Skittish. Confused. Insane. One or maybe all of those words describes the current market environment. For days now we’ve had mini-rallies sparked by some seemingly good news which have been met hours later with selling based on seemingly horrible news. That cycle repeated again on Friday when, at about 3:30, CNBC sparked a furious rally by reporting on another proposed bond insurer bailout plan. That rally saved the indices from breaking down beneath their tight trading ranges. My guess is that if the bailout turns out to be real the market will rally for about an hour before reversing yet again.
DocDan requested a chart of Chesapeake Energy Corporation (CHK). The stock has just shot up about 205 to new all-time highs. The stock is showing a lot of strength but is also extended. A pullback or consolidation would be healthy as long as the stock doesn’t retrace much more than 50% of it’s move above $41. So if I was already long CHK I’d get a little nervous if it sank into the 42′s. On the other hand, if I wanted to initiate a long position I might consider a price in the 42′s a gift. But I’d have a hard time buying it here because the risk:reward doesn’t look very good to me — I see no good place to put a stop and there’s potential resistance just over $45.
No changes
| Trend | Nasdaq | S&P 500 | Russell 2000 |
| Primary | Down | Down | Down |
| Intermediate | Down | Down | Down |
| Short-term | Down | Lat | Down |
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
*** I’m simply using the indices’ relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.
The expansion in those CHK Bollinger bands is incredible. From a 2$ range in Dec to well over 10$ now, it is weird to me that the implied volatility in the stock has barely moved up at all. I’d sure like to own put on that thing when it reverses.