Tuesday, January 27, 2009

Not Very Convincing, But Not Bad Either

The stock market continues to see choppy, thin but generally positive action. We have been inching up on lower volume and good breadth, but we lack strong buying conviction. It hasn't been negative action, but it isn't very convincing either.

The Nasdaq has now had three up days in a row on declining volume and is close to hitting overhead resistance at its 50-day simple moving average. That is a potential short setup rather than a buyable pattern. The S&P 500 and DJIA are similar but don't have as clear overhead resistance.

The intraday patterns seem to indicate that day traders are dominating the action. They are buying pullbacks and then selling the minor rallies. We have an upside bias, but any sign of better momentum seems to invite profit-taking. The end result is very choppy trading.

We do have underlying support from dip buyers. Many of the financials -- such as JPM, GS, BAC, STT and so on -- have bearish patterns. With the major indices also setting up that way, I'm starting to look for some downside, but the dip buyers are likely going to keep it contained for a little while.

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