Thursday, September 11, 2008

State of the Market - 9/11/08

Futures were down big today pre-market on Wall Street, and traders responded accordingly, as a gap down was sold for the next 15 minutes, giving the market large losses. Both the Nasdaq and S&P 500 broke their recent lows and things looked bad. However, stocks bounced from there, moving higher all the way until the start of the lunch hour, when they pulled back. The pullback stopped around 1:30, where some a morning pullback provided support, and stocks rose back up from there. They pulled back rather significantly in the last hour until 3:30, when they rocketed upward out of nowhere and finished near their highs of the day. Volume was maybe a little higher than yesterday, but not overall that strong.

Technically, the market bulls pulled another rabbit out of their hat this morning, as things looked very bleak. The reversal was impressive, but as I said last night, until the market gets over its short-term moving averages, there is no reason to get bullish. Those levels I will watch are around 2265 on the Nasdaq, and around 1250 on the S&P 500. We are pretty close to those levels so tomorrow should be interesting.

I pointed our last night that the financials were sitting right at support, and a break here could be very important. They did gap down big this morning, but since I couldn't catch the gap down in financials, I waited for a bounce and did enter SKF at $121.59 and WB short at $13.88. Both of these were very close to resistance levels so I thought it was worth a shot. Well, of course, the financials continued to rally, and I got stopped out of both with small losses of 1.6% and 2.1% respectively. I went a whole day without trading SKF so I guess it was time to get back in.

I also was stopped out of my MON short as it rallied above its 9 day moving average for 7.4% gain. I was moving my stop down as I went but it is frustrating because I was up as much as 12% in this. It was also frustrating to watch the other ag stocks like CF and POT fall much farther and faster than this stock.

My stop was also hit with BIDU at $276.02, which gave me 5.3% gain. This was another one where I was up around 12% but thought it was worth holding for more gains. I have gotten away from taking profits quickly because this market showed all indications of making a major move lower and I want to catch that move, but right now, that patience is not working.

Right now this market is very frustrating, at least for me. After all of the trades I made the past week or so, many of which I thought were very good setups and I was excited about potential-wise, I am still at the same spot I was when this move lower started and I began making those trades. I don't know if I am just picking the wrong trades, not taking profits early enough, or just getting unlucky. For me, this market still kind of sucks, even though I thought last Thursday we were finally set for a tradeable trend lower.

Because of this, I want to ask traders that read this blog and are much more experienced than me (this is around my fourth year trading) and have been through market cycles before a question. Is this current environment just typical of a normal bear market, or is it less sensible, less smooth, and crazier than most? I can't remember a market that makes less sense than this one does. One of the biggest investment firms in the world appears to be going under, and what do financial stocks do? Nothing but rally completely off their lows for the day. Maybe I am showing my inexperience here. I wonder if the fact that this market has been interfered with so much by our government has something to do with it. I mean, we pretty much are a fascist/socialist state as of now - maybe the market is just responding to that fact.

I don't know - I continued to just be confused by the action of the last two months or so, and would love to get some thoughts from veteran traders if I am imagining this or are things really this messed up. I have read other bloggers call this the "Costanza Market" in honor of the character from Seinfeld that did everything that went against his good sense and judgement. This is not meant to be a rant, just a question. Maybe a better way to put it is "does anyone have a clue what is going on with this market?" I don't know how anyone can say Wall Street has not lost a ton of credibility this past year, and perhaps the crazy action is showing that.

Bottom line is that it continues to be very tough out there. The volatility and swings continue to be crazy and it seems like we are once again back to having only day trades work well. We may continue higher tomorrow, but if we do, the one bright spot is that there should be some very nice short setups that present themselves. I guess it is just a matter of if those setups actually work. I'll be back later with some charts.

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Anonymous said...

Maybe you thinking too much. :)

Trade what you see, not what you think - said somebody and I think this is true.


Mac said...

You could be right that I am thinking too much and letting personal opinions interfere too much. However, most of what I see is ugly. For instance, tonight my long watchlist (these are just stocks I keep an eye on to see if they could set up patterns) is the lowest number it has ever been at. There are no longs worthy of trading. And the short setups that look good in terms of volume patterns don't work. It kind of sucks out there right now, at least for my style of trading.

Anonymous said...

Yes, the whole market looks ugly now, it's time to rest a little until the major move.

Btw I always watching only 2-4 stocks from each sector (usually the biggest companies) and for me that's enough. And it works for me. :)

bmbull said...

Bear markets are not simply bull markets turned upside down - the behavior in bear markets is quite different from that in bull markets.

I think the action in bear markets is typically full of fits and starts - stocks tend to go up much more smoothly than they do down.

At least, that's the way I see it.

We're at a point where the market certainly isn't getting anywhere on the upside, but the indices are still hanging on. And if/when they let go, they'll fall fast and hard. Then, they'll bounce back up and we'll chop around some more. I think that's the nature of the beast.

Sometimes it's just plain difficult to make money.

Anonymous said...

"Trade what you see, not what you think"

Maybe true although it's hard for eyes to convince mind to buy financials

ike said...

I've only been trading for 11 years but I haven't seen anything like this either. I also feel your pain regarding SKF, as I've been trading it off and on since January, but have stopped because it has turned into an absolute basket case lately. It will turn you into a basket case as well unless you get away from it for a few weeks. Take it off your watch lists, take it off your real time quote screens, just get away from it for a while. I did that a few weeks ago and I feel much better. Sooner or later there's going to be a government orchestrated absolute financial bottom put in place and what will happen to SKF is a slow grinding downward trend to about 50 before anyone remembers that it still exists. As one SKF addict speaking to another- kick the habit!

bmbull said...

I'd agree with Ike - I think too many people are too obsessed with the financials at this point, and the trading has become extremely news driven, noisy and trendless. Just look at the SKF volume and action since mid-July as compared to the smooth runup from early May to July.

SKF is a total crap shoot right now. As is SRS. Too many players, and absolutely no rules. You may as well just flip a coin.

Oh, and in my earlier comment, I forgot to mention that the 'normal' bear market forces are having to contend with intervention from the Fed, the Treasury, the SEC, and heaven knows who else might be trying to keep things propped up.

Mac said...

Good comments all. Ike - I agree with you on SKF. Sometimes you have to let it go.

Again, I don't have as much history to compare it to, but the more I think about it, the more I am of the opinion that a lot of this crazy trading is the influence of the government into this market. Whether it's the short selling rule, the bailouts, whatever, it seems like that is always on the table as an option, and then rumors and news start to come into play and make trading extra volatile.

Had to post this tonight from the Worden Report - thought it was great.

"When a flock of the nation's largest and most prestigious financial institutions, symbols of wealth, integrity and dignity are seen to be sneaking around, each trying to get the government to put up the dough to bail out (buy?) a wounded member of their patrician brood, and the market chases around in circles like a dog chasing his tale, you know you are being privileged to watch the play-out of one of the most bizarre anomalies in the history of banking. It would seem everybody wants to put lipstick on the pig."

That made me feel a little better about feeling how I do right now, that I am not the only one thinking things are bizarre.