tells me the bulls are running out of gas. If the Nasdaqs were leading the pack higher then this would mean nothing. But when the Nasdaqs and higher risk indices lag the rest of the market, I see that as bearish. Precious metals and commodities are tanking too, even though the euro has rallied to new highs overnight and is stable so far this morning.
Also, despite the mixed session so far, the VIX is up over 2%. So there's a bit of caution out there right now which are signs of a potential top. And there is a possible major top that could happen that we don't want to miss out on. So this is something to watch closely.
One bullish potential is the possible inverse head and shoulders pattern in the XLF. It almost broke out above the neckline today to confirm the pattern but hasn't done so yet. A break out here should lead to a big rally in financials. And a big rally in financials would mean a big rally for stocks overall as well.
But the aggregate of evidence right now lies with the bears in that the rally over the past week appears to be at its end.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.