Monday, April 14, 2008

State of the Market - 4/14/2008

News of an earnings miss by Wachovia drove futures lower this morning, but they bounced off these lows as the open approached due to a higher than expected retail sales number. This caused the markets to open relatively flat, and they remained that way for the first hour on what seemed like very light trade. The rest of the morning was very slow, at least on my quote screen, and the market drifted lower, reaching a low around 11:30. We bounced from there through the lunch hour, and went positive. Those gains couldn’t stick, however, as the indices drifted back down through the early afternoon. The indices couldn’t get any bounces to stick into the close, and they finished near their lows for the day. All in all, we had another day that does little to give us any more clues as to where we are headed. Volume was lower and the action was very boring throughout the day. Perhaps traders are just not comfortable taking positions in front of so much news in the form of earnings this week, and I can’t blame them.

Most of the longs I posted last night held up well today with the exceptions of GHM and RBA. NGS had a nice breakout that I started early on, but I passed due for reasons I will mention later in this post. Most of the shorts I posted last night look basically the same today. Financials were fittingly weak today because of Wachovia, and the same groups that have been leading this market, the ags and energy stocks, led the action today. Nothing much new is happening – the market and individual stocks appear to be in holding patterns for the most part.

Technically, we are clearly below the 50 day moving averages on all indices and the fact that we didn’t bounce at least a little bit after Friday’s pain is discouraging. We are now down four out of the last five days on the S&P 500, and five out of the last six days on the Nasdaq. Interestingly, however, only one of those five losses have come on higher volume, and the only day out of the six where volume was above average was on the up day. I would say we are due for a bounce, but we couldn’t hold one intraday today, so who knows? There are still lots of cross-currents out there right now and that makes things difficult. Many longs are hanging in there and holding support levels, making their charts look decent, but without upward movement in the overall market, it is difficult to have confidence in any chart, no matter how nice it looks. At the same time, I am hesitant to short much of anything right now with us being down five out of the last six days – that’s not the best setup either.

I know I am sounding like a broken record, but this remains a market to tread carefully in, if you have to be in it at all. Cash is your best option, but if you feel like you must take positions, make them small and let the market tell you if you are right or wrong. As each of these type of boring, trendless days go by, I am becoming less and less optimistic that we will have a clearly defined trend anytime soon that will make trading a little easier, but things will change eventually. With earnings season now fully upon us, the day to day volatility will likely increase, but unless you are a psychic and know the market’s reaction to all of these earnings report, it is impossible to know what the market will do. Notice I said the market’s “reaction”, not the actual report itself. The reaction will be the key, and no one can predict that. Remember, there is a belief that the market has discounted many of these what are likely to be poor earnings report during the first month or so of this year. I don’t know if that is true, but we should find out quickly.

At some point in the future, a new, tradeable trend will emerge. Hopefully it is on the long side. Maybe it will be on the short side. I don’t know. As tough as it is to remain patient(I know I am having trouble), it is important to do so, because when that new trend finally does emerge, you will be ready to act with fresh cash instead of getting chopped up in a bunch of chop, losing both confidence and money. I have to remind myself of this fact often and remember that there will be trades to take in the future, even if there are none right now. I will do my scans tonight like I always do but I don’t know if I will post any new charts tonight. There’s a hockey game at 7 to watch, and more importantly, I don’t think taking new bets in front of a bunch of earnings that are likely to move the market is a brilliant idea, so even if I find a great looking chart, I might just pass anyway. Good luck and be careful.

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