Monday, July 21, 2008

State of the Market - 7/21/08

Stocks started the week higher today on a "good" earnings report from Bank of America, as they gapped up slightly at the open. Those early gains couldn't hold, however, and stocks slowly sold off for the entire morning, hitting their lows around noon. They bounced from there a bit until around 2:00, where they drifted back down toward the days lows. Those lows pretty much held around 3:00, and stocks bounced a bit into the close to end up with very modest losses across the board. Volume was very low today. All in all, quite a constructive day for the bulls.

Technically, I said this weekend that the best thing that could happen to the indices is that they rest for a few days on lower volume and digest their recent gains. I would place today into that category, and I think a few more days like this would be productive for the bulls. Most of the indices are at the top of realigned channels now, so busting out here would take a lot of effort. A slight pullback would still be great in my opinion. This would also allow some bases to hopefully develop more underneath the surface of this market.

I was stopped out of my last two positions today and am now totally in cash, which is probably a good thing. My stop for RIMM was hit at $115.46 and I took a 2.2% loss on that. I actually raised my stop of FDG today and gave it a little room to run, which turned out to be a mistake. I was out at $79.28, which meant I broke even on the trade (actually I made a big $2 - wow.) Right now, unless something changes, I am looking to take profits very quickly in any position, and I made a mistake in both CLF last week and FDG today in not taking them when I was up 5-7%. The patterns I saw looked good - they just didn't play out as they should have or I expected them to do.

I passed on taking some SKF this morning - as much as I want to short these financials become common sense tells me they deserve to sell off more, part of me says that it is pointless fighting things right now, because the powers that be are doing whatever they can to prop these stocks up. I may be wrong here for passing and today was probably the day to get short if you wanted to be.

Right now, I am in a bit of losing streak - all the losses have been small, but any time you get in one of these losing streaks, it is frustrating. You just have to accept it - I am not doing much different than I normally do - I am seeing the same setups, taking the same trades. They just aren't working. When presented with several stocks that look very similar, for the last week, I have picked the one that doesn't move while the ones I didn't pick move a bunch. There is no reason for it. That's just how trading is. When it happens, (and it does to all traders) it is even more important to remain disciplined and follow your sell rules. It is very easy after having four or five losing trades in a row to let the sixth one go in frustration, and that's when losses get out of control. As I said this weekend, I don't see much out there right now worth considering, so it may not matter, but I will likely look to reduce position size a bit and be more particular in what positions I take until I get back on the winning path. That is usually the strategy to use when you are in a little rut until you get out of it.

Going through my scans really quickly, I am still not seeing anything that pops out to me on the long or short side of the market. The only thing I see that MAY be developing is that the oils rallied today on very, very weak volume, and with another day or so of action similar to today, they may be very shortable again. That is the only play I am really looking at this week, and I have to wait until it actually occurs. These stocks still have room to fall, and the setups look promising right now, but who knows if they will indeed play out that way.

I'll be back later with a few charts to watch, but I still think I want some more confirmation before jumping back into this market. We really haven't yet had the "summer doldrums" where trading dries up, things get very slow, and nothing really happens. Perhaps we are due for a period like that, although with earnings season in full swing, I don't know if it will get that quiet in the market. Bottom line is remain careful out there - no reason to make big bets or do much of anything if there are no really solid plays showing up. Best of luck Tuesday.

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stucktrader said...

What do you think about shorting/puts in hotels again. HOT reports July 24. Just curious...

Mac said...

Thanks for pointing this sector - I don't know how I never had HOT or MAR in my scans. Technically, the patterns look very good for shorts since the volume has continued to die off as they rose. Since HOT reports later this week, I won't play it - that's just my rules. It could post terrible earnings and fall right back toward its lows, but if it surprises, then I don't want to be caught in a massive squeeze.

Good call though - they look bearish.