The bulls hoped to make a statement on Thursday and early on it looked like they might get their wish. However, as the day progressed, traders decided to lighten up, with the market sliding into negative territory. But, the bulls weren’t quite ready to lay down and instead the S&P closed up a few points. Thus, we’ve got the same picture that’s existed a few days now, with the range being 1295 to the downside and 1340 to the upside. Until something gives, expect more back and forth here.

The bears had a golden opportunity to take the market lower on Wednesday and almost pulled it off. Instead, the bulls mounted a strong comeback, eliminating all of the sessions early losses by days end. Once again, the bulls were able to hold the line at 1295, a key level of support on the S&P. But, the rally stopped short of Tuesday’s high of 1328, begging the question, is there more selling in store, or was Tuesday’s late day reversal the start of a sustainable rally? It’s too early to tell, but at least we know what to look for here.

The bulls got their way when the market opened on Tuesday and even strengthened after existing home sales numbers were released at 10 am. However, the market peaked an hour later and it was pretty much downhill from there, with the S&P closing flat for the day. So, has the much needed bounce occurred or do the bulls have more left in the tank? If so, they will first need to take out Tuesday’s high of 1328 and if selling resumes, 1295 will need to hold. Whichever one goes first is likely to determine the near term direction of the market.

Oil has fallen off a cliff lately and is trading below all key technical levels, great at the gas pumps but indicating a worldwide drop in demand. In looking at the OIH, unless there is a move and close back above 37.82 we’re likely to see even more weakness, and putting additional pressure on equities.

So, is it time to say so long to what was perceived to be the darling of the tech world, or is it time to jump in for the opportunity of a lifetime?

The answer is..It’s too hard to tell.

The problem at the moment is that FB is in free fall mode, and as any seasoned trader knows, you never try to catch a falling knife. So, jumping in here is a crap shoot at best. Complicating things here is the revelation that the lead underwriter, Morgan Stanley, actually downgraded the stock prior to the IPO, bringing into question, what will the earnings picture look like going forward?

On the other hand, even with the knowledge that the earnings might be lighter than expected, the stock did price at the high end of the range, so one could argue that we’ve got a panic situation going on, with FB being a bargain on the pullback.

One thing I’ve learned is that the collective market – investors, traders, analysts, media – lets everyone know what they think about a stock and that collective knowledge results in the stocks performance. So, at this exact moment, the market is telling everyone they aren’t happy with FB. That can change quickly, but a stock cratering on huge volume is a stock to avoid.

Before we start feeling too sorry for FB lets keep things in perspective here. Even with the sell off of the stock it still commands a market cap of $68 billion; not too shabby for a newcomer. It’s just going to take some time for the market to agree on the appropriate value of the stock.

All of what I’ve said leads me to the conclusion that it is wait and see time. Let the stock settle down here, consolidate a bit and get all of the jitters out of the way. It could turn out that FB is a lemon but it could also turn out that FB is going to turn out to be the star many thought it would be. This is why it makes sense to cool it here; there are still too many ifs.

Date Provided to Members: May 17, 2012

Service: Chart of the Day

Short Entry: $62.53

Cover Price: $59.80

Profit: $2.73 or 4.56%

Days Held: 1

Comments: Here is what we had to say on Wednesday, April 18th, as delivered in our Chart of the Day that we provided to our members::

“ANSS is a $5.8 billion technology company that develops and markets engineering simulation software and technologies used by engineers, designers, researchers, and students in aerospace, automotive, manufacturing, electronics, biomedical, energy, and defense industries and academia worldwide. We have seen the market turn much more bearish lately as many companies have seen technical breakdowns beneath key moving averages (such as the 50 day SMA) on heavy volume. ANSS fits this pattern based on its early May gap down on big volume and loss of its 50 day SMA. On Wednesday, ANSS had an important test of its 20 day EMA from underneath and failed. There’s a long tail above the 20 day EMA, reflecting strength from earlier in the day, but the reversal and close back beneath the 20 day EMA sets up ANSS as a potential short candidate. We like short entry at the current price and again at $63.00 with a closing stop above the 20 day EMA. Our target would be $59.80.”

Update: Shorting ANSS at the open on Thursday and riding it down to short-term support at $59.80 on Friday may have only yielded 4.56%, but when the market is under pressure the way it was last week, gaining ANYTHING is a huge bonus. If ANSS takes out the lows from Friday, it could set up for a much steeper drop, but we’re happy with the one day 4.56% gain.

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The market started out strong Monday and remained strong all day, with the S&P closing at the session high. The bulls finally got something going, capitalizing on the oversold market. Now they will be aiming to revisit the May 15 high of 1344 and then the 20 day moving average of 1349. If the selling were to resume then we’d want to see if yesterday’s close of 1295 could hold.

The yield on the 10 year bond challenged the all time low of 1.69 last Thursday and Friday but held at 1.70%. It’s possible we’ve seen the low on bond yields, and if that turns out to be the case, it should be positive for equities. Should the yield fall below 1.69% then stocks could go lower. So, pay close attention to the 10 year for fresh clues on where the market is headed.

The market started out with some promise on Friday as traders held their collective breaths for the much anticipate Facebook IPO. Unfortunately, the initial euphoria wore off once Facebook began trading and weakened further as the day progressed. Now the S&P has closed below 1300 while remaining extremely oversold. The next stop on any additional selling should be near 1285 and if that goes, the all important 200 day at 1278. On the flip side, if the bulls can turn things around here, they will be aiming for 1344.

I use mainly plain vanilla ETFs. Only sometimes, when I feel really energized, I use TNA for a really short term trade.

Below is a quick explanation why I decided between IWM and TNA. While TNA gives me a lot of fast power if I know where my target is, it can quickly bring sleepless nights if I loose the focus.

I will use the initial size of trade $10,000 for all scenarios. Columns are: date, value at market close, trade value. For scenarios 1-3 I used weekly close prices. For scenario 4 I use daily close prices.

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Conclusion:

If you entered the TNA trade at the bottom of the panic after a long dramatic selloff (granted you had guts to do it!) you were a big winner. The other scenarios are sleepless night’s generators.

This is just an observation. Use your own analysis before you trade.

Eva

The market started out weak and remained weak all day long. Once again the bears succeeded in taking out another level of support with the S&P closing at 1304 with 1300 now a key level of support. We’ve now got stochastics near 0 and the RSI on the S&P is at 25, almost guaranteeing a bounce at any moment. But, make no mistake about it, the bears are in total charge here, so any bounce could be short lived.

The market started out with promise on Wednesday but as has been the case lately, the bulls were unable to hold the upper hand. Instead, in spite of extreme oversold conditions, the bears were able to take control of the action late in the day, with the S&P moving below yet another level of support at 1326 and closing at 1324. Next up will be 1312 if the bears have their way. The reward to risk remains to the upside here, but try telling that to the bears.