Friday, April 30, 2010

What A Nasty Day...

Despite the market hitting a new annual high on Monday and a strong bounce on Thursday, the bears ended up with the victory this week. We had some of the worst action in a while on Tuesday, and then after a decent bounce on Wednesday and Thursday, we rolled over again today. It is only two days of selling, which isn't a massive breakdown, but it is a slight change of character for this market, and we need to pay attention and make sure we tighten up our defense.

Of course the dilemma of this market is that for over a year now, every time it looks like we are about to accelerate to the downside, we find support and then head straight back up. The action at the end of January looked much like what we saw this week, but after only one more poor day the following week, we had straight-up rally that has lasted for nearly three months.

Given the patterns in this market over the past year, we certainly can't be very confident that the market won't pull off another quick reversal and a move back to the highs. In view of the technical setup, I sure didn't think we'd see new highs so fast after the January breakdown, but that has been the norm and not the exception.

The possibility of criminal charges being brought against GS, the European sovereign debt problems and the oil spill in the Gulf of Mexico are all sharing some of the blame for the poor action this week, but I think we would have found excuses for profit-taking regardless. It is the market that drives the news and not the other way around. In a different environment, the market would shrug off the things that it is using as a selling excuse today.

In view of how powerful this rally has been, how quickly we seem to bounce back and how aggressive the dip-buyers have stayed, I don't want to be too quick to be aggressively bearish, but there are some definite negatives this week, and as seasonality turns negative, the bears are going to press harder.....

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