3 Things I’m Watching

  • Posted by
  • on February 22nd, 2011

I would imagine 90% of traders and advisors are happy about this down opening.  We had an options expiration float higher on top of weeks of floating higher on top of months of floating higher.  This market has been indestructible…the thought that unrest in Libya is going to mark the end of its run seems foolish given the resilience we’ve seen.  So buy the dip?

Well, I can’t sit here having talked down the last phase of this rally and then plunge into the first real opening dip.  We’ve already seen an outsized daily range for $ES_F, double what we’ve seen in recent weeks; it has more energy to it than recent overnight dips.  That should excite scalpers, and concern trend followers…it is a slight change in character.

Unlike my Boy Plunger days, I won’t attempt to make a stand into the opening range; that’s for the more bold at heart.  What I will do is assess the action, and plan based on the following:

1) Home Depot– this stock has real news today, and epitomizes both the rally and what the Fed wants the rally to be.  Its price can’t help but be affected by today’s macro setup, but watching the reaction to its strong results can help us visualize how the rest of the market might act on the next “non Libya” day.

2) Energy Stocks- like the market, they’re up a ton. They’re being handed an excuse to rally hard on a day of widespread weakness…if they can’t, then maybe this selloff has legs beyond the opening 15 minutes.

3) % Above 10 Day MA– it looks like we’re settling in around the 10 day moving average.  One setup that has worked well for me is to buy when the $SPX is below its 10 Day MA but more than 1/2 of stocks are above(and vice versa).  We can’t assess this until later today, but I think it’s a decent clue.

It’s fuzzier for us to gauge, but feel the composite take.  We all feel relieved this morning at the pullback, and I think most will see it as the “pause that refreshes” since bears and sold out bulls are wounded and vulnerable to emotion.  Let’s see how this plays out over the coming hours…if we(and others behind us) start feeling regret that we didn’t “BTFD”, then the combo of that regret plus the doubt that we can again shake it off so fast could be a 1-2 punch triggering a meltup.  This is not my preferred scenario, just laying it out there as an outcome we need to consider in the days ahead.  Conversely, if the sentiment takes on a “wish I had sold” element along with a complacent “of course it will bounce back” tone, then maybe there is more to this selloff than it appears.

Friday I said forget the big names…today I say use them as a guide.  I still think the money flow is strong enough for only a hot potato market, so we need to pick our spots carefully but seize them quickly when they arrive.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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