* Big Themes - One thing I'm finding as I work with traders in various settings is that even the ones who are trading short-term are aware of big market themes and how those are playing out on a day-to-day level. I try to emphasize some of those big themes in my Twitter posts; an excellent daily source is the Abnormal Returns blog, which culls themes from both blogs and mainstream media. Other sources I regularly scour are Charles Kirk's extensive link posts, the link updates from Trader Mike, and the weekend reviews of The Big Picture.
* Strength and Momentum - On Thursday we had 449 new 20-day highs and 607 new lows across the three major exchanges. That's a weakening from the 470 new highs and 431 new lows the previous day. Momentum improved, however, with Demand finishing Thursday at 72 (up from 45) and Supply at 65 (down from 104). Demand/Supply is sensitive to whether stocks finish the day relatively strong or weak, so when we get improved Demand/Supply on a day where we also log more new lows, it makes sense to look for signs of a short-term market bottoming process. It's when we see price weakness and *fewer* new lows that we typically get some of the best entries in terms of risk/reward.
* Majority of Stocks Not in Bull Mode - We still have only 29% of stocks in the S&P 500 Index trading above their 50-day moving averages. While that's above Wednesday's low level of 17%, it suggests that weakness is still dominant for many sectors. Indeed, only 40% of the SPX stocks are trading above their 20-day averages. Interestingly, a greater proportion of small caps (49%) are trading above their 20-day averages than large caps. On the other hand, we're only seeing 25% of NASDAQ 100 issues trading above that benchmark. That having been said, the majority of issues are off their recent 52-week lows: among NYSE common stocks only we had 40 new lows on Thursday. That level hit 700 at the January lows.
* Not Much Technical Strength - Among the 40 stocks in my basket of SPX stocks chosen equally from eight important sectors, we find that only 4 are in uptrends, 9 are neutral, and 27 are in downtrends. That is a meaningful turnaround from the recent highs, when we saw more stocks in short-term uptrends than downtrends. In such an environment, when trading against the direction of technical strength, I like to be quick to take profits; many of the best longer-term trades wait for bounces or pullbacks and then go with the direction of overall trending.
* Reflection - "Look at your life: who do you want to be before you die?": Reflective birthday performance in Beijing from CXS.