Wednesday, October 8, 2008

State of the Market - 10/8/08

A lot of people have a lot of different opinions about this current market, but one thing I think most traders would agree on is this market certainly keeps things interesting. After selling off hard yesterday following an early bounce, a lot of traders (me included) expected the worst coming into trading today, especially with Asian market being down so much (9 or so %) overnight. Futures were all over the place this morning after a Fed rate cut, but when they reversed hard to the downside after retail sales numbers were released, I expected even more that capitulation was coming soon and the markets were going to get hit really, really hard. Of course, that didn't happen.

Stocks did gap lower, but that gap was immediately bought and stocks rose to the plus side in the first half hour. These gains couldn't hold, and for the rest of the morning, stocks slid lower and challenged their gap lows around the lunch hour. Those lows held for the most part, and stocks rose back up toward their morning highs through the afternoon. A late swoon brought them back to basically flat for the day with small losses. Volume was heavier.

As a trader, the market rarely gives you what you want, but I am not very excited about today's action. It doesn't give us any clarity as to where we are headed in the short-term. We continue to be at historical levels in many oversold indicators, but this morning in no way can qualify as a washout or a final panic move lower. Maybe we just won't get that here, but I would be surprised if it doesn't happen at some point. The afternoon rally was also suspect - not very powerful at all considering how oversold we are, which showed with the late swoon. I want to see a 3-4% up day on huge volume before I start thinking about buying some stocks again, and we certainly didn't get that today. We didn't get much of anything today.

I almost tried a few inverse ETF's this morning as I was expecting a washout, but I am glad I abstained. Shorting is tough here unless you think the world is ending, but the possibility of more downside is quite strong here so going long is tough too. Sit on your hands and just watch - that way you'll be ready for the move when it does occur. Good luck Thursday.

4 comments:

Anonymous said...

And then there was the sell off in the last 20 minutes, making me think there's no real trust yet, and people just take profits at the end of the day. There might have been some people taking today as a sign of a bottom and taking long positions. If this sell off continues tomorrow, we might just get that wash out.

Mac said...

Yeah, the afternoon bounce just wasn't impressive considering how bad it has been recently. I don't see how today is the bottom but we keep waiting for the washout and it hasn't come. We shall see.

Ken said...

There are LOTS and LOTS of reasons to call this moment, this week, a capitulative action, thus marking a bottom.

The fuuny thing is, EVERYONE is looking for a bottom.

These are times when a college student picks up a book on chart reading from amazon.com and learns how to pick bottoms.

These are times when anchors on CNN and local news channel tell viewers to not panic and hold onto their positions.

There IS NO PANIC.

Calling for the upside IS the easy call at this point.



The next phase will be people getting tired of this downward move, people will not be able to actively trade with all the poor order executions among lots of brokers, giving up their bottom picking "know-hows" as price drips lower, and learns to accept the "sit on hands" strategy.

That will mark a short term bottom


Next week will be that moment, I believe.

hayfro said...

Mac,

Hey..I started to wade back into the markets today. Only 8% invested with a few etfs, but I think we're going to rise here and give a short term low. The real bottom (capitulation) might not come for awhile, but so many indicators are at oversold levels that I've never seen. If we do capitulate, I'll probably average down.

Jeff
(zentrader)