Saturday, October 11, 2008

Hard to Find My Type of Long; Still Lots of Questions Remain

Not quite sure how to get my thoughts down best this weekend so I am just going to go point by point here.

First off, there is no doubt that the past two weeks have been the among the worst (if not THE worst) in the history of our stock market. My Market Map scans show this as they are at levels I have never seen and probably will never see again. For instance, I had 457 scans show up in my "down 50% in a month" scan. If you think about that - over 450 stocks losing 50% from their high of the last twenty trading days - it is truly amazing and not something I expect to see again in my lifetime (at least I hope so). The rubber band has been stretched just about as much as it can without absolutely snapping, so a bounce can happen at any time. I don't think I need to tell any of you any of this - unless you were in a cave for the past week, you realize this already.

Market Map

Everything points to us putting in a temporary bottom around here - everyone and their mother has been trying to call one and pinpoint the exact moment when it will occur - and perhaps Friday will prove to be a turning point for the market in the short-term. It was good to see the reversal in the morning, and it was also good to see after falling all the way back down to its morning lows and threatening to break through those that stocks were able to reverse once more into the close. I didn't like the last half-hour or so, but I'll mention that later.

I have no way of knowing when the bottom will finally occur - no one does. It is impossible to tell for sure that a bottom has been put in until a few weeks after. I think that will hold true here. As it is, I still think this market is news-driven and until it isn't, or until the news is clear and positive, I really don't think it is smart to put too much stock (no pun intended) in any day-to-day movement in this market. For instance, let's look at Friday. I am already reading a lot of blogs calling this "the bottom". It certainly does hold some of the characteristics that typically appear when one is formed. If it really was a panic, v-bottom, why would the market fall over 300 points in the last thirty minutes or so like it did? For me, there are just too many questions still out there to do much of anything, and I am guessing those questions will hold me back from being very aggressive just yet.

For my style of trading (swing trading with optimal holding periods of several weeks to months) the opportunities just aren't there right now. Going through my scans, I see none of the patterns I typically trade whatsoever - none at all. I see some bullish tails that might turn into reversal patterns, but I am not an expert at those and I know I am not strong at trading stocks off their bottoms. I would much rather buy stocks that are strong and breakout of bullish patterns or pulling back to support levels. I can be successful with those patterns. With the carnage of the past two weeks, those type of setups just don't exist right now. The patterns I see all look the same. There have been no stocks which have held up well. All the stocks I see are below their main moving averages now. Much like the indices, charts now all just look like waterfalls. Some fell more than others, but they all fell sharply, and I have no edge in terms of picking which ones out of all those similar charts are more likely to move higher. Since I have no clear edge based on my current skill set as a trader, I can't be too agressive. I just can't.

It is certainly frustrating to sit here and do pretty much nothing week after week. I have accepted it though and realize that it might be that way for a while, at least for my style of trading. I know there are traders out there that are making a lot of trades right now, but they have different approaches than me. I may make some small trades, and there are a few charts that I think may workout OK if we bounce soon, but I can't see myself being very aggressive right now until things settle down and things become clearer. If you trade a similar, CANSLIM-type style as me, I would suggest the same outlook here. I would rather be conservative right now and wait for some confirmation before jumping in too early to a move higher and get some quick and sharp losses.

Here are a few charts I am watching. I have no problem going long at some point in the near future - in fact, I would love to and hope I get the opportunity. I just need to be patient and wait for that right opportunity. Even this weekend, we have already seen another measure taken by our government as they will now buy stakes in banks. Do you know if the market will take this news positively or negatively? I have no clue. No one knows. That's the point. In a few more days, I think we will know if Friday was meaningful or if we still have not yet hit the point of max pain for traders out there that might be necessary for this market to turn for real.
For me, I am willing to give up a few points on possible trades in exchange for those answers.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I apologize if I sound like a broken record, but my opinion on things hasn't really changed. Anyway, hockey is about to start so I am out of here for the rest of the weekend. Good luck as always next week.


Anonymous said...

CHK looks like a great bargain for the long term.

Are you anywhere near that chemical leak in western PA?

Mac said...

No, I am more near the airport area and that is north of the city but I just saw that on the news this morning. I hope everyone is OK.

CHK makes sense for the long term but how much "sense" does this market make right now?