Thursday, November 20, 2008

State of the Market - 11/20/08

A new day, but the same old story for Wall Street, as stocks were sold off once again and things look even bleaker than they did yesterday. Futures were down pre-market and the market did sell off hard for the first hour or so of trading. They stabilized a bit around 10:30 and put in a nice bounce, with the indices turning slightly positive for the day in most cases, but that bounce only took them up to some downtrend lines on the intraday charts and they reversed lower from there. The pullback was orderly however, and around noon, stocks tried to make another move higher. They did break above their morning highs around 12:30, but momentum was not that strong at the time and they did end up pulling back from there. They tried to briefly bounce again around 1:40, but couldn't get much going and broke through the pullback lows. They stopped briefly near the late morning lows, but those couldn't hold either and the selling continued. It really accelerated in the last hour just as it did yesterday, and the indices closed near their lows for the day. Volume was a lot higher today.

Technically, I showed last night that we were clearly at the bottom of some channels and that if we didn't bounce and hold there, things could get very ugly. Well, those levels certainly didn't hold, and my guess is that things now get even uglier (although that is hard to imagine). I hear people talking about the 2002 lows as a possible support level, but I don't know how much support that is going to give given it is six years in the past. We shall see, but right now, the trend is definitely down and there really isn't any turning point in site from my perspective. We are and continue to get more and more oversold, and with the negative sentiment, maybe we are on the path toward a panic-type bottom. How many times, however, have we said that this year? The VIX didn't spike today that much given the amount of selling we saw - that is bearish.

I didn't do much of anything today. There was some fear out there this morning, as the put/call ratio was as high as 1.70 at the open, and that peaked my interest a bit, but it did fall throughout the rest of the day. I didn't sense any real panic during the selling as well so I didn't feel comfortable even thinking about buying anything early. I was tempted on the lunchtime move, but I noticed that there was a negative divergence on my Scottrade charts - momentum was not as strong on the lunchtime attempted breakout as it was in the morning, so I passed rather quickly. I wish I would have shorted the open but I didn't. Hopefully some of you profited off the shorts I showed in the video last night - most worked out very well. I know that in a few months I will look back and really be upset at myself for not riding this trend down more than I did - I could have made a TON of money short but I guess it is all part of the learning process. This is still my first bear market and boy, what a bear market to try and learn in.

Trying to catch a bottom here is likely going to prove very difficult. As I said yesterday, these declines can last much longer and be much more severe than anyone expects. We are also still not seeing much panic and until we do, we may just drip our way lower, regardless of the oversold conditions. Days like today are the worst. The morning bounce probably rose some hopes, but then those hopes were slowly dashed. And the type of selling that occured - the slow, deliberate selling - is very frustrating to watch, although the selling seemed to pick up significantly in the last hour.

It seems like a lot of traders (including me) are thinking, "ok, uh, Mr. Market, can we just get this over with? We know it is going to be very bad. But we would really like to just take our medicine now if it is allright with you." Unfortunately, Mr. Market always has a mind of his own. Respecting that fact is probably the most important rule of trading.

We see what tomorrow brings - it is options expiration I believe - but things certainly look awful and as I stated last night, a few more days of heavy selling is certainly in the realm of possibility right now. Trade accordingly - on the short side, take profits when you have them, and on the long side, well, don't play the long side yet. That's about as simple as I can make it. Hopefully this move is closer to ending and perhaps we can get a selling climax soon that will set up a really nice reflex rally. It seems like we are long overdue for one. Good luck Friday.

1 comment:

stucktrader said...

Hey MAC,

i am a follower of your site (thx to Gio). With all the free stuff you provide here online i thought i should tell you about

HTX. it will pay out a didivend for ADR holders on December 2nd. But you must be on record as owning the stock by November 25.

The stock is still <$20 at the time of my typing this.