Wednesday, August 19, 2009

We Need Some Selling

Top Line: The best we can say this evening is that the SP500 still has that 1018 level overhead which should not be touched before we see lower prices.

Stocks opened lower on China's weakness overnight. That didn't last too long and buyers came in to bid up stocks. Halfway through the day another burst of buying occurred taking stocks positive on the day.

We follow and trade the NASDAQ 100 and various funds that are based on it like QQQQ. We have been patiently waiting for some movement in the market over the past month or so and noticed that the QQQQ has traded in a narrow range of about two points during that time. Monday saw that index drop but it stayed in that two point range.

There was some movement in some of the stocks/funds we watch. Even GDX had a wide range today with a start near 37 moving up to the 38.50 range. Ok, maybe it's not a huge range but it was a really good trade. We have been talking about buying GDX in the 36 range so we are very close to start our buying campaign, but we're not there just yet.

With options' expiration coming on Friday, there could be some volatility in prices just because there has been such a tight range over the past month. There is no obvious strong conviction on either call or put buyers so there may not be much in the way of options' driven trading.

But, the market has failed to move up over the past month and has just this week broke down a bit. The last couple of days have corrected the out-sized move on Monday. We say out-sized based on the trading of the past month.

Now, we are coming to the end of the earnings announcements and the market may be free to trade on its own. We think the market could be weak over the next week...so a weak week on the horizon in our view. Going into September we should see a 8 handle on the SP500. It may not drop too far into the 800's but we think that a move down would at least put a scare into some of the bulls allowing for another run up into the fall.

We have thought there has been too much bullishness and now we have seen a flat market for a month. That is enough to relieve the bullishness but in order to see the price levels we are expecting there has to be some out and out bearishness which can only be generated by much lower prices. These small pullbacks like Monday are still buying opportunities to the players. This is Not bearishness...

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