Wednesday, September 3, 2008

Looks Like We Could Be Back to More Chop

Good evening, traders. My email with my first post never came through, and I have no idea why, but I'll try to put some thoughts down in this post instead. Here are the indices, which have sold off on heavy volume the past two days, but neither day was what I would call heavy selling. I also wonder if the commodities were taken out of the equation if the indices would have been down at all. Bottom line is that I was hoping for a clear breakdown below the 50 day moving averages today, but we finished right at or above that key level, so the course ahead is still unclear. I guess we could just leak lower. The Nasdaq is very weak right now, but is also oversold, so I am leaning toward another little bounce here.

S&P 500, Nasdaq

I was really hoping yesterday's reversal would lead to the start of a new trend, but I am doubting that after today. I fear that we are just in store for more chop, as awful as that has been for the past month or so. All of my Market Map scans are still neutral and I haven't really seen any clear trends in any of those for about two weeks. We may bounce, but at the same time, how much lower is oil going to go? There is that dynamic to think about. If it bounces, will the market really follow suit? We also have the jobs report Friday morning which will likely drive trading tremendously. I wish we were going into it overbought instead of oversold, but can't do anything about that. Overall, some intersting dynamics here setting up and as such, it looks like I may be stepping back once again and not trading much, after dipping my toes in the water the past few days with only marginal success.

I did make more trades today and was stopped out of some positions at the same time. Below are the two shorts I took this afternoon, CREE and BIDU. I am hoping for further breakdown here but will probably look to take profits quickly either way.

CREE, BIDU

I also was stopped out of my SOHU short at $75.15 early on for a 2.2% loss. This one sucked because it spiked $2 above its 50 day moving average (my stop loss) and then immediately sold off up to $6 lower. My stop in SKF was hit at $111.92 for a 1.1% loss. I said last night that I wanted to see this move higher immediately and it simply didn't. It closed at its lows and I just don't have a good feeling right now either way with this ETF and the financials.

I was focusing on two shorts this morning that I posted last night - DV and AFAM. Those two setups stood out to me last night. I shorted DV at $51.50 but for some reason passed on AFAM even though I watched it for about ten minutes. If you look at the charts, you can tell I obviously made the wrong decision. I covered DV at $52.68 for a 2.6% loss. AFAM broke down nicely - I said I just had a hunch last night but it doesn't matter since I am not in it.

I am not posting any shorts tonight because most are a little too extended right now to the downside. That's part of the problem with the current market - sure we could keep heading lower slowly, but it is too late to get short if we do in most cases. I am going to continue to look at the financials and casinos, both of which still may work, but I think I would lean to playing just some inverse ETF's if we breakdown.

I continue to see very few great long candidates, and that is also part of what is so frustrating. There have been a lot of shorts setting up recently, but I discussed yesterday that unless you liked gambling on the outcome of Hurricane Gustav over the weekend, it was virtually impossible to get into the commodity shorts in good position. The other shorts I saw haven't worked perfectly either. I don't mind longs not setting up if there are nice shorts setting up, but when there are no longs and shorts aren't working that well, it's tough. I am putting a few charts up that I will watch but I don't expect to do much with any of these.

AMMD, TACT
GM, MER
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Right now my only positions are short CREE, BIDU, and MON. The majority of my account is still in cash, and I am guessing it stays that way, especially considering I am leaving early on Friday for a weekend trip.

I wrote in my "lost post" that it is important to remember that as traders, we can't control the market, but we can control how we react to it. It is difficult to keep your emotions in check when a market is as choppy and frustrating as this one, but it is a must. A better day will come (eventually) and when it does, if you did a good job controlling your emotions and kept most of your capital in tact, you will be ready to capitalize on that better day. You have to remind yourself constantly of that. This market forces me to continue to trade lightly for the most part, and as today showed, I will get out of positions quickly when they don't work until we get a better trend going. Best of luck Thursday.

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