Friday, November 14, 2008

State of the Market - 11/14/08

Following up on yesterday's huge reversal, futures were lower this morning as retail sales numbers disappointed. The market gapped down, but it didn't look that bad early because stocks didn't move much lower originally and actually rallied off the gap down. However, around 10:00, that bounce petered out and stocks fell quite hard the rest of the morning. They reached a temporary bottom during lunch, bounced, came close to retesting those lows in the afternoon, and then put a nice recovery bounce into the close, getting positive for the day around 3:00. Or at least it looked like a nice recovery. In the last hour, stocks lost all of the ground they made up in the afternoon and finished very close to their lows for the day. All in all, a crazy day and one that is pretty bearish in my view given what happened yesterday.

In terms of my trading, I guess I can say "the market giveth, the market taketh away." I wasn't too worried about the gap down - I didn't like it, but I thought it was reasonable given yesterday's gains. I really wanted to see how the market responded though before just buying the dip right off the bat. When the market rallied up off the gap low, I did enter small positions in SSO in my IRA's for a hopeful swing trade ($27.57 and $27.51) and also entered CF in the regular account at $59.175. In hindsight, the CF entry wasn't a good one, and I was stopped out at $56.37 for a 5% loss, which is bigger than I would have liked to take. When the market bounced, I expected this to continue its impressive rally from yesterday and I still saw that inverse H+S pattern which drew me in I guess. I was also stopped out of the SSO in the IRAs - $26.71 - which gave me a loss of 3.2% on those positions.

I entered into ALK near the end of the day with a small position at $25.65 - it seemed to be breaking out above some intraday resistance and held up well during the selling previously. I got stopped out of that on the late swoon at $24.69, which gives me a 3.8% loss. I did look for some other longs but nothing impressed me that much and I also don't want to get too aggressive yet - let's see if this market can keep the recent momentum going for longer than a few days. The fact that I got stopped out of both longs I tried today probably proves that waiting a little here is smart.

Last night, I said in the video that "we have seen this story before" in terms of the great day yesterday and follow-through would be the key. To be completely honest, I didn't expect to see anywhere near the selling we saw today. I though we might pullback a little bit, but today's selling was definitely not a good response to yesterday's bullish reversal. I am disappointed and frustrated but should I have expected anything less from this stupid market? Probably not. I am even more disappointed with how we closed. It was absolutely awful. When I saw the market rally and turn positive, I was utterly impressed and felt even better about the chances of a nice bear-market bounce here (which is why I entered ALK at that point). The close makes absolutely no sense and puts a hugely bearish spin on today's action for me. I am even questioning the relevance of yesterday's reversal and if it means absolutely anything in the grand scheme of things.

I now have no clue as to what to expect next week. All I know is that I had gains of 13% or so in my SSO and QLD positions yesterday at the close and as of now, those gains are down to 3%. That just sucks. I told myself that I needed to give the market a chance here and that is why I sat through the morning and afternoon pullback. When I saw the market recover, I thought it was worth it. Now, with that awful close, I just don't know. Right now I am debating whether to even hold these over the weekend. I don't want to wake up to a huge gap down Monday that gives me losses on these positions. I just don't know right now.

As usual, I am glad it's the weekend. This market is doing a tremendous job of frustrating the heck out of traders (I'm not the only one, right?) and perhaps that is part of a big bottoming process. Today's late fall makes absolutely no sense given the afternoon recovery, but then again, few things do right now. Maybe after some time away this weekend I will have some answers. Right now, I can honestly say I have none. I have absolutely no clue what is going on. If anyone else does, please let me know. Enjoy the weekend.

**** I did get out of these ETFs because I don't know that I would sleep well over the weekend holding them after that close. Maybe I am overreacting, but I can always get back in on Monday. This being said, I now completely expect the market to gap up 500 points because I sold these today.


Anonymous said...

Man this market is crazy doh! Thursday was a classic bullish reversal day with good volume everybody were saying this is it. Every on in CNBC and every blogger were saying bottom is in.

Now who knows?

Mac said...

I would say I was cautiously optimistic following Thursday's action. I know it wasn't guaranteed, but I really did think there was a good chance a temporary bottom was put in. I was even more sure of this feeling when the market rallied in the afternoon on Friday. I still have no clue what happened in the last hour and what to think about it. This market is crazy - I certainly agree.

The only positive I can think of to all this up/down, whipsaw-type action is that it is emotionally draining to traders. I don't think anyone would disagree with me on that one. Bottoms of significance are usually formed when investors just get worn out emotionally, give up, and throw in the towel. Then the market moves higher. I don't know if that will happen here, but I'm just trying to be optimstic.