Assessing the damage

Well - it sure wasn't pretty! Actually, the adjective that comes to mind is: Ugly. That's right, it was downright ugly today. If one were to pick up a newspaper (like anyone ever does these days), or go to Yahoo and see that the indexes were down around 2-3% they'd probably think 'Ok, not too bad'.

But the real damage was 'under the hood'. Yikes. In fact that there was carnage out there. Steels down about 10%, solars -9%, energy -9%, real estate -8% - you get the picture, and don't even ask about casinos. The momentum stocks got crushed today with losses of 10% and more. Decliners outnumbered advancers by about 9 to 1. The bulls could not even muster the usual late day rally attempt.

When analyzing charts, especially for SPY (or ES), I like to look at multiple timeframes to get a feel for the short and long term trends. The weekly is setting up as a stochastic sell which has not triggered yet. A move below last weeks lows and I believe we are in for more correction. The hourly chart is looking precarious - trend lines that extend all the way back to Mar 10 have been broken for all majos indexes, and the 20MA is about to cross below the 50MA. This was attempted several times in the last several weeks, only to be reveresed rather quickly with a resumption of the rally.

It is obvious, and quite healthy, that a pullback was needed in this market. Many people (myself included) who don't like to chase have been calling for some consolidation, and an opportunity to get on-board. This is the bulls chance to show the rally is for real. The daily chart still looks intact and bullish - we are still above the 20 and 50 day MAs. There is some strong support in SPY around the 87 area - if that gets taken out easily, then the next area of support is around 83-84.

Fundamentally, it became rather obvious with today's retail numbers that the consumer is still ailing and the economy may not be rebounding as others would like to think. Unemployment is still rising, and the treasury bond yields are rising as well. The bulls have a lot to overcome here.

Regardless of what happens, there should be some fantastic opportunities to profit in this market - long or short. Remember to stick to your plan and take profits when you can.

Good luck with your trading.