Monday, June 9, 2008

State of the Market - 6/9/08

After getting thrashed last Friday, the stock market opened a little higher today, as crude fell a bit from Friday’s record highs. However, it was not necessarily the type of open that bulls could rejoice in, as the Nasdaq actually fell at the open, while the Dow, by far the worst of the major indices right now, led the way higher. The market was able to rally for the first 45 minutes of the session, pulled back slightly, and then tried to make a run at those earlier highs going into the lunch hour. They pretty much remained in a trading range through the lunch hour, not being able to break to new highs, but around 1:15, intraday support broke to the downside and more selling emerged to start off the afternoon. Stocks reached a low around 2:15, bounced for about a half hour, and then fell back towards those lows. Those lows held, however, and stocks bounced back into the close, finished in the upper half of their range, but not at their highs. Volume was lower. All in all, another volatile day for the markets.

Technically, the Nasdaq broke through its trendline in a strong manner today and officially eliminated its rally attempt, but did bounce off strong support later in the session at its 50 day moving average around 2425. It is possible the index bounces from here but things still certainly don’t look good and I would not be looking to go long right now. The Russell 2000, which had been hanging on as the best index recently, broke through its trendline as well today. The S&P and Dow finished in the top half of their intraday ranges but I certainly wouldn’t say things look good there either. While it is bullish to see the indexes bounce off their lows in the afternoon, seeing the two leading indexes down while the two lagging indexes climbed higher is not what bulls want to see, either. Based on this action, this certainly does not seem to be the time to be a hero on the long side, even though an oversold bounce could develop here.

I was stopped out of my final long, STEC, early in the session at $13.40 for about a 4.5% loss, as it broke below the pivot point of its breakout. Besides commodities, this stock goes to show you that almost nothing is working on the long side. This chart looked very nice, but it takes a very strong stock to withstand the volatility present in a market like this, and I guess STEC is just not strong enough. I took a short position in ANGO this morning at $15.65 – I highlighted this one over the weekend. I even waited too long to get in – I should have entered near $16. However, it broke down nicely today and looks good as a short, although it may bounce with its 50 day moving average so close by. I also entered APOL later in the session at $46.20, as this is a very weak stock that looks to be failing once again at its 50 day moving average, although it didn’t close quite as weakly as I would have liked. It does have a clear stop-loss level, so the risk is defined. I took one more short at the end of the day – CSR at $19.21 – because it is breaking down below its 50 day moving average and it did so on higher volume today. I am hesitant to short much else right now because I think a bounce is possible (anything is possible in this crazy market) but I would say if you must play the market, this is the side to do it right now.

Overall, this continues to be a crappy market overall unless you are a day-trader. Once again, it looked like many of the Nasdaq stocks like AAPL and BIDU were ready to breakdown in earnest this afternoon, but the late bounce allowed them to finish in the middle of their ranges. Even with crude oil being down, oil stocks continued higher for the most part. Financials continue to look like death and are very close to breaking to new lows for the year. Much like the middle of last week, things looked very bad in the afternoon today, but stocks rallied again and finished off their lows. What does this all mean? I wish I knew. I wish I had a good idea of what to expect tomorrow. Anymore, however, I just don’t with this market. Perhaps my scans will give me a better idea. The trend certainly looks down, and therefore, I would either remain heavily in cash or try individual shorts that appear to be breaking down(don’t chase however). That is what I am doing right now. But I would also keep stops tight on those shorts, because this market could reverse higher at any time – that’s just how things have been. Hope that helps – it’s the best I’ve got right now. I’ll be back later with some charts. Best of luck.


Anonymous said...

I've been approaching my trades like swing trades but I slice them up into daytrades at max several hours each. I might miss out on some movement that way but if they end up not following through in the longer run I'm safe. Works quite well.
Also, the solars keep offering nice shorting opportunities.
Keep the excellent posts coming. I read them daily.

Mac said...

Thanks for the kind words.

I really don't like daytrading - I would rather hold stocks for several weeks at a time but this current market makes that very hard.

There were some solars that broke down today big time - TSL and SOL were two big ones. Gotta wait for a bounce though now.