Standard and Poors Knocks off Stocks Ending Negative, but Near Highs

by | Apr 18, 2011

At 9am EST Monday morning Standard and Poors (S&P) shocked the market by putting the United States debt rating on negative watch. Futures dropped like a rock as fear gripped the market and selling would not stop there. At 10am EST the NAHB Housing Market Index came in lighter than expected and helped fuel sellers pushing stocks to their lows. Volume ran higher throughout the day as traders went for the exits. Just an hour later the market was able to find support and buyers stepped in. Buyers began to step up just after the 2pm hour, pushing the market to the highs of the day. A bullish reversal indeed, but today was a day of distribution and another warning flag added to this uptrend.
Apologies to Dick Cheney, but deficits DO MATTER. Today proves they do matter and it will be interesting to see if any other rating agencies move forward with downgrading US Debt. While we did not see an outright downgrade, but what we did see was S&P shining the light of potential disaster if the United States were to continue on the path we are on and the outcome will be disastrous. Look for the debate to continue.
Once again we find ourselves in oversold territory, but now we are firmly below the 50 day moving average. Despite some leaders holding historically going long stocks when the NASDAQ is below its 50dma tends not to be profitable. While not a perfect indicator, you will find when you make losing trades on the long side come from when the NASDAQ is unable to hold its 50 day moving average. The moral of the story, keep new longs small and cut your losses quickly.
Dip buyers will be out in full force telling you this is a buying opportunity, but we know better. The recent action has been LESS THAN IDEAL, but it certainly does not spell ultimate doom and gloom for the stock market. Stock market trading is filled with uncertainty, but we are after positive expectations. Setting yourself up for success begins and ends with finding situations giving you the edge. Without an edge you cannot outperform the market.
Remember, we have a holiday shortened week this week! Best of luck to this week’s trading.
Aloha