Monday, August 11, 2008

State of the Market - 8/11/08

Stocks continued their winning ways early this morning, as a small opening dip was quickly bought, and stocks rose steadily and systematically throughout the morning and into the afternoon hours. Volume was lower during the morning hours but rose steadily into the afternoon. Around 1:30, with the indices up a large amount and the Nasdaq above some heavy resistance, the market turned and selling came into play, with stocks reversing lower until the final hour started. They tried to bounce a bit there, but just formed bear flags and proceeded to sell off more. Stocks bounced in the last 25 minutes of trading and allowed the market to finish with medium-sized gains, but they did close well off their earlier highs. The late bounce looks like another possible bear flag on the 5 minute intraday chart.

Technically, I explained my thoughts earlier today in an intraday post. Please check it out. The Dow and S&P 500 are just above their 50 day moving averages right now. interestingly enough, the Nasdaq finished pretty much right at its 200 day moving average. With the market being so overextended in terms of individual stocks, I see no edge in buying stocks here. I will look for a pullback on lower volume and if we get on, perhaps I will get bullish.

I continued to see financials rally strongly today on very low volume, and that leads me to look at shorting these again. Check out RATE, FMBI, PACW, SUSQ, and WBS - those are the type of stocks I am talking about. Based on the lack of volume, I assume this is strictly shorts being pushed out rather than big institutions accumulating the stocks. That is not bullish.

I took a short position in USB at $31.78 and long positions in SKF at $112.42 and QID at $39.86 in the final hour of trading today. They were not large positions but ones I will look to add to if we get more downside. I don't trust this market long or short right now, so as much as I would love to make a big bet right here that we head lower, I don't know if it is smart yet. I will start them here and see what happens. If we get another reversal tomorrow like we had Friday, then I will be out again with small losses, but if we do top around here, there will be time to make these positions bigger.

I was tempted to start some gold positions via GG or AEM as both have been killed and are right at some support levels and should bounce, but I decided to wait. Again, I would rather get bearish slowly here as to not get whipsawed once again by this market. I will put these charts up tonight and show you what I see here.

I am of the belief that we are close to a top in this rally or at least due to get a nice pullback in the near term if we are to head higher than where we are now. Based on my scans, we have gotten just too extended and moves like we have seen in these beaten down stocks cannot continue on forever, especially with volume falling off as many of these stocks rise higher. That doesn't mean we have to top here - if I've learned anything over the past few weeks, it's that this market has a mind of its own and rarely likes to do things that make sense. I would not be looking to buy here - too risky in my opinion - but wouldn't jump all over shorts either. Slowly entering into them will help prevent bigger losses if the market decides it wants to head higher another 300 points tomorrow. The market remains tough. I'll have some charts or a short video up tonight. See you then.

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Gio said...

Mac! Once again, you nailed that sector reversal in energy. The fall in energy was quite steep in the past 3 weeks.

I bought GG today, I just said, buy it under 30. Okay, I'm gonna watch your video you made this past weekend.

Mac said...

I guess you're talking about the one from a few weeks ago, because I've been expecting a bounce for a week or so now and we still haven't gotten one. I don't know when that will occur. I wish I would have hung on for more of the ride down, but this is my first bear market so I will make mistakes and hopefully learn from them for the next time.

I thought hard about gold today - I just didn't want to go into this market too quickly. They are certainly beaten down enough.