Friday, May 30, 2008

State of the Market - 5/30/08

Once again a somewhat choppy start to the trading day today, as a somewhat better-than-expected consumer spending report failed to rally stocks in a strong manner. The market rose slightly at the open, pulled back, and then tried to rally again. This rally failed and took them to lows for the day. A little after 11:00, stocks mustered a very slow rally, with the Nasdaq briefly breaking to session highs after lunch, but the S&P and Dow could not get to new highs, and most of the rest of the afternoon was spent kind of drifting around. Around 3:00, the Nasdaq and S&P tried to break to new highs once again, but quickly sold back off. A very late rally tried to get the indices back up to their highs for the day, but another very late reversal caused the Nasdaq to finish with medium-sized gains and off their highs. The S&P, Dow, and Russell 2000 all lagged percentage wise, and the Dow finished lower. Volume was lower today which throws a somewhat negative light on the Nasdaq’s gains. All in all, a rather boring day in my opinion.

Technically, things are not much different from yesterday. The Nasdaq did get above its 200 day moving average, but it certainly didn’t do so in a very convincing manner today. I see both the S&P 500 and Dow setting up bear flags here. My bearish view of things might be clouding my vision, but this week still looks like an oversold bounce to me and very little else. I may be completely wrong, and I have the right to change my opinion at any time. If we get a follow-through day next week, then I will respect what the market is saying and look more on the long side. My guess though right now is that won’t happen. We’ll find out. I still don’t see a ton of great charts – only a few – and when I see a stock like CLS totally break down today, I don’t get a lot of warm and fuzzy feelings from this market. I am seeing some shorts (BOOM, CBI, and VMW) though get to the point where they might make good risk/reward candidates.

There is little doubt in my mind that I made two mistakes yesterday – getting impatient and shorting ISRG too early, and also not taking the earnings trade in MRVL. Do you ever see a potential trade and just know what is going to happen, but you don’t do anything about it? Instead you just sit there. That’s what I feel like right now with MRVL. I could have just flipped it today and made a nice 10%, or held it longer because it definitely looks nice. Last night, however, I just sat and did nothing with it. Oh well, something to learn from. I obviously didn’t learn too much though from when I passed on a similar earnings trade in ENER back at the beginning of the month. These are charts I should put on my wall and home so as not to forget that I passed on very good opportuntities. I was stopped out of ISRG this morning with a 1.9% loss after it broke above yesterday’s high. I said I would keep my stop loss tight and I did. I still will watch this as a potential short, however – the pattern still looks bearish and if the overall market falls, I think this could fall a long way. I just mistimed the entry.

I was also stopped out of CRZO as it rose late in the session for a 3.7% loss. I was expecting some carry over from yesterday’s selling in the oil sector, but didn’t get any. I am still in my DUG and CNQ positions, and will continue to just manage these positons by moving up my stop loss levels.

I restarted a small position in QID at the end of the session as well today – just based on my hunch that we are headed lower in the near future. If the market breaks to new highs, then I will cover.

Right now, I am basically still shorting the oil complex, but very little else. The end of the month markup period is now over, so we’ll see if that affects things. A lot probably still depends on what happens with oil. It’s the start of what looks like a nice two days here in western PA, so I am going to take a break from the market for now. I’ll be back sometime over the next few days with some of the charts standing out to me. Enjoy the weekend.

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