The markets began the day by following Asian and European markets lower. Asian stocks fell after an index that forecasts economic activity for China was revised lower. European indexes continued the slide after Greek workers walked off the job to protest steep budget cuts.
Yesterday, I was on the side of the market moving lower today because of the intraday price structure of Monday's market. I'll be the first one to admit we got a lot more downside today then I thought we'd get.
However, today is a perfect example of why we continue to maintain short positions. There is very little (if anything) that looks technically bullish about the stock market, and mounting evidence to be bearish.
$INDU: You'll notice the DOW spent two days consolidating right below the middle of the Bollinger Bands and then rolled over today. While it has been on a big move lower the past several days, you'll notice the RSI has not reached over sold conditions, nor has price pushed below the lower Bollinger Band.
It's viable we get more downside price structure with price testing down into the necklines. I've draw one neckline off closing prices, and the another off lows. The MACD is rolling over on the daily chart, which also leads me to believe more down side pricing structure is to come.
$SPX: On the SP500 we have similar traits to the DOW, except it has pushed lower into the lower Bollinger Band and the neckline zone. However, there's still room on the RSI for more down side pricing structure. In addition, we have the MACD rolling over, and the daily Bollinger Bands widening with today's decline.
QQQQ: As market participants flee risk, the Qs got hammer more than the DOW or SP500. It has similar characteristics as the SP500 and nothing looks bullish.
Note: I expect the indexes to trade differently as it relates to when or how they break their necklines, and maybe the DOW holds while the others break below. That's the kind of pricing structure that creates confusion, which Mr. Market loves to do.
$VIX: We have interesting price action in the $VIX. It held support at the 200 day MA, and then reversed breaking above the 50 day MA. Then spent a couple days consolidating on the 50 day MA before bolting higher today. My read on the $VIX is bullish near term with the daily Bollinger Band just above and the MACD turning up.
Big Stock Watch: We're not trading in the big names but merely watching them for signs of market health.
IBM: Even IBM wasn't safe today. We are in dangerous territory if IBM continues lower. We are only a few bucks away from it's bottom channel (support) line. Maybe the market finds a near term bottom when IBM hits the support line. Just a thought and nothing I'm married too.
AAPL: I really thought AAPL might hold up since it's the market favorite. However, the down day was too big and it looks very tired with classic bearish divergences on both the MACD and RSI, and the MACD is rolling over. Any significant move below the 50 day MA, and we should see selling pressure release and the stock trade lower in the coming days.
BIDU: Even BIDU is starting to show signs of being very tired. While there is no bearish divergence on the MACD. The stock is sitting at current support, and a break below might release some more selling pressure. It's very possible this has another new high in it because of the lack of bearish divergences.
From My Trading Desk:
Today we made minor adjustments. We closed half of the short on DAL, and opened a full short on COH. Outside of that we maintained our short positions, which are highlighted in the charts below.
DAL: It continues to be the best behaving short in the group. We took some profit today because the stock is in the area of expected near term support at the 200 day MA and the neckline. We've kept the other half because there is nothing remotely bullish about the technicals on this charts.
SRS: Quickly becoming our favorite new position. The ETF gapped up today and is pressing into a level where it could close prior price gaps with further upside structure. We still have a 2/3s position and will add the other 1/3 when we are a little deeper in the money, and get above prior gaps and closer near the upper daily Bollinger Band.
CTSH: We have a full short position going on this stock. It reflects good bearish divergences on both the RSI and MACD, and the stock and it's MACD have rolled over. A common thread in this environment of late is to break below the 50 day MA and head for the 200 day MA.
BRCM: This is my second short of a tech. company, along with CTSH. BRCM has similar characteristics, and I like having a couple of tech shorts. If risk flees the market, techs will get sold off more. Remember, the opposite holds true as well.
COH: We re-established a full position today. The stock like CTSH has very solid bearish divergences going on both the MACD and RSI. It's been down 10 days in a row, and continues to slide. It may find some kind of support at the 200 day MA. The Bollinger Bands are widening on this move lower. On this one, I might flip it if we get immediate weakness in the near term, and come back if it bounces. Just my thought for now.
MCK: This stock has held up the best of our shorts. I'm thinking of closing this position in the near future, and just moving on to something else that has more volatility. Although, it did close below it's 50 day MA, so maybe it will pick up steam soon.
In Summary: We continue to like the short side. From time to time we will close positions to manage risk and ideally take gains. When I think about the market for the remainder of this week, I have a couple of thoughts stuck in the back of my heard.
First, tomorrow is quarter end for mutual funds, and that may create some turbulence in either direction tomorrow. However, based on price, I think tomorrow might be a little inside day following today's sell off.
Secondly, we have a 3 day weekend coming up, and if we get any more downside of size, just how bullish are the bulls going to be going into a 3 day weekend?
We should expect more volatility with panic on both sides. It would not surprise me to see another little flash crash this or next week, as market players seem spooked by mounting global issues.
Finally, markets rarely bottom on days like today, so I'll want to see bottoming structure before I believe in a bounce of any size is coming.
Those are my thoughts and action plans. As always, tomorrow's market could change that.
Hope all is well.
J.D. Rosendahl, Rosey