Monday, October 27, 2008

State of the Market - 10/27/08

Another day, another 400-point trading range on the Dow and another day where very little was accomplished. Foreign markets got thrashed once again overnight, and based on the futures, it looked like things would be bad once again. Stocks did open lower, but the low for the day was made quickly and stocks bounced higher from there. The lows were tested by the Nasdaq later on, but basically the rest of the day was choppy and no progress was really made. There was major selling in the last half hour with stocks breaking their earlier intraday lows and finishing with large losses. Volume appears to be lower to flat.

So once again, we didn't "crash" or have that one-day huge move lower like other market have had(although that was one nasty close), but that doesn't mean this market is holding up in my opinion. I think actually it would be beneficial to get a washout soon rather than this drip lower. Buyers still are not showing up. The market can rally 200 points off its morning lows, but there is no push higher than that. That's the best the bulls can do right now. With the market as oversold and beaten down as it is, we should have had a major rally by now. Maybe it still happens. Since it hasn't, I think it shows a lot about the state of affairs in the economic world.

Technically, the Nasdaq and the S&P 500 closed just slightly above their most recent lows(1493 and 840 respectively) and that certainly makes one think we will break through those lows soon. Maybe that will lead us to a washout and a temporary bottom, but how many times have I said or thought that over the past few months with no results?

Honestly, I don't care about this market right now. I have completely lost interest. My posts have been more infrequent recently because there is nothing really to post about. There are no setups on charts, and in my opinion, technicals are virtually worthless at this juncture. Anyone that tells you they are making a lot of money right now is most likely lying. This market is too spastic/psychotic/schizophrenic - choose your own adjective - to do anything productive trading-wise. Looking back, I should have realized this last week as well instead of trying to catch a bounce, but you live and you learn. If I can steal a line from AlphaDawgg from from a post he wrote today, "when the market is gay, stay away." I certainly think that description fits this market.

My basic attitude now is "wake me up when stocks can close above their 9 day moving averages." When that happens, perhaps we can get a short-covering, bear-market bounce going that would be tradeable. Until then, there is no reason to watch this chop and give any more of your money to this market. It's too late to short in my opinion, and there is absolutely no reason to go long yet. Patience remains of the utmost importance right now. Take care.


Anonymous said...

"Anyone that tells you they are making a lot of money right now is most likely lying."

Why do you want to be long in a bear market?

This is a bear market.
Choose the weakest sector and go short on that sector.
Short oil.
Short gold.
Short commodities.

The only long now is the USD and the japanese yen.

Mac said...

I don't want to be long in a bear market - although a playable bounce is long overdue here. Shorting sounds great in theory and if you have been short this whole time, great job. I know for myself, I would have covered my shorts a while ago (probably back on 10/10) and getting back in them and holding positions would have been very difficult due to the intraday swings we have seen. The government intervening and causing all sorts of gaps back in September also prevented me from being active on the short side.

Shorting here may work, but you could also get blown out of the water at any time with a huge short-covering bounce. Doesn't sound fun to me. I don't like those odds.

Bottom line is that for my style of trading, where I like to keep my losses very small, this environment is providing absolutely no opportunities to do so. Perhaps I am just not a good enough trader yet to profit in this type of market. I have learned a lot from this bear market. My premise though was that many swing traders are having trouble right now due to the volatility out there.

Anonymous said...

Have you ever read this book: Stan Weinstein - Secrets For Profiting In Bull And Bear Markets?
It's not just a book. It's THE book.

Mac said...

I do have that book - haven't read it in a while and didn't get as much out of it as some others, namely O'Neil's books.

Speaking of which, I think I need to take some of this "free-time" since the market is so bad to read some of those books again. It is always good to refresh your knowledge and skills by re-reading the classics. I've been slacking in this respect this year.

Anonymous said...

hey mac

when do you think we will be getting out of this insanely ridiculous volatility?

i am very tired, mentally, physically, emotionally, and also draining me financially

it worries me more everyday seeing this market can't produce some sort of multi week rally...

maybe something is really really wrong...

Mac said...

I wish I knew. It does drive me crazy and I am sure a lot of others. Like you said, very emotionally draining.

There are a few reasons for optimism amidst the clouds. I read a newsletter I get only once a month by an IBD-style trader and he pointed out that this back and forth volatility is really bringing emotion into this market, which is a good thing in terms of forming a bottom. When everyone gives us hope, (which I can see is starting to happen and I myself think about sometimes) it is very possible the market bottoms. I am still looking for a washout, but since that has yet to happen and we are down already so much, perhaps this market will just drip lower, ringing all the hope and interest out of its participants, and then move higher, surprising all those so emotionally drained. I am not saying that will happen soon - I have no idea and I think it will take time - but I am thinking that is one possible outcome.

As hard as it is right now, don't lose hope completely. If you do, you may miss the eventual move up. Just stay out of the market, keep your capital, and don't let it drain you. Then you will be ready to go when we do turn up. Good luck.