Friday, January 18, 2008

State of the Market - 1/18/08

Another volatile day today in the market and a sort of strange one from my perspective, as the indexes started the day with a big gap-up, which I was not all that surprised with. However, that gap was quickly sold and the markets dropped sharply. At this point, I started expecting a rash of panic selling and the washout that seems to be setting up here. However, that never happened – the market simply vacillated the rest of the day, going up a bit, then back down, then up, down, up, down, and finally up to close with marginal losses. Intraday support was tested several times but held, and intraday resistance was tested several times and held as well. I expected a crazy day with options expiration and the general tone set by the last few days, but I don’t think we got anything like that today. I thought the action was actually kind of boring in the afternoon, and the VIX actually declined today.

To be honest, I am totally confused with this market right now after looking at some of the indicator numbers. Although we continue to move lower and lower and lower, I personally sense little to no fear out there. We are still not at extremes on the Market Monitor, although we are closer to those levels. The T2108 is finally under 20, so we officially oversold, but it didn’t seem to matter today. I get the feeling that no one really wants to buy these dips right now, fearful that we continue having big down days or maybe a total washout. Shorts, however, don’t want to press too much here too because of the oversold levels, fearful of a dramatic bounce that will trap them. So maybe we do have fear out there, but not the type of fear that will produce that washout and subsequent bounce. Not a panic-type fear where traders can’t take the losses anymore and just get out at any cost, just to end the emotional pain of the market and their losses. This is the fear we need, and I thought we were close to getting it, especially after yesterday’s action. Now I don’t know. Maybe we just drip, drip, drip, lower here or maybe we just chill at these levels for a week or so before the Fed acts, and then the market makes another move. Who knows? I’m still on the lookout for the panic I mentioned yesterday, but I just don’t know if it is going to happen now.

I put a trailing stop on my SKF position today based on the T2108 reading and was stopped out for around a 15% gain, which I am happy with overall. I will look to load up again on a bounce(hopefully). I am still in all of my other shorts – some small bounces today but nothing major, so I am doing my best to let these gains develop. It probably would be good for them to put one or two more small up days in around here. Depending on the market action, I may continue to add to these on any bounces. Other than that, there is not much to do right now. Unless we get a major panic move down, I think it is not very smart to be buying any dips right now. I have a few I have on my watchlist but won’t even think of acting on them until I see what I want to see. Markets are closed Monday for the Martin Luther King, Jr. Holiday, so enjoy the three-day weekend. Good luck Tuesday!


Paul Stiles said...

I am scrambling to put together new indicators that will help me flag panic lows.

I'm with you when it comes to not sensing any fear. The only things that I have been able to see are two down ticks on the NYSE below -1200, one Thursday and one Friday. Other than that, it looks like were still not at a tradable bounce.

Keep in mind that everyone is looking for a bounce right now and we all know what happens when everyone is looking for the same thing.

Mac said...

It does seem everyone is expecting it, but many of the numbers are pointing to that possibility. I just think we will have to have a complete washout before we get a tradeable bounce. With the world markets down huge today, we may just get that washout.

Paul Stiles said...

Yes I agree, but the washout and rebound must come in the US markets. No matter what people say, the US markets still lead the rest of the world, up or down.

Good post today on your strategy for Teusday.

Mac said...

Thanks. I agree, in most cases, the US markets will lead the action of the rest of the world. Today was unique however with us being closed and the rest of the world starting the panic, so I am interested to see how we react to it. I think Tuesday will likely be a very interesting day. I may end up just covering my shorts and not even messing with the longs I talked about. We shall see.