Monday, July 28, 2008

State of the Market - 7/28/08

Well, I was gone for most of the day until the last hour of trading, so I can't summarize too much of the day's action other than to say it doesn't look very good. The futures got worse as the morning went on and stocks followed suit, selling off once again quite systematically throughout the day. Stocks finished right near their lows for the day and the action was not good to say the least. Volume appears to be lower once again.

Technically, the S&P 500 broke some key support today and looks to be headed lower, possibly down to touch its recent lows. The Dow looks technically unhealthy as well. The Nasdaq is still above the 2250 level and that will be a key support - if it breaks below that, it could test its recent lows as well. The only positive right now is that volume has died off each of the past four days as the market has pulled back, so perhaps things can hold up here. Bottoming is usually a process unless you get a true capitulation day, and since we never had that, perhaps we need to test those recent lows before putting together a meaningful rally. As it is, I would obviously use much more caution right now on the long side of the market.

The USO bounced a little today and still is holding that $98-99 area as support. I have to be honest and say I am surprised there hasn't been a stronger bounce here. If that level breaks, I still think that would be a positive for the market.

I never like days where I am away from the computer all day - I always feel lost. I should have known better this morning to try and play a few earnings plays this morning since I was going to be away, but I did anyway. I got in SOHU and CALM this morning in the pre-market as they gapped up on great reports. Unfortunately, they didn't gain any momentum at all in the pre-market, and when they started to fall, I didn't hesitate to cut my losses and sold back out of them about thirty minutes after buying them. I left SOHU with a 3.5% loss and CALM with a 3% loss. Luckily, I only took half positions in them figuring I would add later if they had nice days. If you look at their charts, I am very happy I did cut my losses here, as both reversed big time.

I set trailing stops on my other positions and was stopped out of my two shorts as well. My UA stop was hit at $27.15, which gave me an overall gain of 10.8% on this short - not bad, but I still think it may head lower from here. My only regret is I didn't add to the position early on. This has an earnings report tomorrow morning so that is a main reason I tightened my stop and basically said, "we'll see what happens." My other short in MELI did not work out so well. I set my trailing stop for my breakeven point, and for some reason the stock spiked up immediately in the first minute of trading before falling back down throughout the rest of the day. My stop was hit right there at $33.67 for a 0.2% loss - no big deal - but I would be up about 6% in this position right now if that spike didn't happen. This was also a bigger position, which stinks even more. Early spiked like that always make me wonder what goes on with market makers. I'd like to think that if I was at the computer, I wouldn't have had to have the stop on and perhaps I would still be in this position, but that type of thinking is usually dangerous.

I was surprised my stop in ISRG was not hit yet when I got home, but I guess I didn't give the market enough time, because it was hit late @ $307.84. I believe I will end up with a small loss (under 1%) overall on this position because I also had positions in the IRAs. I want to officially thank Barrons for their negative article this weekend and ruining this position, although I have to admit this did not act like a perfect earnings play would have.

I did take a few shorts late in the session (RIMM @ $113.70 and GU @ $12.03) as a play on further downside here, but they weren't full positions and although I thought about taking one or two more, I stuck to just those two. I have to remind myself that things are still not completely clear right now, and overtrading, which I have probably done a little of already, is not a recipe for success. I won't hesitate to add to those shorts tomorrow if they fall further or take a few others on, but I want to be sure I am right here before getting too aggressive.

Again, I am a little out of the flow after being gone all day, but certainly today wasn't good for those looking for a sustainable bounce and it seems like the market wants to head lower. The only thing that makes me less than certain of that outcome is the volume hasn't been very strong during the selling we've seen recently. As of now, I would go back to staying away from longs and focus on shorts, but be quick to take profits if you have them. This market certainly remains a difficult one. I will be back later with a better feel for things and some charts to take a look at. Until then, take care.

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Anonymous said...

Looks to me that rally last week really just was short covering in the weakest sectors and we're done with it now, heading lower again.

Thanks for the video yesterday. I haven't traded earnings gaps yet but seeing your video makes me want to try a few on paper and see how it goes.

Mac said...

Thanks. It is not a perfect system, especially in a market like this, but if you cut your losses quickly and let the winners run, you will catch some very big moves that more than make up for the ones that don't work out.

I was surprised ISRG didn't work out, but again, the market makes it tough on any stock right now. ENER and FSYS coincided with the bear market rally of April and May.
Right now, any earnings play has to swim upstream so to speak and until that changes, I may stay away from most of them.