Tuesday, June 3, 2008

State of the Market - 6/3/08

Following up on yesterday’s volatile trading, this morning was also rather volatile on Wall Street. The market opened higher, quickly sold off, found a little support at yesterday’s close, and then moved higher again. This was all in the first hour of trading. Stocks headed lower from there, stopped around 10:45, and then moved slightly higher into the lunch hour. When the markets couldn’t break to new intraday highs, selling came in, slowly at first, but around 1:30, the selling intensified and pushed the market to new lows. The bulls tried to fight a bit at the lows of yesterday, but those were also broken around 2:00. The last three hours of the session were very volatile. From 1:25 to 2:25, the Nasdaq fell about 40 points, but in the next 25 minutes, it bounced almost 20 points, back up to the lows of yesterday. The market actually went back above these areas briefly but some late selling put them right at them to close. Similar to yesterday, things looked very bad for a while, but the market bounced late to close off of its lows. Volume was higher today.


Technically, the market had the opportunity to really break down today once again, but didn’t do so. The Nasdaq touched the bottom of its channel today but bounced off it, but the S&P 500 closed slightly below its 50 day moving average. The fact that the market seems to be fighting here is bullish. At the same time, I don't think bulls can feel too comfortable here after the action of the past two days. Remember, oil was down huge today and the market couldn’t rally. Basically, things haven’t changed that much from yesterday. The levels to watch would be today’s lows in my opinion (2460 on the Nasdaq and 1370 on the S&P). Things aren’t easy for bears or bulls right now. I guess the sense however that the market is just biding time here before heading lower. I may be totally wrong and just like yesterday, I will be looking for a follow-through day. If we get one, then I will turn more bullish.


I took two trades today – got in OMNI at $6.03 this morning as it looked like it wanted to break out. This was simply a short-term momo trade, and felt it was worth the risk. I noticed that some of the other oil stocks were moving higher this morning, even with oil trading lower. I sold out mid-afternoon at $6.52 for a 8% gain as the market started selling off. Of course, this came back strong in the final hour so I missed some profits. DUG also ended up big with crude being down so much, but of course I was stopped out of this. I feel disappointed I left some profits on the table here. Patience is still not a skill I have mastered, although I have to acknowledge that this isn't a market that is easy to enter positions and just sit back. Maybe I'm wrong. My only exposure to this sector is CNQ short right now. That being said, I really have no clue how to play these oil stocks right now or where they are headed – crude itself is selling off but some of these stocks continue to hold up OK. The “selloffs” I see have not been very severe at all. Even the momo stocks are hard to play – ROYL had a very volatile session but exploded into the close, while PDO and MXC finished lower today.


I also took a short position in PCX at $121.23. This is risky, but this is going parabolic and when the market started breaking down, I decided to take a shot at this reversing. The stop will be at new highs so I am risking about 4%, but I will move my stop up as it goes to lower this risk. The bounce late sucked for this position, because I was expecting (or hoping) for a heavy breakdown.


I was stopped out of BOOM today with about a 4% loss – it rallied above yesterday’s high, but once again on pitiful volume. That is frustrating because I still think this heads lower. My real problem was that I mistimed the entry and waited too long. If I had a better entry, I would have allowed it to move a little more. Of course, that would have helped as it did reverse later in the day and still looks like a short to me.


Things remain very difficult out there. My account is up slightly the past two weeks, but it is so choppy in individual stocks that making money is not an easy task. I remain slightly bearish on the market overall, but the bears need to start getting some follow-through of their own in order for things to head much lower. I am starting to come to the belief that this is a market where being bearish or bullish really doesn’t matter. It just doesn’t. Some stocks are working, and some are not. More than any market I can remember for a while, it is just a matter of which ones you pick. Typically, the overall market direction is among the most important factors in a stock’s movement, but I don’t think that is true so far this year. It’s up to us as traders to adjust. Best of luck Wednesday.


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