Thursday, September 18, 2008

So Is THIS the Bottom???? We'll See in a Few Days

Good evening, traders. The question of the evening is "have we seen the bottom after today's action?" Let me answer that with an emphatic "I don't know". I don't think anyone does. How many people called a bottom on Wednesday only to watch the market fall 500 points yesterday? It is too early to know for sure if this is the bottom. There are things that I see that make me think it could be, and there are other things that think we still have more downside to come.

On the plus side, volume was the heaviest its been the past week and looks awfully climactic to me. Combine that with the reversals put in, and the possibility of a bottom is certainly there. The buying interest today in terms of 4%+ breakouts was as high as I have ever seen. The VIX also spiked above 40 today before reversing hard as well. All of these could signal a possible bottom.

S&P 500, Nasdaq

On the downside, let's not forget just two days ago, when the market rallied a huge amount late in the session on rumors about AIG getting bailed out. A lot of people figured (and I have to admit I was in this group) that we would continue higher for at least a little short-covering rally. The next day (yesterday) we were down instead 500 points. I also don't like the fact that this entire move was triggered based on a RUMOR put out by those fine, upstanding journalists at CNBC. People want to lock up short sellers??? How about locking up Charlie Gasparino, first for the Ambac crap he pulled earlier this year, and now for putting this out there. As long as it is the shorts getting hurt, I guess it's OK, huh? (By the way, I have been in cash for the past two weeks, so I am not biased here)

So overall, I am leaning to more upside here but would not be surprised by anything. Seriously. A 500 point up day or down day tomorrow would not be a shock. The amount of volatility the past few weeks has been staggering, and there is no reason to think that will end all of a sudden. The chart below shows the buying/selling interest that I do as part of my scans each night. Over the past eight sessions, I have had four days of over 1000 4%+ breakouts(1) or breakdowns(3). A normall high reading is around 300, and I have not had a 1000+ day, either positive or negative, this entire year up until the past eight sessions. Because of this, I am expecting more jaw-dropping swings to come. This volatility is also a reason I plan on waiting for a true, IBD follow-through day before getting heavily long in this market. From my perspective, there is still just too much risk out there and I would rather wait for some confirmation of a bottom, even if it means missing out on a few percentage points in a move.

Buying/Selling Interest

Here are some of the charts I am watching from the long side. I wish I had more, and I wish more of the ones I have below had max BOP levels that told me they were really being accumulated, even in this mess of a market. Unfortunately, they don't, and we as traders have to take what the market gives us. I am also not seeing a ton of high quality IBD type stocks setting up. Am I planning on going out tomorrow and buying a lot of these? No. I want the market to prove itself a bit. Again, I am planning on being patient here and not jumping the gun, therefore hopefully avoiding a possible whipsaw that is always a possibility in this market. If this is the bottom, then there will be plenty of time to get fully invested on the long side.

All Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

Overall, today was certainly a great day for the bulls, but I am going to temper my enthusiasm for the time being until we see if this can be maintained for more than thirty minutes. If we do bottom here, there are so many shorts out there that a rally could turn out to be very powerful, so it pays to be ready for it. I would frankly be all for a rally starting here - I am bored out of my mind right now just sitting and watching, even though I know it's for the best. But we also have to remember today's move took place in less than an hour, was caused by a rumor, and was most likely led by monster short-covering. We saw something very similar two days ago and it amounted to absolutely nothing. All in all, there is nothing from today that I saw that tells me this market is about to get any easier. Oh yeah, options expiration is tomorrow. Be careful and good luck Friday.


Gio said...

Vix at 40 was my target for a bottom. But I think I will raise that for a double spike from 45-50. A lot of people didn't believe me that we'd hit 40. Today was a great day for me. As always, nice screens. I have a few of those as longs, but am building position in gold.


Mac said...

Thanks Gio. You did have a good call on the VIX. I was hoping though it would get higher.

To be honest, though, I don't even want to trade right now. Not with this constant and blatant intervention by our government. The game is not completely rigged. This is really upsetting me.