Tuesday, November 25, 2008

State of the Market - 11/25/08

A choppy day today on Wall Street as stocks started to digest two big days of gains. Futures were up once again pre-market and the market did open higher, but the gap up was pretty much the high for the day. Stocks fell from 10:00 to 11:00, bounced into the start of lunch, fell to new lows through that lunch hour, but then bounced again around 1:00. This bounce also failed, with stocks making new lows after 2:00. They didn't breakdown severely, however, and stocks did bounce back into the close, giving the Dow and S&P small gains and the Nasdaq small losses. Basically, the market moved in one hour shifts today, up and down, but didn't really accomplish much. Volume declined for the third straight day.

Technically, I still think the verdict is out, much like I said last night. The Dow is still underneath its 20 day moving average and has been up three straight days on declining volume. The S&P looks similar. The Nasdaq is still below some heavy resistance and will need to get above the 1485 area before I would get really bullish. The VIX is closing in on its 50 day moving average and I will be watching to see if it bounces off that like it did back in early November. After I do my scans and see if any more stocks are setting up, I think I will have a better feel as to where we are headed.

I would classify today as consolidation, and I think that is good. I really didn't like to see the opening gap because I was worried that this move was going to wear itself out too quickly like the other ones have recently. I am glad we pulled back off the opening gap. I think that is constructive. I think it is bullish that we didn't break down completely in the afternoon when we certainly could have. I think in the recent past, an opening gap would have been sold off really hard, but this one wasn't. Perhaps it is the Thanksgiving week that had a factor in the overall light selling. Resting here for the rest of this week on lower volume would be excellent and could perhaps set up a nice move into the year end when traders return next week. I don't want to get ahead of myself - I am just saying it is possible if we rest. These short sharp rises are fun for daytraders but are not good for building longer-term rallies. You don't want the market to blow its top in two or three days. You want it to be a process.

I did try a few inverse ETFs today, as I was looking for a pullback, but as had been my luck recently, they only worked briefly before reversing and stopping me out. I got in SDS at $97.31 mid-morning and was stopped out mid-afternoon (after moving my stop up) at $96.45 for a 1% loss. I tried SKF at $165.41 mid-morning but was stopped out at $161.55 for a 2.3% loss. My real problem was not entering these at the morning gap. I had a hunch we pullback, but didn't go with it right away. When I wait for some confirmation, it seems to ruin any cushion I would have in terms of this volatility and then I get stopped out. My losses continue to be small but they add up after a while and hopefully I can end this losing streak soon and get something going positively. I am definitely frustrated right now. I continue to try my style in an enviroment not suitable for my style (too volatile) so I have no one to blame but myself.

We'll see what tomorrow brings - I hope we get some more consolidation. The low volume is almost guaranteed for the rest of the week, and I will give the market a pass there as long as the market doesn't blast off. I want to see some quiet days, and this seems like a good week to do that. You don't want another 200-400 point move tomorrow on low volume - you want that to wait until next week and you want it to come on heavier volume. I am certainly willing to be bullish and I would love to see the market do nothing for the rest of this week, setting up a big volume move (and a possible follow-through day) next week. That would also allow more stocks to possibly setup in decent bases. However, I am aware how often the market has followed the script I hoped for this year (not much). If we more action like we did yesterday, I will have to go back to looking on the short side. Good luck Wednesday.


szaman said...

Mac-Love your site. I will advise you not to go short yet, instead try Ultra longs in the dip. It has been working for me for last few days.

Mac said...

Thanks. Actually, with the Thanksgiving holiday, I don't think there is much point in trading. Hopefully we rest and then can move higher next week. Good luck.