Tuesday, October 14, 2008

State of the Market - 10/14/08

After setting a one-day record yesterday, the optimism continued pre-market today on Wall Street, as futures were up big and stocks did gap up again at the open. However, that was the high point of the day for stocks, as they slid after about ten minutes and by 11:30 had given up all of their opening gains and then some. From there stocks did bounce back up and went back to the positive side, but couldn't hold those gains and the market drifted back down and through its lows for the day. A bounce ensued as the final hour began, but didn't do much and stocks couldn't really get over their overhead resistance. All three major indices closed with losses, but the Nasdaq was much worse than the S&P and Dow today with a loss of over 3%. To be honest, I don't know why tech was down so much in relation to the other indices. Volume was slightly higher today but not by much.

Technically, I pointed out last night that I thought the 9 day moving average might act as a possible reversal point in the short-term, and that is how things played out today. I am still looking to get long at some point in the near future, but I really don't have a good feel either way for where we head tomorrow. Ideally, what I would like to see happen here is some quiet trade for a few days before the market takes off again to the upside. I am not naive, however, and really have no expectations of that actually happening. I think more likely is that we have a lot of days like today, where we have a gap either way to start the day off, followed by some sharp reversals. In the end, we may not end up much of anywhere on those days, much like we did today.

After passing on a good intraday opportunity yesterday morning on the long side, I said that I would stick with the game plan I wrote about last night and did enter two inverse ETF's after the gap open we had today. I entered SDS at $79.408 and SKF at $109.85. I did not go "all-in" with these trades because they are short-term trades and I know how volatile the market is right now - about two-thirds of my account stayed in cash. For anyone to go "all in" right now is not smart in my opinion. I was very much tempted to take profits around lunch-time when I was up a good amount, but I resisted that urge and just moved my stops up instead.

My stop in SKF was hit at $113.37 for a 2.95% gain - not much overall, but I know I have to keep stops in this type of market. It kind of stinks though to not get a bigger portion of the reversal today. My SDS position did not get taken out until a little later when my stop was hit at $87.85. That gave me a 10.4% gain, which isn't too bad. The SDS position was almost twice as large as the SKF so all in all I am happy. I don't know that I would have held them overnight anyway. Looking at them right now, I think they still may have room to move higher (with the market moving lower) but I don't feel confident enough of that outcome to put any money on the line to find out.

Today is most likely what my trading will be like for the near future, and possibly for the rest of the year. I may take some opportunities once in a while intraday if they pop up, but I still can't see myself buying positions with the intention of holding them for a longer period of time. Although I think we may head higher over the next few months, I think it will be a very choppy, very volatile ride and that will make it difficult to not get stopped out of positions. If we do happen to base quietly a bit over the next few weeks (again, doubtful) then more stocks may start popping up in my scans and that may lead me to being more active on the long side. I would love for that to happen - we'll just have to wait and see if it does, because I think there are still a lot of questions out there.

Good luck tomorrow - as I said earlier, now that we pulled back, I can see us going either way tomorrow and for the rest of the week. Ideally, I would like to see a further pullback before entering a few long ETF's, but as always, I realize the market rarely gives you what you want as a trader. After I do my scans, perhaps I will have a better feel and a better idea of where I would look to perhaps get long again. Take care and be careful out there.

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