Friday, August 15, 2008

State of the Market - 8/15/08

Another tough and volatile day today on Wall Street, as lower oil prices caused a nice opening ten minutes for stocks, but that higher open was quickly and sharply sold off, even in the face of new recent lows for crude oil. The Nasdaq was able to break above its little consolidation in the first ten minutes, but then proceeded to fall 30 points in the next 25 minutes. What was strange was that oil didn't bounce during this fall. From there, they bounced higher for the next hour, regaining most of the losses they just incurred. The rest of the day was choppy, range-bound trading in which not much could be done. Oil did spike higher mid-afternoon, finishing well off its lows, and stocks did sell this a bit, but then bounced right back up, climbing back into the range they were in for most of the day. The Dow and S&P finished with small gains, while the Nasdaq finished with small losses. Volume, even with the options expiration, was very low once again. It definitely looks like we are in the "dog days" of summer.

Technically, the Nasdaq tried to break above this little consolidation early in the session but fell back into it. The Dow and S&P are above their 50 day moving averages, but still in bearish wedge formations. The USO did bounce off its lows and finished near its highs for the day - maybe it is forming a little bottom here. The XLF tried to get above its 50 day early in the session but finished right at it. The confusion continues.

I was shaken out of my two long positions early on today on the morning reversal - one for a gain (BWLD at $37.45) of 3.3% and one for a loss (STEC at $10.56) of 2.7%. They basically cancelled each other out because the STEC position was slightly larger. BWLD got a pop on an IBD article, which was nice, but I didn't like seeing STEC move back below its 50 day. I could have given BWLD more room in hindsight but I don't trust any stock right now. It tried to breakout later in the day but quickly reversed. STEC did the same thing. I don't like to see stocks act like these two did today.

I also really didn't like how the market reversed its highs so quickly in the face of new lows for oil, so after I was out of these longs, I did buy QID at $39.14, setting a stop at the low of the day. I jumped in this a little too quickly though and made the position larger than it should have been. We'll see how it goes. Although I was watching the financials to possibly re-short today, I didn't do anything else. This is my only position. I am looking to get more short than long here, but I have to wait for the setups to present themselves.

For being an options day, today was extremely boring in my opinion. As I go through my early scans, I see many long candidates that tried to break out, but couldn't and are acting poorly. This rally has been disappointing because from April to May, there were many stocks that looked good and acted well and allowed for some quick gains to be made. Unless you bought the banks and airlines, there have been very few stocks on the long side that have acted well during this "rally".

At the same time, I see many shorts that continue to bounce around their moving averages, making establishing a low-risk position difficult. I hate to say it, because I have done so seemingly a million times over the past month or so, but there isn't a whole lot to do right now except watch. I really do think this rally is getting long in the tooth and will fail soon, but I have no idea when it will happen. I will continue to watch for signs, but in the meantime, will probably keep most of my account in cold, hard cash. I am glad the weekend is here. This market is giving me a headache. See you later.

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5 comments:

Serg said...

Ryan,

can you take a look at PAET, please? Will you consider it to go long?

Thanks,

Sergey

Mac said...

Serge, I looked at it and have no idea why you would consider a stock like this. Your investment style might be different than mine, and you have to make your own decisions, but I see nothing about this stock that would make me think about it. Low-priced, beaten down with a huge gap down on tremendous volume is the exact opposite of what I look for in a long. Sorry.

HeadlineCharts said...

Hi I agree with your comments on the market, and with your purchase of QID. The NAZ has performed but the NYSE has not, and the level of new highs remains below the level of new lows. Not good.

1option said...

Do you see the complex H&S pattern on OI forming? My entry would be below the $40.11 level. What are you thoughts?
Thanks.

Mac said...

OI looks good - I am going to put that on my watchlist now. Thanks. I would say if it gets up to $45-46 area, it might be worth a shot with a stop right above that. Has the 50 day and the trendline to deal with.