Wednesday, November 19, 2008

State of the Market - 11/19/08

Another really bad day for Wall Street, as a flat open quickly turned into more selling about an hour into the session. Stocks fell straight down from around 10:30 to noon, where they consolidated a bit before they moved lower once again. The selling in the afternoon wasn't as severe as in the morning, but I don't know if that is any consolation for the bulls. The indices tried to bounce as the final hour approached, but that bounce quickly rolled over and the indices went back down near their lows for the day without about a half hour left. Those lows were broken and stocks really fell hard in the final 30 minutes, finishing with very large losses. Volume also appears to be higher.

Technically, both the Nasdaq and S&P broke through the levels I mentioned yesterday and are now at new lows for 2008. The rally attempt, as weak as it was, is officially dead as is to be expected. Last night I posted a chart of the VIX that was perhaps bullish since it had no broken above a trendline yet. It really didn't move that much today given the size of the losses and is still below the trendline I showed last night. Maybe that is bullish. It is forming a bearish wedge pattern that if it breaks down from perhaps could signal higher stock prices. That may be a reach however. Unfortunately, these facts could be very bearish too, as it possibly shows that there is a lot of complacency out there. The VIX is not real close to its former highs, whils the overall market is breaking to new lows. That could be a scary combination.

I don't know where we fall to next or where the next possible support levels are. You could go back and check out levels from 2000-2002, but I don't know how those will act. Six years is a long time and support and resistance levels tend to lose importance as time goes on. 768 is the 2002 low for the S&P and 1108 is the low for the Nasdaq. The S&P is not that far away. Yikes.

Today is the death blow as well to most of the few nice charts left broke down today (CRI, GB, ALK). Without nice charts, any other factor facing this market probably doesn't matter in terms of us rallying. We have to have some sort of leadership (preferably broad-based) to get a meaningful move higher. We have absolutely none right now.

As I mentioned last night, we are getting quite oversold so it is possible we could reverse and rally at any time. I think it is important to remember that we are in the midst of a historically bad bear market, and oversold conditions don't mean that much in such an environment. We just broke to new lows. Let's think back to just a month ago. I had readings and indicators that were at levels I had never seen and historically were never seen. That did not prevent the market from heading even lower. We could see the same thing happen again here.

One lesson I hope I have learned from this epic bear is that trends can go much longer and farther than you think, especially to the downside. I would definitely remember that here. There is nothing that says we can't be down another 1000 points from here, maybe more. I am not saying it will happen (and believe me, I hope it doesn't) but it is certainly a possibility and you need to respect it. I don't think now is the time to try and be a hero, catching a falling knife. The way the market had responded to each of the four rally attempts (starting October 10) was more discouraging each time, and I think today showed the fatigue the bulls have right now. I think the bulls (whichever ones are left) are getting quite worn out here and may be ready to throw in the towel. I hope I am wrong, but it certainly looks like they are doing it after today's action.

I complained yesterday about getting whipsawed out of my two long positions, but I can't complain after today. I am in 100% cash and at least not losing any money in this disasterous market. It certainly looks like we are going to be moving lower for the time being, so defense is the name of the game. Don't get cute and try to catch the bottom tick on this market. You just don't know where that tick will be. As for shorting, it might work but I would keep my time frames short and be ready to get out if the market happens to turn. You are definitely late on the short side, but things look so bad right now that maybe, just maybe you'll get lucky and be able to catch a few points. From my perspective, however, I think it is probably smart to stay in cash and just continue to wait this thing out, as hard as that is right now. I keep saying that this thing will get better at some point in the future, but sometimes I wonder. What a crazy market. Good luck Thursday.


Anonymous said...

Agree, bulls try to spark rally couple of times but short lived because nobody buying on the follow up.

These hedgefund sales people need to do better job at convincing people to get back in. Surely there are lots of cash on the sideline but most of the owner of that cash don't want to get back in, despite those hedgefund sales people telling them the stocks are cheap.

Mac said...

I don't know why anyone would want to buy right now other than it seems like the market is oversold. I don't know if that's a good reason, however.