Thursday, July 10, 2008

State of the Market - 7/10/08

Things looked good for the bulls early today, as futures were up even with higher oil prices. However, those futures fell throughout the morning, so the opening was rather muted. Stocks did quickly bounce though, hit overhead resistance, fell back to test yesterday's lows, and then once again rose to test the overhead resistance. When they couldn't bust through, they fell back to the day's lows. This was all in the first half hour of trading. They soon busted through those lows, but as was the early trend, bounced right back up into positive territory. They pulled back to the flatline area, bounced once again, and then pulled back. Into and through the lunch hour the markets tried to rally again, reaching their highs around 1:30, but a huge spike in oil sent stocks lower from there. They broke their morning lows around 2:50, but from there we had another huge rally which took the market back to the positive side. That bounce couldn't quite get over the lows of the lunchtime pullback, and stock fell quickly, but once again, another bounce ensued that pushed stocks higher into the close and gave them moderate gains across the board. All in all, a very choppy and volatile day of trading.

Technically, I mentioned last night that it is possible the market is forming a bottom here, because they are forming a little consolidation pattern, and today agrees with that assessment. Instead of forming a bottom, maybe I should say "grinding out" a bottom, because the action has been so choppy and random, it certainly hasn't been a smooth process. The only problem with this idea is a consolidation here doesn't have to be a bottom either - it could just be a way to work off oversold conditions before heading much lower. The Dow and S&P 500 did break their recent lows in the afternoon, but the Nasdaq did not. Right now, to be honest, I really don't know what to expect from day to day. I am guessing I am not the only one right now.

I was so disenchanted with the early trading and how choppy it was that I did something I rarely do but should probably do more often - I set my stops and just shut the quote screen down until the end of the day. For some reason, I was nervous this morning and I don't know why. I had a feeling that this market could be up 300 points today or down 300 points also, but I had no feeling one way or the other which it would be. Because of that feeling, I just shut it down. I knew going into the day that I didn't plan on making any trades, and I stuck by that. This is a market that can't seem to get much going to the upside in terms of a bounce, but also can't seem to wipe these sellers totally out in a capitulation-type move. I think both bulls and bears are on pins and needles right now because both know there positions can quickly go against them right here. Interesting dynamic, but not one I felt like watching all day.

My stop in ANR was hit early in the morning at $90.50 for a gain of less than 1%. I said yesterday that I don't want to mess around right now with being caught in a major bounce, so I will continue to cut my losses very quickly. I can always get back into these stocks, but right now, I am hesitant to make any moves. HK continues to frustrate me as I let a lot of my paper profits disappear. Perhaps I should have taken the profits I had when it went to the high $30's, but I am being stubborn a bit here, perhaps stupidly. I still look at that chart and see ugly, volatile trading that looks toppy to me. We'll see I guess.

I guess much of the early choppiness was due to the testimony of the idiots...I mean experts from the Fed and Treasury before Congress, saying how they would solve all problems. I really do love how the Fed is asking for more regulatory power considering they were the ones that caused a giant part of this whole mess. It makes no sense to me whatsoever, but little the government does these day makes sense to me. The Yahoo Finance headline read "Fed Chief: Gov't Needs More Power When Firms Fail." Yeah, that sounds like a great idea. Why does government always need more power, and why don't more Americans question that idea? How about we try a novel idea - let these firms fail once in a while. Once they know they won't be backed entirely by the government, perhaps they will manage themselves a little better and stop taking on way too much risk that they know doesn't really matter because the government will bail them out. OK, that's enough for my rant for the day.

To be honest, this market is pretty crappy right now for bulls and bears. I probably spent more time already talking about it than it deserves. With most of the sentiment indicators out there near extremes, a bottom is a possibility. However, if there are any bulls out there, please tell me exactly what there is to buy right now? There is virtually nothing. One of the few nice stocks I see (ELN) tried to breakout today, but reversed and finished in the middle of its range. Figures.

Shorting remains difficult too with the choppy trading and the possibility of a major bounce at any time looming over the bears' heads. I am hoping we get a little clarity soon, but as for now, I plan on managing the positions I have and not taking on too much more risk. I guess I'll just wait for an IBD follow-through and until we get one, lean to the short side. Sometimes the market presents lots of opportunities to make money, but I get the feeling this week isn't one of the those times. Hopefully I am wrong. I don't know if I will have any charts up later because I don't know if making moves here is smart. I believe GE has earning tomorrow, and that will likely dictate trading. Best of luck Friday and be careful.

5 comments:

upsidetrader said...

nice blog, i enjoy checking in

Mac said...

Thanks for the kind words. I enjoy your blog as well.

upsidetrader said...

are you a princeton alum?

Mac said...

No, I went to a small school in PA called Grove City. Why do you ask?

upsidetrader said...

i saw princeton offense on your profile