Wednesday, June 18, 2008

State of the Market - 6/18/08

Not a good morning for Wall Street today, as poor earnings reports by FDX and MS caused traders to continue the selling that started yesterday. The market gapped moderately lower, tried to bounce right away, but when that bounce attempt failed, they fell sharply, only pausing briefly around 10:00. Morning lows were put in a little before 11:00, and stocks bounced strongly into the lunch hour, as crude oil prices fell. The Nasdaq and S&P 500 got very close to their highs for the day, but couldn't break through those levels and fell back down through the lunch hour. They touched and in some cases briefly broke through the morning lows around 1:15, but bounced from there. They tested those lows a second time around 2:20, which led to another bounce. This bounce lasted longer and was stronger, going into the final hour of trading. The bulls couldn't keep it going, however, and the market drifted back toward its lows to end the session. The losses across the board were around 1% for all the indices. It was a very volatile and choppy session overall. Volume was quite a bit heavier today, at least compared to yesterday.

Technically, the Nasdaq went back below its 50 day moving average today although it did close a bit off its lows. It is looking at the 2388 level as the next support area below here. Same thing on the S&P - 1331 looks like the next support area here. If these levels don't hold, then we are likely down toward the March lows. I wouldn't say that's a given, however. I really don't know right now - I think the bulls will fight these levels strongly, much like they did today with the financials. The Dow is only about 200 points away from those lows already. The small caps held up best once again today and managed to stay above their 50 day moving averages, bouncing off of that level in the afternoon today.

I had a good thing going this morning with PDO, as it was up as high as $29.50 before reversing. I had a very big urge to sell right before the oil inventories were due to come out, but I know that I give up way too many gains by selling stocks too early, so I decided to hold it a bit longer to see if the momentum could continue. I did not want to once again sell at $29 or so and watch it run to $35-40 without me. Well, I ended up selling out at $26.48, which gave me a 4.5% gain. Oh, the twists and turns of trading. If you look at the chart, you can see it went lower, but then ran right back up through the afternoon, finishing with big time gains. Big time gains that I missed out on. These momo stocks are very difficult to trade and I didn't do a very good job today. Perhaps just getting away from the computer and not watching the stocks would be a better strategy on these things. Definitely not a fun trade for me.

I also fought the urge to sell SKF in the morning as it approached its recent highs. You might ask why, because financials are looking so bad right now. I do agree, and I think there is more trouble to come in this area. But I also thought that the powers that be were going to put up quite a fight at the March lows, and that stupid dip buyers would come in and prop them up at that point. I set a stop for the gap low this morning, figuring that would protect most of my gains but also give it room to run if the "powers that be" couldn't save the day this time. I ended up being stopped out of this at $129.27, which gives me an 8% gain. I will get back in IF SKF can break past today's highs. I'm sure you will hear a TON of talk today about the bottom now being in financials and the big, bad double bottom that is set up perfectly on the chart. We shall see - I am still rather suspicious. Perhaps the stupid dip buyers will be right this time. Somehow I doubt it. If XLF closes below $22.27, then I think a new leg down will start and I'll hop aboard.

I also got stopped out of PCLN in the last hour of the session for about a 3% loss - I really can't believe this stock. I hate it, and it hates me. Oil is higher, the market is getting beatdown, and this stock heads 4% through a lot of overhead resistance. Of course, it closed lower than my stop loss once again. Oh well - I was once again wrong - bottom line. Now that I have beaten twice by this stock, I am sure it will head lower in earnest. Feel free to short it here.

I took a position in FPP at the end of the session ($7.08) and am hoping to get another quick momentum bump tomorrow. I also took a small position in SSN at $4.34 at the end of the session. This time, however, I will use trailing stops with both of these and take my profits at a pre-determined level if I get them.

So where are we at overall? To be honest, I really don't know right now. I was psyched going into the session today because things looked very good for how I was setup - I thought I was ready to get to all-time highs on my main account, and I could have if i played PDO better. It didn't work out quite how I hoped - I was only up marginally on the day. The shorts I have really aren't working that well even with the market heading lower. A couple data points that I saw today as well that add to the confusion - the Investors Intelligence Survey is back to showing more bears (37.4%) than bulls (36.3%). That is good news for bulls. I am also seeing more climactic action in energy stocks - look at JRCC and SQM. These and a few others are undeniably going parabolic right now. The momo plays are running wild again. Does this mean this sector will top soon? I hate to say that, but some of these stocks can't go like this forever. If energy does have a blow-off top here, that money has to go somewhere. Does that mean the rest of the market will soon rally? I wish I had the answers to those questions.

I really don't know what to expect tomorrow or Friday. Since we were down the last two days, I kind of expect a bounce attempt one of those two days, as I think bulls will try to defend the recent lows. I am still bearish overall but once again, but I would like to see the selling really get intense one of these days. Perhaps as one of the bloggers I read pointed out yesterday, the bears are just letting things slip lower and lower here in a relatively mild manner instead of having a big washout which will lead to a big bounce. Whatever happens, I would still not try to be a hero bottom-fishing here. Wait for a follow-through day, and if we get one, start looking for stocks in the tech area to trade. Until that happens(and who knows if it will?) stay in cash, short weaker stocks, and keep playing these oil stocks if you have the stomach to do so. Believe me, right now I have a headache from following some of these today. I am starting to understand why some traders take the days around options expiration off. Things get pretty crazy. I'll try to be back tonight with some charts, but right now, I may just need a break. Hope you understand. Best of luck Thursday.

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