Tuesday, July 15, 2008

State of the Market - 7/15/08

More craziness today in the stock market, as the roller coaster ride continued. After Asian and European markets were hit hard Wednesday, stocks futures here were down once again. A worse-than-expected PPI and retail sales number did not help matters in the morning, and stocks opened with large losses and the selling did nothing but accelerate in the first half hour of trading. Stocks hit a low around 10:05 and bounced strongly from there, very much in conjunction with a wild selloff in oil, which dropped as much as $10 in a matter an hour. Stocks pulled back from 11:00 to 12:00, as oil bounced, but were able to continue to rally into and through the lunch hour. Stocks continued to rise throughout the afternoon and hit a high around 3:00. That was it, however, as stocks fell back into the close, in a rather hard manner, and closed in the middle of their range. All in all, a very mixed performance especially considering the major selloff in crude oil.

Technically, the Nasdaq and Russell 2000 once again challenged the top of their channels and their 9 day moving average, but couldn't bust through them at the end of the day and pulled back. The S&P and Dow bounced off the bottom of their channels but are well still below their resistance levels. My outlook remains the same - I won't look to buy until the market gets over and stays over at least the short-term resistance. It just doesn't seem like a safe play to me. As the close shows, any sort of rally we get continues to be sold off.

As much selling as there was this morning, the sentiment indicators still didn't show all that much fear. The VIX did get over 30 this morning, but quickly reversed. It was not what I would call a dramatic spike. The put/call ratio got to a high of 1.22 this morning, which is high but not extreme as I wrote about yesterday. My Market Monitor ratio never got to the point where it got below the extreme level of 200. It was never really close to it.

As I posted earlier, I did short XEC ($63.02) and FDG ($79.77) this morning as commodities looked weak. I talked about last night how torn I am on shorting these, but I gave in this morning. I ended up getting stopped out of FDG in the final hour @ $81.30 for a 1.9% loss. I guess I get what I deserve for not showing discipline to stay away from these. That being said, I almost reshorted FDG at the end of the day (it finished right at its 50 day MA so I passed) but did another oil short in ROSE @$26.26 as it broke down through its 50 day MA. I think these oil stocks likely do head lower but I don't want to be overly short in this news-driven sector either.

I covered/sold about half of my positions in SOHU ($62.48) and DGP ($25.65) for gains of 13.5% and 11.9% respectively, although my final gain on these may be lower than that now. Later in the session, I was stopped out of BIDU at $287.05 with a 3.3% gain. Not great, but I probably would have covered this position later in the week anyway with GOOG earnings coming out. I was also stopped out of XIDE at $14.18 for a 1.6% gain. Again, nothing special. I considered taking half profits this morning on this around $13.30 because that was the recent low and I thought it may act as support, but I passed and just held on.

I gave some of the profits I had on paper back today, although I am still up a bit from last week, so I made some progress. This remains a tough market. I could have taken more profits when we were down in the morning, but I didn't see any real signs of panic selling or capitulation, so I didn't see any reason to. The late selloff reaffirmed my choice there. Just like a day like yesterday shows why it is tough to buy dips in this market, today shows how difficult it is to initiate new short positions right now. Hopefully, it will get easier soon, but with all the news events this week, I doubt it. We may have to wait until next week to get some clearer sailing.

It remains a choppy, news-driven market and it is important to keep your stops tight and to take at least some profits when they become available. Dip buying remains a no-no, and shorting can be done but you must be very careful and be aware that you could be whipsawed at any time in our current environment. I still expect more selling this week and am still looking for that capitulation, but it just doesn't seem to want to come. Be careful out there.


bmbull said...

Just curious, Mac -

You don't have to go into great detail, but could you tell us a bit more about what goes into the "Market Monitor" indicator? Or if you've talked about it before, you can just point me to the appropriate post...

This is your own measurement, isn't it?

Mac said...

No problem - I learned it from Pradeep Bonde at the Stockbee website. I don't know if I do it exactly like him, but I think it is pretty close. The main measure is a ratio between the number of stocks up 25% in the last 65 days vs. the number of stocks down 25% in the last 65 days. That's the longer term ratio. When the number of up 25% stocks get below 200 (that happened intraday in January) it can be taken as a bullish sign that things have reached bearish extremes. Today's readings were 425 stocks - not near the level where I would start looking for a final reversal.

Hope that helps.

bmbull said...

Sure does. Thanks for the info!