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State of the Stock Market - 9/20/10

|Includes: McMoRan Exploration Co. (MMR)

Another up day on Wall Street today, as economists declared the recession "over" and stocks took that news and ran with it.   The day started only slightly higher, but stocks had a sharp move up for the first hour of trading.   They moved sideways through lunch and into the early afternoon, but had another move up around 2:00 and finished near their highs and with large gains.  

Technically, we remain obviously overbought on most indicators (the Nasdaq 100 is now up 12 out of the last 13 days) but that hasn't mattered much so I don't know why it is worth talking about.  We are just ramping here - probably caused by a combination of solid buying as well as short covering (especially on a day like today) and if you're fighting it, you're simply wrong.  

I put some charts out this morning to watch and most did very well.   RES (+5%), CRM (+5%), MMR (+9%), NXTM (+6%), WLL (+4%), and CVGI (+4%) all had nice moves higher while the only short candidate I put out, RDCM (-5%) went down nicely.   Hopefully you were able to play some of these.

Charts from Telechart, Courtesy of Worden Brothers, Inc.

I still don't know that I would be buying at this juncture, but that's up to the individual to decide.   When (or if...) we pullback, the June and August highs should act as strong support now that they have been overtaken and would act as a logical area to get long or to add to long positions.  It is looking more and more like we're in the middle of a February-March type move where stocks just don't rest.   The risk with this type of move is it could setup a blow-off type move and a very nasty sell off after that, but it's too early to predict that.   I will continue to stick by my belief that it would be healthy for the market to rest and stair-step its way higher (for the longer-term health of this rally) but right now that's certainly not in the cards. 

I am a little frustrated right now in that my signals were correct back on September 1 and since then, I have been solely looking on the long side of the market.   However, that's been my problem - I've just looked and haven't really acted.   I've been in cash the whole time and have missed many moves in stocks, most of which I have shared here in the weekend videos.  Some of the reason is circumstance - I did start back to work at my full-time job in late August and don't have access to the market now during the day, which is totally different from what I have been used to doing for the past four or five years.   I honestly haven't adjusted well - becoming an EOD trader immediately is difficult, no question.   I am still trying to figure out the best way to adjust to this change and hopefully will find that best way soon.   I am very uncomfortable though and this is making it tough for me to trade.

Some of the reason is psychological, however - I saw the signal turning on September 1 and 2 very clearly and discussed it here, but I didn't take it.   I didn't follow my system for whatever reason.   I believe that because I saw so many whipsaws in the previous few months, I just didn't trust it this time.   That lack of trust cost me some gains, no doubt.   Trading is not just about finding charts and executing trades - it's mostly about dealing with your own feelings, opinions, doubts, etc. and managing them correctly.   Hopefully, this will be a lesson for me to learn from in the future, because that's all you really can do when you make a mistake - learn from it.

I have no idea where we go from here so I won't guess.   We are very extended and set up for a sharp pullback, but until it comes, it's not worth doing anything about.   If we are up again tomorrow, I may think about putting an inverse ETF on, but more than likely will do what I've done for the past two weeks - sit back and wait for better and safer buying points to emerge.  Good luck and be careful.