Tuesday, June 24, 2008

State of the Market - 6/24/08

Another rough open for stocks today, as lowered guidance from UPS and slightly higher oil caused traders to sell once again. Selling was strong during the first half hour, with the Dow and S&P 500 moving way below their lows from yesterday and below the downtrend channel they have been in for the last few months. The Dow hit a low of 11,729, which is just a bit below the March lows before bouncing at this point and leading stocks higher into the lunch hour. This was a logical place for a bounce to occur, and that bounce was a strong one. It took the Dow right up to area of the lows of yesterday that it bounced around most of the day - same deal on the S&P 500. Those two indices were briefly able to poke their head above the area during the lunch hour, and reached their highs for the day around 2:00, but couldn't move any higher from there and faded into the close. The market finished with modest losses, but the Nasdaq and Small Caps led to the downside and were much worse today. Volume was heavy.

Technically, both the Dow and S&P 500 continue to ride the bottom of their channels lower - they both finished still in the channels, but just barely. The Dow touched the March lows but I still think both of these look like they will head lower. A bounce is a possibility, but the max level I could see them rallying to would be around 12,000 on the Dow and the 1330 area on the S&P. The Nasdaq and small caps broke down in earnest early in the session, tried to rally back, but a weak close still put them at new recent lows. For the Nasdaq, I think today's highs are 2394 will be hard to overcome on any bounce. The small and medium caps look like they broke the neckline of their head and shoulders patterns, and now I would assume that area will act as resistance on any bounce.

During the morning selling, the T2108 indicator did get down below 20, but it closed right at that number. The put/call ratio spiked back above 1.0 in the morning as well and got as high as 1.13, but faded in the afternoon. The VIX actually fell today. So it looks like there continues to be a lot of complacency in this market right now. I am interested to see what the new Investors Intelligence numbers are tomorrow when they come out. We may bounce here (although today's close certainly doesn't guarantee that) but I still think, due to the technical pictures and sentiment numbers, any bounce will be a temporary fix. Market bottoms aren't produced with this much complacency. I still hold the belief that things are going to get ugly at some point in the near future. I may be completely wrong, but that's what I see.

I got out of my SSN trade from yesterday pre-market with a very, very, very small gain. I didn't like the way it wasn't moving this morning while the other momo stocks were. What sucks for me was that I had my finger on the buy button yesterday at 3:58 for ROYL, but for some reason I passed. Then it ran higher after-hours and I passed again. If you look at the chart today, you can see why I am disappointed. I also debated this morning about buying some MXC, but passed. For some reason, I don't always go with my gut in trading - sometimes that hurts me. I will learn I guess. I was stopped out of my CFW position early in the session for only about a 3.6% gain.

The only other position I took this morning was the TWM inverse ETF I talked about last night. I entered at $74.49. This was risky and I knew it, because the market is quite oversold. I thought the clear break of the head and shoulders pattern on the Russell 2000 was worth the risk. I raised my stop up on the strength of the intraday bounce, and was stopped out at $72.85, for about a 2.5% loss. Not a big loss, but I probably should have waited a little to see what the market was going to do, but I also didn't want to get in too late. Sometimes you'll have that happen - a position will go against you right away, and usually the best thing to do is just get out and wait for a better opportunity. At the same time, this is a case of me not following my original plan - I intended to use the 50 day moving average as a stop loss, and I didn't stick to that when the market reversed. I was stopped out at the low of the day. That always sucks.

I also took a short in SYNA at the end of the day @ $38.49. This is more of a hunch about tech in general, but the chart looks weak. It has broken down on higher volume, but has done nothing the past two days. To me, based on volume, this looks like just a pause in a much bigger move lower. If I am wrong, I will get out with a small loss.

I thought about putting an oil short on as well (APA, CRZO, EOG, and ATLS were the ones I was watching), almost as a hedge, but passed. I saw quite a few oil stocks (as well as other commodities) start breaking down today even though oil was flat. Traders can't possibly expect Big Ben to actually raise rates tomorrow, can they? I sure don't, but I am watching this sector and am willing to take some shorts if they look good. I will put up some of these charts up later.

Today was a volatile day, but I still don't think bulls can be overly happy. Yes, they did bounce off the morning lows, but also gave up most of that bounce in the afternoon. Tomorrow will likely be another volatile day with the Fed decision in the afternoon. This one doesn't seem to have the build up behind it as past decisions, so perhaps the market won't be as crazy in the few hours after the decision is released. You never know, though, so being patient is still a good idea. I passed on several shorts I could have taken today for this reason. Right now, I plan on managing the shorts I have, and go from there. I am still not looking to buy anything (I am even thinking twice about commodities) and am not in a hurry to short more at least until after the Fed decision, although I will pay more attention to the commodities now. If you are not already short, cash remains your best and safest option. Best of luck tomorrow.

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