Friday, July 25, 2008

State of the Market - 7/25/08

After a major beatdown yesterday, the bulls came back in force early on Wall Street today. The market opened slightly higher, pulled back, but then rose in a powerful fashion in the first half hour of trading. Unfortunately, that bounce marked the highs of the day, as stocks could never get back to those levels, although they tried several times throughout the morning. After 11:00, stocks chopped their way lower, and that choppiness continued into the afternoon. Stocks did finish with good sized gains, but it appeared many traders left early for the weekend, because trading got extremely dull in the last few hours today. The lower volume today makes it difficult to put much too much meaning in the day's action.

Technically, I said yesterday the bulls needed to put a stand in quickly today, and they did defend some short-term support areas, so that is positive. If we would have sold off today as well, I think things would look a lot worse. As it is, we are kind of in no-man's land right now. If we break below 2300 on the Nasdaq or 1250 on the S&P 500, I would expect more selling. On the other hand, if we can hold those levels, perhaps we are just resting a bit, preparing for another move higher. I would continue to be prepared for both outcomes but not force anything on either side in anticipation of a certain outcome. With the USO sitting right at support, oil will likely have a big influence on that outcome, and is what I will be watching.

After having a great day yesterday, today did not work out so well for me. That's usually the way it works. I had the urge to take the profits I had on my shorts this morning, even though they were all small (in the 3-6% range), but didn't. I felt that I needed to be a little more patient with them, so I moved the stop loss level up on most and went from there. I was stopped out of ENER at $63.25 for a little less than 2% gain. I mentioned last night that $60 would be possible support, and it did bounce right at that area. I was also stopped out of CBI at $33.64 for a very small loss (0.5%) after moving my stop up to breakeven. I gave up about a 5% potential profit in this, but it looked like a great setup and I had no expectations of it rallying. I have no clue why it did so today. Normally I would have reentered this short but it has earnings Tuesday so I will pass for now. Most likely, with the luck I had today, it will gap down about $10 on that report.

NOTE TO MYSELF - TAKE PROFITS WHEN YOU HAVE THEM, EVEN IF THEY ARE SMALL - THIS MARKET IS TOO CHOPPY TO DO PRETTY MUCH ANYTHING FOR MORE THAN A DAY. UNTIL THINGS ARE MORE CLEAR, TAKE PROFITS QUICKER THAN NORMAL.

My earnings trade with VISN did not work out well and this is where most of my frustration came from today. I entered at $20 last night and set my stop just under $19 (where I figured there should be some support with the gap low and a recent high), That was a little more of a percentage risk than I normally take, but since it was an earnings play, I figured it was worth it. That stop was filled at $18.82 for a quick 6% loss for me. It proceeded to reverse right from there and run higher the rest of the day. I basically missed out on a 20% move if you consider where my stop was hit. I never like to believe that market makers run prices to take stops out, but days like today makes me think differently.

There is nothing I can do about it now - good earnings plays take off right away, and this one did nothing but drift lower in the first few minutes of trading, so I had to go with what I saw at that point. This drop was especially bothersome since the market was hitting its highs for the day at the same time. I have had earnings plays before that reversed after an opening gap and headed much lower, never recovering with me holding the bag and a big loss, In a case like that, you must follow your sell rules. I have to use stop losses since I have concentrated positions, but sometimes they do stink.

I don't know that I could have played this any different - that's the frustrating part. I thought about getting back in, but it was trading so choppy early on, especially with the market being up, that I just passed and said I will wait until the end of the day. I had positions in both IRAs as well, so my frustration was tripled because of that. My only hope now is that it can rest or pullback a bit - possibly form a handle - before moving higher and on that pullback I can reenter. This chart does look great and with the fundamentals it has, I would love to be long this stock. It sucks that about six hours ago, I was long this stock.

Another stock I wanted to buy today (DAIO) due to earnings didn't work out because for some reason, Scottrade would not allow purchases online. I got an error message saying "please call your local branch about placing an order on this security". I thought that was rather bizarre and by the time I called and checked on what was going on, they said it was on "some list" and I could only call in an order. Has anyone else heard of that? It seemed very bizarre to me. As it is, I passed but will look to buy in the future, if I am allowed.

This was one of the most frustrating days I have had trading in a while, and one reason is I don't think I did anything stupid. I didn't make any bad trades and I don't think I made any bad decisions - I wouldn't have done much of anything different. Things just didn't work out today, and that happens. Luckily, it's the weekend, so I can forget about this market for a day or two and hopefully regroup for next week. That's what I am going to do now. I'll be back at some point over the next two days. Enjoy the weekend.

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4 comments:

Anonymous said...

Hi, I think you make a school boy error by buying a gap up on VISN. Gap is made to be fill except when it doesn't.

Mac said...

Interesting take - "school-boy error".

A breakaway gap is one of the most powerful buy signals you can get in a stock and can lead to huge gains. If you aren't sure about this, take a look at SQNM, ENER, and FSYS from this year if you want to see what buying a gap up based on earnings or news is capable of doing. Sometimes it is risky, but can lead to huge gains.

I would buy the gap again and again on a stock like this with the earnings it had - I just happened to get stopped out. I should have gotten back in or waited to set my stop. That was my mistake. I did not make a mistake buying the gap. These stocks that gap up often run into big winners.

Oh, and by the way, the gap was never filled on Friday if you want to get technical.

Have a nice day.

Anonymous said...

I usually pay attention to size of the gap. If it's small, it's usually just caused be a smaller imbalance of overnight orders, and it tends to close. If it's big, then there's usually a solid reason for it, and price is likely to continue in the same direction.
Marco

Amber said...

Mac,

It is relatively common for brokerage firms to place stocks on a restricted list. As a matter of policy, Scottrade reviews stocks periodically and can add or delete stocks from our platform for a variety of reasons. These reasons can include, but are not limited to, risk or volatility, clearance, settlement, technical and other operational issues and the lack of a ready market. Please note that these restrictions are temporary and they do not prevent investors from selling these securities online or purchasing these securities at the Internet commission rate through your local Scottrade branch office. Should you have any further questions, please contact your local branch.

Regards,

Amber
Scottrade Public Relations