Tuesday, October 7, 2008

State of the Market - 10/7/08

Well, so much for yesterday being capitulation. After starting well, traders quickly sold the bounce in stocks and proved that yesterday's late move higher really didn't mean anything. Futures were actually all over the place pre-market (which perhaps was a good sign that today's trading would be volatile) and the market did rise for the first fifteen minutes of trading or so. However, from there stocks did nothing but fall steadily throughout the rest of the day, especially in the final hour, finishing with another round of large losses. I did state some reservations about a bottom being put in yesterday (namely the lack of climactic volume) but I was (and still am) willing to give the market the benefit of the doubt.

I did make my first foray into this mess a little after the open as I started a position in THOR as it bounced off its 50 day moving average. I entered at $25.67, but was stopped out only about ten minutes later at $25.20 for a small loss. No big deal, but basically that trade told me things still aren't right for trading the long side right now. I am just glad I didn't enter anything else. If yesterday was really capitulation, then we would have moved higher right away and have been able to hold that reversal, at least in my opinion.

Since we could not do so, I am back to being in 100% in cash and will probably stay that way for the rest of this week. I said yesterday that the late bounce Monday could be the bottom, but in no way was it guaranteed. Today proved that. The scary thing is now we are likely to head much lower. Stocks are still at technical extremes and are historically oversold, but that doesn't mean the market can't crash much lower in the short-term. Sentiment is still awful (KDKA, my local news station, has a link at the top of their web page to the Dow Jones Big Board) and things could still turn at any point. It is just a matter of timing it. That I think will prove to be difficult - today proves that.

Hopefully you weren't too hurt today by the wreckage. Today's trading shows the importance of patience in terms of trying to catch a bottom. It stinks to wait for it and maybe miss out a few points in doing so, but it pays in the long run - the trades you don't make are also losses you don't have. As of now, the selling looks to be building and possibly reaching a crescendo soon. It should be an interesting three days. Good luck Wednesday.


Anonymous said...

Mister, are you playing AA tomorrow? she missed the forecast.

Mac said...

Are you serious?