Tuesday, May 13, 2008

State of the Market - 5/14/08

Some good news in the form of earnings and retail sales reports led to a higher open on Wall Street today, but that did not last, as it was quickly sold off. A brief bounce ensued, but that was only temporary as the market continued to sell off sharply through the mid-morning hours. Around 11:00, things did not look good, but the lows of the day were put in at this point. These lows were tested and held for the S&P 500 later in the session, and the Nasdaq in particular bounced nicely off its morning lows into the afternoon. Around 3:00, it looked like the market was going to put in a nice reversal and finish with gains, but the last hour of trading was weak and only the Nasdaq was able to post a small gain, with the S&P basically flat. Once again, small caps led the way today and hopefully that is a sign of things to come. Volume was low today once again(what else is new?) although it may be slightly heavier than yesterday.

Technically, there isn’t much to say different than I have for the past few days. The Nasdaq is holding up well and is setting up a little sideways pattern in this area. 2500 still looms large for this index, as it got as high as 2498 before pulling back. Support here should be around 2462. Small caps still look like they may be trying to break out here, but the 200 day moving average looms above. Support on the S&P 500 should be around 1390, and still has room to run even it just wants to test the 200 day moving average, but not break through it.

This morning, I was stopped out of two positions I took yesterday as has been the recent trend for me. XIDE got me for a 5.3% loss as it bounced right back down to the 50 day moving average. I set my stop pretty tight underneath it and it was hit. Maybe I should have given it more room, but based on yesterday, I thought it should have headed immediately higher. Another trade though that sucks because it just went higher a little after my stop loss was hit. RCH got me for a 6.1% loss – it was a small position but I know I just shouldn’t have taken it. It was stupid and I paid for it – I deserved to lose money on that trade. But again, it was another trade that reversed almost immediately after my stop was hit. Luckily, FSYS looks like it will work out well as an earnings trade – I got in at $22.33 last night after hours, and bought some more pre-market at $22.50. As long as this holds above the low of today’s gap, I will be OK with holding it and seeing if today’s action can lead to a longer, sustained run higher. OFI had a nice consolidation day and needs several more days like today before hopefully moving higher.

I am coming to the realization(although I probably know it deep down anyway) that I am just not strict enough in what I demand when I buy a stock. I don’t know what holds me back from only taking trades like this OFI or FSYS, where at least I know I have a proven catalyst for higher future prices in the form of earnings in my corner. Probably a big part of it is the “thrill” of making a trade and seeing how it does. However, “thrills” don’t make great traders – discipline and patience do, and I need more, especially in a market like this. I think great traders are very much like great poker players, who can sit there at the table, hours upon hours, doing nothing but folding, folding, folding, until a great opportunity presents itself and they then strike. I don’t like being bored, so I think I “find” trades out there regardless of if they are great opportunities or not. I remember reading several articles/books that described trading as quite boring when you get truly great at it, because it is emotionless and mechanical in nature. I am not there yet, but I still hope to be someday – it’s a slow and difficult process for sure. I think I need to start my yearly reading of “Reminiscences of a Stock Operator” a little earlier than usual this year to give my mind a refresher on some of these characteristics and why they are important.

There were several other stocks moving based on earnings releases today – DTSI, PAL, GIGM, FLR, CSIQ, and MPWR were the stocks I saw in addition to FSYS, and all moved nicely, although some(CSIQ, DTSI) finished well of their highs. I don’t think they are buyable here, because the best time to get in would have been last night or this morning. No reason you can’t keep them in a watchlist and see how they consolidate these recent gains, however.

This is options expiration week so we’ll see how the next two days go – you would expect some volatility, but who knows? Maybe at least we will get one day on Friday with above-average volume for the first time in a month and a half. We can hope, can’t we? I’ll be back later to post some of these earnings-related charts and any others I see if I can get it done before the hockey game starts. Go Pens!

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