Monday, September 8, 2008

State of the Market - 9/8/08

Wow, what a day! I had a feeling that today would be wild due to the huge morning gap and the Fannie/Freddie bailout, and I don't think the action disappointed from that perspective. The market did start the day with a massive gap, but that gap took the indices right up into some key overhead resistance that I mentioned last night, and that resistance proved too much to overcome. Stocks hit their highs around 9:35, and steadily fell from there all the way into the lunch hour, where some support came into play. They bounced a bit from there, drifted back down to test those lunchtime lows around 2:00, and tried to bounce again from there. They managed to get through intraday resistance around 3:20 and did run into the close, finishing near their earlier highs. Volume was very heavy as you may expect on a day like today.

Technically, I mentioned last night that the 11,450 level on the Dow and the 1270 level on the S&P as important resistance that I would have to see the market close above before looking on the long side. The late bounce did get the Dow over that level, but the S&P finished right below it after clearing it in the morning. It is certainly possible they climb over this level tomorrow, but I am still not looking to get long. The Nasdaq looks ugly and finished right in the middle of its daily range. In addition, most of the stocks I follow did not finish near their highs even with the late rally. Until all three indices are looking better, I can't get bullish, and right now there just remain too many questions. I am still of the opinion that this will prove to be a good opportunity to add shorts, but who knows?

I did not trade as well today as I hoped - all I did was add to my BIDU short at $284.85 and to my MON short at $109.16. These worked out well, but I passed on too many other great opportunities in hindsight. SOHU, WGOV, ENER, SINA, RIMM - I considered these as they rallied to their 9 day moving averages but passed. I just didn't feel comfortable shorting this open because I expected more irrational exuberance to push the market higher for a few days. I didn't think the gap would be sold off so quickly. Only one stop was hit today - CREE at $22.30, which gave me a small loss. It was a small position, however, so no big deal. I also went back into SKF again at $108.56, but this was another trade I waited too long on. I was stopped out at $105.80 as it broke through intraday support, so that was a 2.4% loss. In hindsight, probably more a gamble than a solid trade because I chased it.

I don't know why I am waiting so long to enter positions right now - it seems like I am always a bit behind. I think something psychologically is holding me back - maybe I don't want to put the gains I have had this far up to get taken away, and perhaps it's just the choppiness of August that is making me a little gun-shy. Today was a good example of that choppiness. Today though I think I left too many good lower-risk opportunities (if I acted upon them immediately) on the table. This is all hindsight of course, and the fact that these trades would have worked is the main reason I am frustrated. Today does, however, show the power of the 9 and 20 day moving averages as resistance points for bouncing shorts - many reversed right at those areas this morning.

Since the reversals on many stocks were so powerful today, I think we are kind of in a tough spot for starting new positions. The charts I see out there are UGLY, both as long and shorts if that makes sense. All these reversals and violent, huge swings in commodity and tech stocks make them tough to play on either side of the market. What I would like to see is for stocks from these two sectors settle down for a few days, form bear flags, and then fall lower. I have a little cushion in the two shorts I have right now and will use that cushion to see if they can fall further from here, but I also know where I will get out. I don't know if I will do much else. As for longs, I still don't see any that suit my style. Maybe they will start popping up in my scans, but I doubt it. Because of that, I still can't get bullish here. Bottom line is there is no reason to make big bets right now, but I will continue to focus on the short side only to see if any more opportunities arise. I'll put up some charts later if I find any. Best of luck.

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