Tuesday, November 11, 2008

State of the Market - 11/11/08

After reversing hard yesterday to the downside, the stock market seemed to want to sell off some more today, as futures were lower and after gapping lower to start the session, stocks sold off hard for the first half hour or so of the session, getting below the recent lows it made around 900 on the S&P and 1600 on the Nasdaq. They moved sideways for a brief period around 10:00, but then drifted slowly lower throughout the rest of the morning, the lunch hour, and the beginning of the afternoon. This midday action was mainly sideways, however, and around 2:00, we got another reversal, this time upward in which the market rose sharply and almost got positive for the day. From there, they fell almost 200 points on the Dow in about 25 minutes, tried to bounce again as the final hour started, but that lasted only about 20 minutes. They broke down further from there, almost touching the lows for the day. Things looked bad once again, but the market bounced here up into the close and finished in the middle of its range. Volume appears to be higher.

The spike around 2:00 seems to have been caused by news that the government had another program/idea to try and give help to the housing market. The idea will "will target loans where borrowers are at least 90 days delinquent and have high loan-to-income ratios. The program's goal is to reduce monthly payments - including taxes and association fees - to 38% of homeowners' gross income" via Yahoo Finance. As a homeowner that bought a house he could afford and am still waiting to find one that I can still afford that fits my budget for a growing family, I am super excited about this idea.....not. Why not reward everyone who made bad decisions and lived outside their means while at the same time basically punishing those people that did the right thing, lived the right way, and are now paying drastically for the mistakes of others? What a super idea!!!!!!

Do the politicians have any clue as to the future problems they are creating by promoting this "bailout society" that we seem to have right now? Or do they just not care because all they care about is getting reelected in two years so they want to try and do what looks good, rather than what is good for the long-term future of this nation. All of these bailouts, both on Wall Street and now on Main Street, have created a downward spiral of moral hazard that I don't know will ever be able to be reversed once it has started (and make no mistake it has started.) Maybe that is the idea for these politicians - the more people they bailout, the more people will come to depend on the government for their everyday needs, the more powerful our government becomes. Then the freedoms and liberties that this country was founded upon continue to get whittled away while Washington becomes the be-all/end-all of our nation. I really do think that fifty years from now, the last few months will be looked upon as among the saddest in our country's great history for what is happening with these bailouts.

Ok, that was my rant for the day - back to this crappy market. If you read what I wrote this morning, you may be able to guess that I feel I made the right decision going to Chuck E Cheese's instead of trying to trade this market (not that C.E.C. is ever a bad choice - my son definitely had fun). I watched the first half hour or so of trading and almost went short a few stocks, but chasing the gap lower would have ended up just giving me some losses, which I what I expected and wrote about earlier. The last two hours were crazy and virtually untradeable. I am once again glad I did nothing - just like yesterday.

This market is so choppy and volatile that traditional strategies of buying breakouts and shorting breakdowns is not going to be successful - at least it hasn't been successful recently. About the only thing you can do is short at resistance and buy at support levels, but those resistance and support levels are so short-term and often unclear that that strategy is also difficult. In addition, this market likes to break those support and resistance levels just enough to draw people in thinking we may get a trend going and then reverse, stabbing a knife in the heart of all those traders entering on a break of those support or resistance levels. Today was a prime example of that - we were a good amount lower than the lows of last week and held there most of the day. It sure looked like it was indeed a breakdown that may lead to more selling, until of course it wasn't and the market rallied right back up at 2:00. So we are going to rally, right? Of course not - we give up that entire rally in the course of thirty or so minutes and end up finishing in the middle of our range. This chop makes it virtually impossible to make a lot of money for most traders - at least it makes it difficult for me.

If you are trading heavily right now, good luck. Based on today, I would look to get more short than long, but after two straight bearish days, I don't think I want to do that because it hasn't been smart to chase. To be honest, I have no clue where we close tomorrow. As I said earlier today, the market is basically a gambler's game right now - take a guess how we gap tomorrow and hope you're right. That's not a game I want to play, and luckily, I don't have to play. Neither do you. Remember that.

If I see anything interesting, I will be back later with some charts. Good luck Wednesday.

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