Friday, October 10, 2008

State of the Market - 10/10/08

As a relative newbie to trading, all I can really say to describe this market is "WOW". Today was the wildest day I have ever seen trading and I assume it was the most wild day for a lot of traders out there. Things started very poorly early on, with the Dow falling a huge amount in the first ten minutes of trading, only to reverse powerfully and rise to a modest gain for the day around 10:30. That bounce looked great, but it didn't last and stocks fell from there throughout the rest of the morning, all the way down to test the morning lows between 2 and 3. Those lows did hold, and stocks rocketed higher once again in swift fashion, turning positive in the last hour of trading. A late pullback prevented all of the indices from closing positive, but it was still a positive sign for stocks to reverse the way the did. Volume was also very heavy today.

Due to the early reversal, I did wade back in to the waters this morning with a small position in UYG at $9.09 based on the intraday chart. It did move higher, and I set my stop pretty tight at $8.94. For some reason, my stop was not hit - Scottrade messed up there - and I ended up having to cancel it and sold out at $8.77 with a limit order. It was a small loss so no big deal, but it did remind me that not only are trading these markets tough because you don't know what is going to happen next, but execution of trades is always tougher in an environment like this, and that is something totally out of your control. I am back to 100% cash once again.

I did nothing else - actually I was away from my desk for most of the session. I know there is no way I could have made any money though - way too crazy out there right now. Perhaps today will be meaningful and we can move higher to start next week off. I would love for this to be a temporary bottom, because as stretched as we are, the bounce should be very powerful. I'm not saying that any bottom that forms here will be THE bottom, but I don't really care. I am all for playing a bounce and hopefully picking up some nice short-term gains. Timing this bounce and waiting for a little confirmation is the tough part. If today happened on a Monday, I would be less apprehensive about try a few longs here. As it is, with two days of possible news items ahead of us, I will likely continue to sit out and wait for a clearer, better opportunity. There are just too many bad things that could happen over the weekend for me to feel safe about holding any longs.

I will try to post some charts I am watching as possible swing trades higher assuming the market cooperates - mainly I am focusing on the double long ETF's as plays due to no individual stock charts looking good. As I've said this week, we have to bottom soon at some point unless the world really is ending, so it pays to be ready for it. Enjoy the weekend, and good luck next week.


Paul said...

Now I can probably only say this because we had a nice reversal, but I feel lucky to be alive during this crazy time. The education we are getting is priceless. Now please Mr. Market, I could use a few dull days to catch my breath.

Mac said...

I know I have learned a lot from this bear market. I don't think however we are going to get too many of those calm days.

Anonymous said...

You say you're a newbie.. what kind of training have you had and what are your recommendations for a person looking to start trading..

Mac said...

I use the term "newbie" in a relative way. I've been trading since around 2004 but haven't consistently made money until last year. I used that term just because I haven't been through situations (panics) like we are seeing now. I don't have the experience of a lot of traders out there - that's all.

In terms of trading or recommendations, I would just say start with the William O'Neil/IBD books and just read as much as you can. The reading list I have on the blog show the books I felt worthy enough to buy instead of just read from the public library. I really didn't have formal training other that that - I have read a lot, made a lot of mistakes, and basically taught myself. It takes time, so you have to be patient.

Good luck - if you are new, you are entering a historic time of what likely will be great difficulty, so you will need it. We all need it.