Friday, October 17, 2008

State of the Market - 10/17/08

Following a bullish reversal yesterday, futures were down this morning on the release of poor housing numbers. Stocks gapped down at the open but were able to hold there, rallying higher and actually turning positive at various times during the morning hours. Stocks moved sideways into and through the lunch hour, but broke out around 12:50 and moved significantly higher for the next hour or so. They started to pullback at 1:40 and did so all the way back to the lunchtime consolidation area as the final hour approached. Those areas held for a while, but when stocks couldn't bounce up, they just fell through and closed with losses across the board. So overall, a very disappointing end to what shaped up for half the day to be another very impressive performance by stocks.

As much as I didn't want to after my trades the past two days, I felt I had to test the waters on the long side early in the session after the market bounced a bit. I went back into SSO at $30.48 and QLD at $33.46 - right now these ETFs are the only thing I am playing due to the lack of bases in individual stocks. I also kept my UYG position from yesterday although it came precariously close to my stop loss a few minutes into the session. It sucked getting stopped out of them yesterday, but I felt I couldn't let that affect my current decision-making and I did have sort of a hunch we would reverse higher. As I stated last night, I thought there was a lot to like about yesterday's action.

I added to my UYG position at $10.62 and to my QLD position at $35.64 as the market broke out above some intraday resistance. I was very happy when the market was up almost 300 points, and I fought the urge to take my profits right there. That was a mistake. As the market ran up against its 9 day moving average, I probably should have looked harder at taking at least some profits there, but I was optimistic at that time following the morning action. I have pointed out in the past that this is often an area of reversal, and it was on Tuesday this week. As it is, I let my positions go and ended up getting stopped out of QLD at $34.60 for a 1% gain. I thought I gave it plenty of room to move around and the stop was still hit. I went back in at $35.92.

Around 3:20, when the market did break through its consolidation area to the downside, all of my stops were hit. SSO was hit at $31.36 for a 2.65% gain. UYG was hit at $10.29 for a 0.34% gain. The second QLD position was hit at $34.27 for a 4.6% loss. That was my real mistake for the day - reentering that position. It is the only one I took a loss on.

I really feel like I mismanaged positions today and let myself get influenced by a longer market outlook than I should have allowed. I was very optimistic when I saw stocks bounce back from the heavy selling this morning and I let that affect my outlook too much. This is still a market that can't be trusted for more than a few days(maybe not even that long), and with the volatility out there it makes sense to either not trade at all or just make all trades short-term in nature. Nothing I can do about other than adjust my trading. If this is how it is going to be, then I need to take profits when I get them and not be so greedy.

I am very frustrated right now and am happy it is the weekend. After the past few trading days, I need to get away from this market as it is driving me crazy. Overall, my account hasn't been hurt this week - down a little from the start of the week but pretty much flat - but it is just frustrating to make some good entries on trades and not get anything out of them, and that's what it feels like to me right now. I was encouraged by the market action yesterday and especially by the way stocks bounced back from the early selling today. Around 11:00, I was really thinking that perhaps yesterday was the start of a really nice bear market bounce. However, the reversal at key resistance (9 day MA) leaves me back to questioning things. The intraday charts look very ominous with head and shoulder patterns, and the late selloff takes away any optimism that the earlier bounce gave. Perhaps this is just how it is going to be for a while - up, down, up, down, but not really going anywhere. Enjoy the weekend. I'll probably be back sometime with some other thoughts. Take care.

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BigTrendTrader said...

I hear you. Once we started taking off between 12-2 p.m., as great as it was, my gut and my indicators were telling me that this move was too much too fast. I thought we definitely needed a little pullback and then we could rally into close similar to Monday and Thursday but I guess that would have been to easy. Yeah, so that end of day selloff was not expected. I need to remind myself not to trade options expiration days and go surfing or rent a movie it's cheaper! :)

Mac said...

Agreed - I know for me Tuesday messed me up because I closed my inverse ETF's at the end of the day only to watch a 700 point drop the next day without me on board. I didn't want to get out too early again and that led me to hold my positions to see what happened. My guess is that many traders did this. I also expected a rally into the close.

Anonymous said...

These UltraShort charts on the 60-min are still looking kind of bullish to me.
Also, the Dow on the daily chart is looking very similar to Oct/Nov 1929, where they had three more down days at this point, putting the low in at 8% below the current low.