Wednesday, October 22, 2008

State of the Market - 10/22/08

Another bad day on Wall Street today as the positive reaction to earnings last night didn't last very long. Overseas markets were down big and futures responded here by heading lower into the open. Stocks gapped lower and fell from there for the first half hour of the trading session. They rose from there into the lunch hour and came close to challenging the gap open, but couldn't do so and fell back down to challenge those morning lows around 2:00. Those lows held on the first test, but were tested several times after that as well. They finally cracked during the final hour as stocks broke down hard, and only a very late bounce took stocks above some key resistance points on their charts. Not a good day at all for this market, and volume was slightly higher, although still not super heavy.

Technically, it seems like the indices are forming triangles and broke through those today to the downside. The 900 level on the S&P is important and it was broken slightly today, closing just below it thanks to the late bounce. You can see below that the indices are sitting right now near key support at the bottom of these possible triangle patterns. If we don't hold these areas tomorrow, then all of this talk of a bottom may turn out to be just that - talk. We shall see.

S&P 500, Nasdaq
Chart from Telechart2007, Courtesy of Worden Brothers, Inc.

I did nothing today as this market is just extremely frustrating and I don't have any confidence trading at the current time. Right now, when I put on a trade, it seems like I feel the trade should work, but I am not confident at all that it will work, if that makes sense. Days like yesterday have frustrated me so much that I just really don't feel like messing with things right now. It turns out I did make the right "play" yesterday buying into SDS and DUG, but since the trading yesterday was so up and down, I was out of them via stops before I could realize any gains on them. I mistimed it I guess, but it definitely sucks. Those two positions would be up around 11 and 19% respectively right now if I was able to hold onto them overnight. There is nothing I can do about it - this is just how the market is trading and I would guess the volatility is making it tough for many traders, not just me - but it certainly is extremely frustrating, especially swing traders.

As it is, there isn't much to do right now after the heavy selling we saw today. We are probably due to bounce again sometime soon (tomorrow is a possibility) if the recent pattern holds true (buy the dips, sell the rips) but I am not confident enough to put money on the line for that possibility. Earnings also will still be on stage and the reaction to them is what no one really knows until it happens - looks like AMZN was pretty ugly but I don't know if they are big enough to affect the whole market. Good luck if you're trading this market heavily - I think I am back to the sidelines after trying to make a go of it for a few days. All these gaps, intraday reversals, up and down action - just makes it too difficult to get positions put on. Take care.


Anonymous said...


If indeed market breakdown the triangle, will you short something?

Mac said...

Probably not - as I stated in the post, I just don't have confidence right now in any trade. Shorting may work, but I think the time to short was earlier during yesterday's session, but then again, I did go short then and with the huge late rally, how many people would have held those shorts after that rally? I didn't. Maybe I should have. I am leaning more toward a bounce here - I don't know why.