Tuesday, September 9, 2008

State of the Market - 9/9/08

A pretty weak follow up to yesterday's big move higher for stocks today, as futures declined through the pre-market and stocks sold off steadily until around 11:10. They bounced slightly, but then sold lower once again through the lunch hour. They tried to bounce again after lunch, but that bounce was rejected at the mid-morning highs and it was nothing but selling from there. Stocks tried to bounce again around 3:15 but that was quickly sold as well and stocks finished very poorly, near their lows for the day. Volume was once again very heavy and appears to be heavier than yesterday.

Technically, today's action makes yesterday virtually meaningless from my perspective. The Nasdaq closed lower than its lows from Friday, and the S&P and Dow now look poised to do the same thing soon. Today's action goes with the BigPicture article I linked to last night that each one of these "government intervention to prop up the market" rallies have lasted fewer days and with less strength than the previous. There is no way to take today other than bearish, and I wouldn't be surprised the July lows are tested very soon by this market. The VIX spiked up to 25, which is interesting to me. It seems like this downtrend is in its early stages and with a VIX that high, perhaps this downtrend will lead to a true, panic-filled washout, putting the VIX up above 40 or so, and a real bottom that is tradeable can be formed. Let's not get ahead of ourselves however - that possibility is probably a few weeks away.

I made a few trades today, but I also passed on some earlier on in the session once again and still just don't feel like I am trading that well right now.

After stating last night that I was done trying to beat SKF, take a guess what I did today. That's right, I went in at $108.95, but was then stopped out at $106.60 for another 2.2% loss. Of course, it went right back up after my stop was hit. I set my stop tight because I know this can reverse quickly, and I didn't want to get caught in a whipsaw. I am not getting killed on these trades and all of these losses are small, but I know I am letting my ego get in the way here. I am trying to find the balance between getting back into a trade if it looks like it will work, but also letting go when I am "beaten" so to speak and admitting defeat. This is a good reminder for me of how important staying disciplined is in any type of market. Right now, I am fighting this stock and in a way letting it get personal, which is something you never want to do. That being said, I may try this again tomorrow, at least if it gets above its 200 day moving average. I don't know what news can now come out that would be good for the financials other than Lehman being taken over by another bank.

I almost took some profits on my MON short today but I decided to stick to my sell rules and held tight. I also added two shorts in the afternoon - IPHS at $29.78 and CREE at $21.00. Both of these are what I would consider momentum shorts, meaning I was anticipating in both of these a further breakdown, and they are short-term plays because they are already down a bit. It was weird to watch CREE sit literally at $21 for about an hour, but I think if that support is broken, then it can fall a few dollars from here. These are really the only type of shorts I see right now - you have to play breakdowns here although I really don't like doing that.

Things look quite bad here, but if this bear market has taught me anything, it is that things can always get worse. Right now, commodities and tech continue to get killed, and now perhaps financials will join the party. We'll have to see - I thought that last Thursday and it didn't work then. Maybe it will now. If they do start to fall further, then this market is in for some major selling, even worse than we are seeing now. That's what is scary. I'll be back with a few charts to watch tomorrow - I see a few setting up that I may look at taking as shorts, even though we sold off today. There aren't that many however - if you are not already short, you have to be disciplined and careful here. Good luck.

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Mika said...

It´s commodity market which is going to lead market down. Hes, Pot, Mos, Xto, Paas, X, AEM, Fro etc to mention just a few big names.

Technically yesterday means a lot because it was a perfect bulltrap. I think after few weeks we are pretty much done and QQQQ going to reach 37-38 area. However, I think Intel, Juniper, Cisco and similiar names not gonig down heavily, they will likely either going to make a doublebottom from July or overlapping it just slightly. However, not point to hold them either because road is not open upside either.

Eur-Usd has very important role with this downroll now.


Mac said...

I would say commodities have already led the market lower. I actually am going to write a bit about how stretched they are. If they bounce, then other sectors may take on more selling, namely the financials.

Either way, this market looks awful and tech is the worst.