Thursday, April 3, 2008

State of the Market - 4/3/08

Another disappointing start for the markets today, as a higher number of jobless claims spooked traders a bit at the open and caused some selling throughout the morning. It was good to see the market buy this early weakness and by 2:00, the markets had nice gains. But once again, the markets couldn’t do anything to hold onto those gains, and the indexes closed pretty much closed flat. Volume was once again lower. Today seemed very similar to yesterday when the market could not hold intraday gains and showed no ability to follow-through on Tuesday’s big rally.

I guess there are two ways to look at the market right now. One is to be optimistic and recognize that the market has held the big gains of Tuesday and continues to rest above its most recent highs, and that the pullbacks have been on lower volume. The other one is to question why, after a follow-through day followed a week later by a 3% move, the market continues to have trouble moving higher. Why have we just sat and drifted lower after seemingly every one of these huge one-day rallies instead of continuing these rallies in powerful fashion? I am quickly moving toward the second of those two viewpoints, as I just continue to be disappointed and frustrated with the action of the past two days.

In terms of my positions, I moved my stop up on MTH to just below breakeven and was stopped out early in the session for a 2.8% loss. Of course, right after this, MTH reversed and closed near its highs for the day. That’s my luck recently. Oh well – in this market, I don’t feel there is any need to hold onto losses longer than a few percentage points, and I will stick by that philosophy until we get more bullish overall action. If I let it go, I would have been staring at a 6% loss instead, and I had no way of knowing it would reverse. My real problem was my entry and by not entering at a better position, it did not allow me to let the stock move down a little and still be OK. Either way, I would be looking to take at least partial profits up in this current area – it looks very extended and today’s action was very crazy in this stock.

I was also stopped out of BKE with a very marginal gain today as I moved up the stop on it because it wasn’t doing much of anything. I also took a chance on CSIQ this morning on its break above $24. This is far from a perfect stock – the correction is way too deep and the base is way too choppy - and I didn’t expect this to be more than a little swing trade, but I thought it had a chance to run. It does have a lot of accumulation, I really liked the volume today, and solars have been bouncing here over the past week. Of course, late in the session it went below its breakout point so I was stopped out with a 3% loss. Then it reversed back up. Great. I also started a small position in WSCI with a very close stop loss level. I need to stick to only making trades at the end of the day to avoid these whipsaw type trades.

I am still very frustrated in this “rally” and the market overall. It remains a very difficult environment to make any money and I would probably be even more frustrated if I wasn’t keeping only small positions. I look at BKE, which has great volume patterns, went down four straight days on lower volume last week, then Tuesday put in a bullish reversal day at support on much higher volume. What has it done since then? Nothing, absolutely nothing. I just don’t get the sense that anyone wants to buy stocks right now – there is no excitement, no momentum. If there were anxious buyers out there, I would have to imagine this thing (BKE) would run more. If this was really a great time to buy stocks, I have to think this would be up challenging its former highs by now. And every day that this type of action continues causes me to lose faith in this rally attempt and chalk the big one-day gains to simply more short-covering rather than institutional buying, and there is a very big difference between those two.

I should have followed my own advice and sat on my hands the past week, because my account has made no progress at all. I have taken a few shots on the long side, and I have had a few very small profits, and also a few small losses. Basically my account has gone nowhere since the follow-through day. I really do want to give the benefit of doubt to the bullish side, and most signals I use remain bullish, but this continued lackluster trading has me reconsidering. Starts of new bull markets do not play out like this. Once again, unless buyers start showing up in numbers, then I would remain patient and on the sidelines. I am finding it just too difficult to make much money right now, and although there are tons of traders out there much better than I am, I would guess many traders are finding the goings rough as well. When that’s the case, it is usually better to wait until a better opportunity presents itself. Hopefully that opportunity will come soon. Good luck.

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