Monday, October 13, 2008

State of the Market - 10/13/08

More government "guarantees" from around the globe brought out buyers today, as stocks gapped up at the open, barely pulled back from there, and continued to rise throughout the rest of the day, putting in major gains. The buying really accelerated in the last two hours, and stocks put in their biggest one-day gain in in history. As everyone in the world knows, the market was at historical oversold levels after last week, and a bounce was not only expected but overdue. However, today's bounce came on much lower volume, and stocks are still very much "messed up" from a technical perspective. Perhaps today is the start of a much bigger move - I hope it is - but I am going to make it prove itself to me before I get too bullish. I still think the environment we are in is very susceptible to wild swings and lots of head fakes, and I will trade accordingly.

Once again, I didn't do anything today. Part of the problem with this type of market is it seems like everyday we have a gap - either up or down - and establishing positions is difficult in that environment. If you did hold longs over the weekend, congrats to you - you deserve the gains you got today for taking on that risk. I knew I wasn't going to chase the gap up at the open, but I did say to myself that I would look at entering things on the first pullback to the gap low. I said that, but when the opportunity to do so came around to do just that (I was mainly looking at SSO and DIG at that time) I just sat there and did nothing. Obviously by the way we closed, I am somewhat upset I didn't act. I passed on lower-risk opportunities that turned out to be good ones. That is a weakness I have shown this year - passing on good opportunities - and something I still need to work on.

As it is, I am certainly not buying here. My game plan is to remain patient and not chase stocks higher. I want to see how stocks deal with their short-term moving averages, namely the 9 day, which typically acts as strong resistance on strong moves lower and is just above where the Dow and S&P closed today. Ideally, I would like to see stocks test their recent lows once again, if for just a brief moment, as I think that would give a better "line in the sand" for stocks to move higher from and for a longer period of time. If nothing else, I would at least like to see stocks pullback and see if more panic ensues or if buyers come in to bid them up. That would tell us a lot about the sustainability of any rally here and if sentiment has indeed turned, or if today was just a major short-squeeze of historical proportions, which could be the case.

Still lots of news out there, and as such the volatility will remain high. This is a day-trader's paradise, but as I mentioned this weekend, for me and my style it just isn't ideal. Add in earnings reports coming out in droves, and the craziness will continue. So as hard as it may be, I am willing to wait to see how this plays out a little further. I know I am missing some gains (as I did today) but at the same time I have to remember that I would have likely sustained some major losses last week if I was trading, so it's all good. I still don't feel like blowing too much of 80+% gains for the year on questionable "bets', and I still feel like that's what any trades I would have made over the past week would have been. There will be opportunities that present themselves in time - it may be this week, or it may not be for another few months - but they will come. I'll be there and hopefully ready for them when they do. Not much to do right now however with the huge move today - I would probably look to get short more than long in the short-term, although I don't plan to do either. Good luck to all Tuesday.

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