Wednesday, August 20, 2008

State of the Market - Late Edition - 8/20/08

Good evening traders. As I mentioned last night, I had much more important things to attend to today and was away from my computer for most of the day. Based on what I can tell about today's trading, that was a blessing for me, as I probably would have lost some money if I tried to trade the whipsaw-filled action it appears we had. Early on, it looked like stocks might follow-through to the downside earlier than I expected. Then they bounced strongly and everything looked good. Then they fell back down right to their morning lows. Then they rallied back up into the close to finish with modest gains. Doesn't sound like much fun to me.

The main reason I am glad I was gone today was that the two sectors I have been following the most over the past few weeks, oil and financials, were particularly choppy today. I would have very likely entered back into SKF early in the session, but that would have led to a quick loss when it reversed. Same with some of these oil stocks that were very volatile today. I am just glad I had something else to do today.

Where do we go from here? Well, I said yesterday we may bounce a little but I still expect the trend to now be down. It is just a matter of timing the real fall in terms of when it begins. We still have a whole week and a half of August trading to go, so I don't know if it is going to get any easier to figure that out. If you look at the indices, the Dow and S&P 500 are under their major moving averages now and I think those will cap any rally attempt. Meanwhile, the Nasdaq has held its trendline so far and could bounce a little here, but I think the 200 day MA will cap any rally attempt it has. If the market gets over these levels, then maybe we rally a little longer before things get bad.

S&P 500 and Nasdaq

The XLF held lateral support today again, so it could bounce a little more here. I think $21 will be tough to overcome, so financials could just be in a little range for a few days. A big break below $19.75 would definitely be bearish and I would look to get short. At the same time, if XLF gets over $21, I would probably cover any shorts I would have (I am in 100% cash though) and stand back, because that could trigger another short squeeze.


Crude had a very volatile day but did finally close above its 9 day moving average. Now, that means absolutely nothing if it falls back below it tomorrow, but today could signal a short-term trend change for crude. I say this also based on how individual oil stocks acted today. I am not planning on making many trades the rest of this week, but I will be watching some of the oils like HK and GMXR as I think they could make a move here if crude does. A lot of commodity stocks look to be setting up possible moves here. Again, follow-through is the key.

All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

My Market Map scans are almost completely neutral across the board, which adds to the difficulty. We are not overbought, nor are we oversold. There still isn't a strong trend on the major ratio either. Since that is the case, it makes sense to continue to take it easy here.

I am seeing stocks set up in patterns(high BOP levels that have rested nicely) that interest me on the long side, and it is good to see high growth stocks like SOL and ENER rally the past few days. I may test out one or two of the patterns I like the next few days, but there is no reason to go crazy long here. I may also look at some oils and commodities like I mentioned earlier.

On the short side, I don't see that many nice setups tonight, so I don't think I will do anything there either, unless we really breakdown big-time on the overall market. If that happens, I will likely go with some inverse ETF's.

All in all, it looks like we are still in a short-term, stock picker's market. The mantra remains the same - stay small, get out quick, and keep most of your accounts in cash until things pick up volume-wise. Nothing that I see makes me think any different. Good luck tomorrow.


Gio said...

Howdy mac... Thanks for SOL. I saw ENER too, also like LDK on this bounce. Anyway, getting back into energy. I'm surprised u didn't make any mention of chinese stocks today... Let me know!


Mac said...

Gio -

I did see FXP got hit today in a major way so China may bounce here - kind of surprising they bounce at the end of the Olympics, oh well. I saw NTES but can't remember too many others that interested me - I count the solars (SOL, SOLF, etc) as Chinese stocks too.

We'll see what happens from here, but i still just don't trust this market either way. Volume is just too low.

Anonymous said...

I'm not sure if the solars will hold up yet long-term (I'll kick myself if they do, I was considering buying some when they bottomed several weeks ago), mainly because I think the market will put in at least one more low.

Boy or girl? I just had my second boy end of June which was great timing as far as taking a break from trading.

Mac said...

We are having a boy - thanks for asking. Due in early January. I was shocked when I had one son - always figured I would have all daughters - so now the idea of having two boys is cool. We'll probably try for one more and hope for a girl - that's what my wife would like. I would like that too.

I would not buy the solars here - too extended - and it is possible this is just an oversold bounce. It is just nice to see something other than fundamentally ugly stocks like banks and airlines moving higher. If the solars rest for a few weeks on quiet volume, I would become interested.

Anonymous said...

Yeah, during the pregnancy my wife said two is enough and now she's already talking about having another one. It's such an amazing experience, with all its ups and downs, it's hard to call it quits.

Mac said...

I've been told going from one to two is just about the most difficult thing you can do, but after that, going from two to three, or three to four and so on is a breeze. I don't know if that's true, but if it is, that should help your outlook.