We're not sure about most traders, but it was fairly tough for us to commit many trades today with a lot of conviction. We're reviewing our logbook and remember back on October 19th, we felt very much the same way. While the NASDAQ tacked on a very nice gain by the end of the day, much of that days gain (much like today) was achieved in the morning's gap. Technically speaking, it would have been very tough yesterday to have bought the close as risk/reward looked to be about 50/50.
Big gainers were big losers.
When looking at the board today, we notice that many of the indexes that showed the biggest gains today, were sectors that had been dismantled in the previous couple of sessions. Software stocks (GSO.X) looked to be today's winners, but here again, half of today's gains were achieved in this morning's gap up. The last four hours of trading showed little movement and it would have been difficult to commit seriously to the sector. While the Internets (INX.X) tacked on a nice 7% gain today, we found stocks that looked to be better shorts than longs, and many of these had been on our bullish watch list just a week ago. They had never achieved our bullish entry prices and have since failed miserably.
The smell of short covering
Today's market "smelled" more of short covering that it did bullish buying. As traders, we know that there are profits to be taken, and today it looked like some bears were locking in profit. Case in point.
People Soft Chart - 60-minute interval.
We've been bullish on the technicals in shares of PSFT for months and today we revisited the stock when the GSO.X was powering ahead. What we found looks to be more indicative of some nervous short covering than it did eager bulls buying. Readers may remember our last alert back in mid-October when a pennant formation was forming at the $40 level and the large volume increases that proceeded that formation. We would have thought this stock to have gapped higher than today's $38.88, especially for a software stock that has been a leader in the group. While today's end result was impressive, shares of ORCL on a percentage basis resulted in a better move. One could argue, this type of activity is more indicative of short covering than bullish buying.