Tuesday, October 26, 2010

Buyers Erase Early Losses as Volume Ends Mixed

Market Leaders continue strength

Early selling pressure quickly dissipated as buyers stepped up to push stocks well off their lows of the session to close positive. Better than expected Consumer Confidence and Richmond Fed Manufacturing Index figures fueled buyers just after the 10am hour. Volume ran mixed all day long with the NASDAQ volume running higher while the NYSE fell behind Monday’s pace. All the major indexes were able to close in positive territory, but the close lacked the buying surge we would have loved to see. Regardless, the move off the lows and with a few market leaders pushing higher the day was a positive one.

The NASDAQ gapped down taking out the 2480 level, but it wasn’t gone for too long. Case-Shiller pricing data was not perceived as a positive for the market stoking a bit of fear in the hearts of traders. Once 10am hit the NASDAQ was able to recover and leap frog the 2480, but found a new resistance level. 2500 level on the NASDAQ is playing resistance for now and we’ll need to see the index to push above with volume very soon to avoid the risk of rolling back over.

Market leaders are always important and most important to gauge the health of the market. At the moment our leaders continue to look strong and continue to build on gains. Our cloud computing leaders have even reversed course from their October surprise to turn positive. High fiving FFIV sprinted nearly 7% in after-hours trading after leaping almost 2% in the day’s session. FFIV was a stock that flashed a buy signal on Friday along with another cloud computing play. It is truly a positive signal for these types of move for the market.

A big mistake traders are going to make will be one of two things. Either they will sell TOO early or sell TOO late; it is ok to take profits off the table as a stock moves higher. It isn’t ok to sell off an entire position in a strong uptrend when you own a strong fundamental stock. If you do sell too soon do not hesitate to jump back on a leading stock. Often times traders make the mistake of not getting back on a stock they sold only to watch the stock blast higher. Be sure to take profits, but be wise and judicious on how you sell.

The market is set to continue its uptrend and without major distribution days and major market leaders crumbling it is hard to think we roll over here. In October when our cloud computing plays turned sour, they were able to find support at their 50dma. A good sign and now have reversed their course. If this market were to roll over we’d see more than just one group fall flat.

One group to continue to keep an eye on is the financial stocks. They continue to feel a tremendous amount of pain and for good reason. After a decade of poor management and excess leverage the filth remaining on their balance sheet will haunt them for quite some time. With that said, even small moves to the upside will help out this market and any sustained move will only support this market further.

Always keep your losses short and ride your winners!

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