State of the Market - 6/30/08

Despite more higher oil prices, stocks rose slightly to open the week today. They couldn't hold those gains very long, however, as more selling quickly came into the market and both the S&P and Dow challenged their lows from Friday. Buyers did come in a little after 10:00 to finally lift the market a little higher into the lunch hour. This bounce was directly tied to a fall in oil prices around the same time. Crude prices hit a low around 11:30, while stocks hit their highs around the same time. As crude came back slightly through the afternoon, the market kind of chopped their way around through the lunch hour and into the afternoon. Stocks started selling off again around 1:00, but the bleeding stopped around 1:50, and stocks tried to rise back into the final hour. It looked like stocks were going to be able to hold onto modest gains, at least on the S&P 500 and Dow, but that all changed in the last 15 minutes, when stocks sold off hard. The Dow and S&P 500 did finish with gains, but they were virtually nothing. The Nasdaq had a very rough day after putting in the strongest reversal Friday. All in all, a very unimpressive day when you consider the oversold conditions and the reversal in oil prices.

Technically, today doesn't do too much for the oversold conditions we've had for the past few days and the bounce that I've been expecting did not exactly start in what I would call a strong manner. Perhaps it will be a slow, two or three day event rather than a very powerful, quick rally that are often seen in bear markets, but that close was nasty and very bearish. To be honest, I am beginning to wonder if analyzing this market from a technical perspective is pointless right now - basically it all comes down to oil. Regardless of how oversold the market is, I can't see it rallying or even bouncing if oil continues higher. If oil breaks down, then this market could take off on a major relief rally, but then again, it didn't seem to help much today. Right now, I am still looking for a short-term relief rally, and my target for a bounce is still around the 9 day moving average (Dow - around 11,690; S&P - around 1300-1305; Nasdaq - around 2365). Based on today's showing, however, I am also open to the market just continuing lower regardless of being oversold, so who knows if we will even anywhere near those levels.

I really didn't do anything today until the end of the session other than get stopped out of my HSC position for a 5.5% gain. I still have my DGP gold position. I watched more of the shorts I got out of last week head lower - CRDN was down big today after I took a small gain in it Friday. FCSX, SVR, SKF and CSR are four other stocks that stand out in terms of settling for modest gains rather than letting gains develop into bigger ones just this month. I mentioned last week that I believe I let the overall market affect my outlook on certain stocks probably more than I should, and as I watch some of my former shorts head lower, I think it is true. Hindsight is always 20/20, and it is easy to second guess your decisions when trading. I think my anticipation for a bounce and the oversold conditions of the market caused me to cover the shorts when there was really nothing wrong with the charts themselves. Past experiences have shown that a short-covering bounce was very likely the past few days, and I went with that. Obviously, in this instance, my past experiences were wrong.

It also sucked to watch APWR and ENER bounce today - I definitely mistimed the bounce and that is what I guess for be impatient. There is very little doubt in my mind that patience is the biggest quality I still need to develop to become a master trader. It is by far my biggest weakness. I am still trying to catch every little swing in a stock rather than ride longer-term trends, and it is pretty obvious that we are in a long-term trend lower. The problem is I think that only comes with time and experience and probably many painful lessons.

Because of the way the market closed, I decided that I need to have at least some short exposure regardless of the oversold conditions, so I took positions in CPLA @ $59.84 and DRYS @ $80.13. I don't think I am chasing either of these - CPLA has bounced up to some overhead resistance after breaking down last week, and DRYS broke below its 200 day moving average and has formed a bear flag here near overhead resistance. Ideally, I would have liked these to bounce more, but right now, I am considering the possibility that we won't get that luxury. Perhaps this is another example of a lack of patience - we shall see.

I passed on taking any longs today just due to the uncertainty of things right now, and the stocks I was focusing on (HOGS, CAEI, SDTH, DSTI) didn't do very well anyway, so I am glad I waited. My plan is still to load up on more shorts when/if the indices bounce a little. You may be able to scalp a few trades on the long side here, but I just don't feel like doing that right now. I am just hoping I get the chance to heavily short again, because right now, there doesn't seem to be anyone interested in buying stocks right now. Can't say I blame them. I don't want to chase, but that may turn out to be the only option right now. I'll be back later with a few of the other stocks I am hoping for some small rallies in to get short. Best of luck.

Tags: HOGS, CAEI, SDTH, DSTI, APWR, ENER, FCSX, SVR, SKF, CSR, HSC, DGP, CRDN