We opened the day with a gap-up and continued a light bounce nearly the entire day.  Sentiment was looking fairly optimistic that we could see some more oversold relief action, but the final hour right before “The Bernank’s” anticipated speech saw us sell-off to the lows of the day.  What was starting to look good changed quickly in the blink of an eye.

Technically speaking, we didn’t even test Monday’s lows nor did we obviously break below those lows, so the bounce play could still take place as we are at the bottom of the trading range.  The bad news is the bulls couldn’t finish with a win and that could mean they are waiting for lower prices, which would mean support is unlikely to hold and we trend towards the 200-day SMA.  Time will tell, it always does.

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This is the type of action that is the reason I day trade more during a downtrend rather than holding many positions overnight.  We, in the live chatroom, were able to lock-in profits in excess of 10% in both Exelixis (EXEL) and Pharmacyclics (PCYC) (you can see my StockTalks detailing the trades here) during the day without sweating about losing these hard-earned gains overnight.  Though, I do have a smaller position of profits that I’m letting ride with EXEL in case it wants to run-up again tomorrow after the exaggerated sell-off from the ASCO conference.  If we trend lower tomorrow, I’ll have plenty of capital to consider shorting an index for profits from the dark side.  If we do indeed bounce again, I’ll have plenty of capital to join the bull-run and lock-in more gains with the potential to leave some overnight if the action is healthier this time.  Until the markets firm up, no reason to risk losing out on a large gap-down that surpasses a stop-loss.

Bernanke was unable to say our economy is healthy and that is because the economy is not healthy for most everyone.  Luckily, the markets do not always logically correlate with the economy else we would be down significantly.  See the chart below for more details on today’s action.  Preserve that capital during a downtrend, better opportunities lie ahead.

iShares Russell 2000 Index (IWM) Chart

As always, do your own homework to see if you agree.  Good luck out there,
Mike

At the time of publication, Kudrna was Long EXEL but positions may change at any time