Thursday, November 13, 2008

State of the Market - 11/13/08

A crazy day on Wall Street today, as bulls and bears fought for control much of the day as the indices rested right near the very important lows of October. The session started out with a move higher, but that was quickly sold off for the first half hour of trading. Stocks bounced back and forth from there, tried to breakout but couldn't, and then pulled back to the lows around 10:00. Those lows were broken to the downside right around 12:15, and although the selling was somewhat slow at first, it quickly picked up around 12:45 and stocks broke hard to the downside. A temporary bottom was put in at 1:00, and stocks did bounce back right back up to where they broke down from in impressive fashion. They paused briefly right around the October lows, but that turned into just a consolidation that stocks blasted higher out of around 2:20. Stocks pulled back around 2:50, but held there and then blasted off to new highs. The last hour was super strong and stocks finished with major gains going away. Volume was higher which is also a big plus.

Technically, today has the potential to be very important as the recent lows were clearly broken and things looked pretty bad mid-afternoon before rallying in very impressive fashion. Volume was also quite high today. "Potential" however is the key word. One day doesn't change all the tricks this market has pulled on both short and longs the past few months, and it is entirely possible we trade down tomorrow. We closed a little under the 9 day moving average today, and that will be the first level of resistance I will watch closely. If we have another big day tomorrow, then we may clear those short-term moving averages perhaps easily and that would be very bullish. On the downside, I would look at the recent lows (around 840 on the S&P and a little under 1500 on the Nasdaq). As long as those areas hold, I think this potentially could be a significant day.

I didn't plan on doing much today, but when I saw the reversal in the afternoon, I thought I had to take a shot at playing it. I watched the S&P and Nasdaq both move over their morning lows, and when they pulled back to those same morning lows (the consolidation phase I mentioned earlier) I decided to go into SSO ($24.67) and QLD ($25.77) with medium-sized positions. I didn't really expect much - I actually expected to get stopped out again - but I though I had to take the chance. As the market moved higher, I moved my stops up a bit closer to break-even and just let it be. I am glad I did and I finally feel happy after a day of trading. It has been frustrating taking so many small losses in a row, especially when those positions then turn around and move the way you expected in the first place, but no one ever said trading was easy. It is important to keep your discipline at all times. I was able to keep my losses small and hopefully now I can benefit by catching a nice move upward. We'll see if that happens.

The question now for me becomes how soon do I take profits on these positions. I really don't know yet. I will have to see how stocks look after my scans. Early impressions are good - stocks like LHCG, APSG, and CRI bounced back strongly off their lows and look pretty nice right now. I may take some off the table tomorrow for the two ETFs if we have another huge up day tomorrow, but probably not all of it. If today was significant, then we could certainly run much higher than where we are right now and I would like to be able to take part in that move.

I will likely be back tonight with some charts if I see any after today's reversal. I hate to get my hopes up too much right now because this market is excellent at crushing the hopes of virtually all of its participants, but it is possible we put in an important short-to-medium-term bottom today. It all depends on follow-through. We'll see if we get that tomorrow. Good luck.


Anonymous said...


I thought you gonna sit on your hand. Maybe the market gonna stay like this for a while so people better be ready to adapt or sit on their hand.

Mac said...

Sometimes you have to change your mind - thought it was worth a shot taking those. Believe me, I was not that excited when I did it. Now I am of course feeling a little better.