Monday, November 10, 2008

State of the Market - 11/10/08

On news of a major stimulus plan from the only government in the world that can really afford one (China), overseas markets rallied hard last night and U.S. pre-market futures were up big as well. Those futures did fade throughout the pre-market session, however, and when the market actually opened, it sort of did the same thing. Most of the indices hit their morning highs by about 9:35, and from there it was nothing but a slow, steady drift lower. Stocks rarely even attempted a bounce anywhere and continued lower into the afternoon hours. They stopped close to the afternoon lows from Friday and melted up a bit until around 2:00. The bounce ended there and stocks fell back into the close, although a late bounce brought them off their lows. Volume was once again pretty low - maybe a little higher than Friday but not by much.

Technically, I pointed out on the video that allow the possibility existed for the inverse head and shoulders pattern to form, the short-term moving averages had to be dealt with first. Today, after briefly spiking over them, all of the indices reversed and went back below these levels. That is not bullish and it puts those possible inverse H+S patterns in serious danger. I also said in the video that 900 on the S&P 500 and 1600 on the Nasdaq were the key numbers that just had to hold if this market was going to hang on. So far, those lows haven't been broken, so I can't be super bearish yet. It looks very much like we could be in for a choppy few days until this market decides if it wants to start a trend. I would pay attention to those 900/1600 numbers tomorrow to see if we get any follow-through to the downside. It makes sense that if those levels are broken, we would probably test the October lows. That doesn't mean it will happen however - it seems like whenever an obvious outcome looks likely, this market does the exact opposite. We could break them, bring in a bunch of shorts, and then reverse right back up. This market is doing a very good job of frustrating the most number of participants as it can.

I was tempted to buy a few things today at the open but I thought better of it and I am glad I did. One of the things that has made this market so difficult is these constant gap-ups and gap-downs that make entering positions almost impossible unless you want to chase. I definitely don't want to chase stocks, especially in this market, as it is a recipe for disaster. It seems like two days in a row in the same direction means an automatic reversal, so I am glad I passed.

Not much to do right now other than sit on your hands. A market like we saw today (and even Friday with its random moves up and down) will destroy you - not only monetarily but also confidence-wise, which is probably even more important in the long run. I would normally say that a break tomorrow would lead to more selling, but who really knows right now? I said in the video that a very likely outcome of the current scenario is just a market that moves basically nowhere, but has lots of violent swings up and down. That is probably good if you are a day-trader, but for a swing-trader like me who would prefer to hold positions a little longer, it makes things very difficult. Good luck out there and be careful.

In addition, I "think" (hope?) the video from the weekend is now working properly. If you are having problems you can download it directly from this link.

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