Friday, January 20, 2012
Stocks Push Higher, But Still Look Weak; Euro Looks Strong
Wake up everybody! Wake up!! I know the market is boring right now but we have work to do :-) The market has continued it's slow boring hump higher on weak internals and volume. Although this can continue even longer, the risk right now is with the bulls in my view. Momentum indicators are overbought, volume refuses to accompany the rally, and the price action is very choppy. All spell out that when this rally ends, the move down will be sharp, fierce and probably quite deep. Today's volume was a bit strong relative to the previous days, but that's because today was options expiration day which usually means we get a surge in volume. But relative to most options expiration days the past few years, today's volume was very light. We usually see well over a billion shares traded on options expiration.
When you're a bear and growing impatient with a sloppy rally, we can tend to over-analyze every little thing on the bearish side and read too much into it. I don't want to do that here. But it's worth noting that the overall market today was fractured with the Dow doing quite well, the S&P barely eeking out a gain, and the Nasdaq closing slightly negative. With options expiration out of the way, and the evidence of a weak rally the past few weeks, it's quite possible early next week could be the pullback we've been waiting for. Timing is very difficult, as you can probably see from the last few posts I've put up which practically say the exact same thing. So I simply want to be ready for a decline, but not be positioned as if the decline will immediately occur. This choppy sideways-to-up action can continue for a while longer. So keeping risk tight, and my finger on the sell trigger seems like a wise choice at this time.
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The euro stopped me out a few times in the past week or so. So I'm on the sidelines again. With the previous swing high taken out this week, the short term downtrend has been broken so we need to look for higher levels until it proves to us it has reversed trend to the downside. There's a nice confluence of support levels in the 1.2875-1.2900 area that I'm watching right now. At 1.2875 you have the previous swing high, at 1.2885 you have today's low, and at around 1.2900 next week you'll have the base of an ascending trendline. So it's quite simple, a a close below 1.2875 would get me to short the euro again with a stop just above today's high. Until then, I think it's best the bears wait this rally out. The euro has been declining almost non-stop for the past several months now and a sharp and deep corrective rally would not be out of the question. Keeping risk tight here until the euro proves that the uptrend is no longer intact seems wise to me.
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.