Choppy Session Ends 70 Points Higher

Thursday, April 23, 2009

The Dow closed 70 points higher for the day in a choppy trading session which frustrated many traders. The market looked weak early on trending lower throughout the morning into lunch. But, buyers stepped in at the 7,800 level and rallied the market positive into the close. Financial stocks continue to defy the odds gaining 4.7% today. These stocks continue to rally running over any trader brave enough to step in front of the train.

Today's action continues to suggest that this market has an extremely strong bid. My hypothesis for the market's current pull-in is still in tact but the action looks as if it will be very tough over the next several days. Real money is picking up stocks on weakness so the short side does not offer momentum. Yet, the long side has been highly unpredictable the last two days. Goldman Sachs continues to be the market's leader and while the bulls prop that stock up, the rally will not fail. The outperformance of the market's momentum leaders is staggering with high momentum stocks all solidly in positive territory while the S&P 500 sits in negative territory year-to-date.

Year-to-date momentum leader performance:
AAPL 46.92% MA 15.61% GS 45.53%
RIMM 68.23% FSLR 4.01% CME 15.67%
GOOG 25.03% POT 8.74%

BIDU 62.75% RIG 38.17% S&P 500 (5.67%)

This data suggests that the short side will be very tough in the high momentum stocks, as they are showing the greatest relative strength among stocks. The pull-in will likely be felt by the market's weaker stocks that traders typically do not gravitate towards. So, it seems to be the time to have patience and wait for the pull-in to run its course. Trade light and wait.


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