Friday, June 6, 2008

State of the Market - 6/6/08

I said yesterday that today should be a very interesting day in the markets due to the jobs report, and it certainly was. After the disappointing report was released, which showed unemployment at 5.5%, futures tumbled and the market started with a pretty big gap down. The Dow headed straight lower, but the Nasdaq and S&P tried unsuccessfully to bounce. After a half hour of trading, the Nasdaq was down nearly 40 points, erasing almost all of yesterday’s gains. To add to the problems, oil rose to new record highs today, up almost $10. This was too much for the market to handle, as it stairstepped its way lower throughout the day, never once being able to get a meaningful bounce going. All indices closed at the lows for the day, and volume was very, very heavy. Just a terrible day for the bulls and a wonderful day for the bears.

Technically, things look very bad on the two worse indices, the Dow and S&P 500, as you might expect. The Dow couldn’t hold what should have been strong support at 12,660 and looks poised to test the March lows. The S&P still is showing the head and shoulders pattern and broke the neckline of that pattern, which is very bearish. The Nasdaq is back below its 200 day moving average after spending a grand total of one day above it. It is also now just below the bottom of its ascending channel that has acted as support three times in prior two weeks. I can’t say it broke through completely, but after testing this trendline three times in the prior two weeks, I have to think this will also breakdown below this in earnest next week. These indices have fought for control of this market – the Nasdaq pulled up the S&P yesterday and things seemed good, but today the Dow and S&P pulled down the Nasdaq and things are back to looking bad. I would have to think today’s action declares the Dow and S&P the winner of the control contest, and it certainly look like the entire market is headed lower. We’ll see if this happens – trying to figure this market has been impossible, so trying to do so now is probably a waste of time as well.

I had a crappy day trading, and it is totally my fault, although my account wasn’t damaged. RCH worked out really well for me, but I was stopped out at $10.01 after I set a trailing stop to protect some of my gains. That was good for about an 8.5% gain, which isn’t bad. However, I think I let the overall market action grip me too much and I should have let this run more. I still make the mistake of taking profits too quickly. That gain made up for the debacle I had with SOL. I was stopped out almost immediately as the stock quickly sold off in the first ten minutes of trading, giving me a loss of over 4%. Normally, not a big deal. Then I watched it reverse and move up almost 2 ½ points from where I was stopped out of it. I don’t think there is a worse feeling in trading than to sell a stock and see it immediately reverse. Well, I let my emotions get the best of me because I went back and bought into it, a truly amateurish move and I should have known better. The stock proceeded to sell off briefly after I got into it and I was stopped out once again only a short period later for another 4% loss. A very bad move on my part and hopefully it will remind me that I always need to be alert to my emotions and that it never gets easy to keep them in check. Letting your discipline slip for just a second can always cost you in the stock market. I was also stopped out of HERO for about a 1% loss. My account overall basically was flat today and I guess I should feel good about that, because the RCH gain cancelled out the stupidity of SOL. It would have been nice though to be up on a day where the market got absolutely crushed. Right now, STEC is my only position.

I really don’t know what to say about this market right now other than it sucks. It sucks for bears and it sucks for bulls. Everytime the bulls get a glimmer of hope like yesterday, they get absolutely crushed. The action early in the week proves the same point holds true for the bears, as well. You would think now would be a good time to start shorting, because surely we are headed lower after today, right? Perhaps we are, but again, when has this market done anything that makes sense? We could be back up 200 points again on Monday for all I know. We’ll see if I find a lot of short candidates in my scans, but the shorts I have found recently haven’t worked at all. Unless you like playing one-day swing trades with momo stocks (which is about the only way I’ve made money this year) this market has nothing for you. Stay out of it.

I just wish I could take my own advice. My account is basically where it was at two weeks ago before this choppiness started, so I guess that’s good it held up OK. I am still up a little over 30% for the year in my main account, less in the IRAs, so that’s good, I guess. But I just sit here now and think how much easier it would have been to just avoid the stress and craziness of the past two weeks and just sit out that period instead of trying to make opportunities that weren’t really there. Hopefully in time I will develop the foresight and patience to do just that. I know I don’t have it right now to the degree that I need it. This lack of patience in February and March cost me a large part of my earlier gains from January. I’ve gotten most of those gains back, but I don’t know if I’ve learned my lesson totally from that experience yet.

I would assume IBD will put the market back into correction mode tonight – it has been quite a crazy period for them as well. Within a two week period, they have declared a rally dead, declared the rally back on, and will likely declare the rally dead again. This point is not meant to discredit IBD, not at all. The point is that they are the experts, and even the experts are having a difficult time figuring things out. The bottom line is that today was about as bearish a day as you can find, and cash is the best strategy right now. Perhaps shorts will work here, and this is the start of a big move lower. I would have no problem with that – just having something that slightly resembles a trend would be nice for a change. I think I’m even hesitant to do that right now however. We’ll see what next week brings, but bulls don’t have much going in their favor. Since summer is starting, maybe this would be a good time for a vacation. I think there are probably a lot of traders out there that need one. Enjoy the weekend.

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