Tuesday, July 29, 2008

State of the Market - 7/29/08

After selling off heavily yesterday, the market came back and did the exact opposite today, with the help of some lower oil prices. A plan to boost its capital position from MER seemed to spark more buying today in the financials, and led to a higher open this morning. The action was the exact same as yesterday's, just in the other direction. Stocks continued higher in a similar systematic fashion, occasionally consolidating gains but rarely pulling back. Around 2:00, oil spiked much higher, which caused the market to pullback, but support held and oil reversed almost immediately. Stocks continued to run from there and finished near their highs for the day, basically making up all of yesterday's losses and then some. Volume was slightly higher.

Technically, right now, your guess is likely as good as mine. A break above 2350 on the Nasdaq or below 2250 might signal a better trend to trade, but that is a wide range that we could be in for a while. I have a feeling IBD may classify today as a follow-through day, although you really want to see tremendous volume accompanying the big-time gains on those days, and we didn't have tremendous volume today. We'll see what they do, but most of the stocks moving higher right now continue to come from beaten-down sectors that are not going to lead us to a new bull market. There are stocks setting up in nice patterns that could turn into new leaders, but they are not as prevalent as I would like to see. On a huge day like today, I saw very few stocks on my watchlist moving higher outside of the airlines, and that is not healthy. Good looking stocks like OME, ECOL, PARL, CRDC, VRUS, ABMD, and QLGC did nothing today, and some were even down in price.

This market continues to be difficult and personally frustrating. I am not taking large positions or loading up on anything - for the past week, I've been probably 50% in cash - but nonetheless things have been so choppy that I've lost a little along the way. I would have been better off in 100% cash. Today, I covered the RIMM short I took yesterday at $115.88 for a 1.7% loss. When oil dropped, I tried a swing trade with LCC at $4.89 (which I admit was chasing a bit), but I was soon stopped out for a 3.2% loss on a quick spike down below the top of a intraday flag pattern which I thought should have acted as support. I would have been better off staying away from a low-priced stock like that. In the afternoon, I was out of my GU short @ $12.21 for a 1.6% loss on a superspike out of nowhere that immediately reversed. After those three, I decided to just shut it down for the day. I continue to keep my stops tight, and maybe that is not a good idea, but I don't feel like messing around right now. I would rather take a few small losses and stay in the game right now than let losses get out of control and really damage my account.

I am still not trading very well right now, but then again, if you are playing this market perfectly, congrats because I'm guessing you are in the minority. Up, down, up, down - we are in an extremely choppy period right now. To give you an idea, here are the past six days on the Nasdaq - up 24, up 22, down 45, up 30, down 46, up 55. That's crazy and hard to make sense of. If you are a day trader or scalper, then you are probably loving it right now. Everyone else is probably sick of this.

Once again, I need to listen to my own advice and stay out of the market when it is trading like this. I haven't been taking big positions, but even small ones that are wrong can grind your account slowly lower. And a choppy, volatile market tends to make you overthink things as well, at least in my experience. It is just very tough right now to make a lot of money. There are always going to be tough periods like this in the market, but there will also be periods when money is almost easy to make. Hopefully, we get one of those periods soon.

The bottom line as I see it is this market doesn't have a clue what it wants to do right now, and if it doesn't have a clue, how are we as traders supposed to have one. At some point, things will become clearer and a trend will emerge, but right now, that doesn't appear to be anytime soon. Stocks that are down big one day are up big the next and vice versa, which makes only daytrading profitable here. Forcing things in the stock market is never a good idea. After fighting things the past week and trying to force some winning trades, sitting out looks like a good option to me right now until the market does finally make up its mind. I might be saying this at the exact wrong time, but as for now, that's all I can really say. No charts tonight - I need a night off, and I don't plan on taking any trades right now anyway unless I see some absolutely perfect setups show up. Best of luck Wednesday.


Anonymous said...

I am feeling it. Emotion wise, nothing more depressing than having your stop hit then the market turn around.

Mac said...

Yeah, that is one of the worst feelings you can have as a trader. The other one would be selling out too early for a profit and seeing a stock run without you.

If trading was easy, everyone would be doing it, right?

Guru said...

Your comments reflect my sentiments also. I'm sitting with a bunch of double-shorts on the indexes hedged by some software and medical product longs. Can't make much money that way though but it's relatively safe for right now. I'm looking for a brief move to 1280-1300 range before the right end of head-and-shoulder formations on each of the indexes are completed and the free fall begins.

Mac said...

Guru - anything that is "safe" is probably a good strategy right now. I am totally in cash except for a very small position in BWLD I took after hours, so I think I am "safe" too. I would not object to a nice month or two month bear market rally here - I just don't know if it will happen.