Wednesday, November 5, 2008

State of the Market - 11/5/08

I had a much longer commentary and I thought it was saved, but alas, it is gone. I have no clue why. I guess it's fitting because when I wrote it around 3:00, I really didn't things were that bad. Wow, did the last hour change that? Regardless, this will be just some quick thoughts on today.

I have been saying that with the market overbought and wedging up on lower and lower volume, a pullback was certainly due and that's what happened today. It was quite a bit more severe however than I expected, and right now, if the selling continues tomorrow, then I have to put any thoughts I had about a potential rally into the end of the year on the backburner. Today was not good at all. It looks like technically the short-term moving averages were broken to the downside today, and those were the areas I was looking at to act as support for any pullback that occured. That is not good news, although the S&P and Dow look like they may have just held onto those support areas, but just barely.

The only good news was that volume does not look very heavy today, especially for the magnitude of the losses and the technical damage done. On the S&P, it looks about even and on the Nasdaq, it actually looks less than yesterday. That is one bright spot. In terms of breakouts, the buying/selling ratio was higher yesterday (+912) than it was today to the downside (around -800), which is also good. Perhaps this is meaningful and if the bulls can come in quickly here and provide support, then maybe there is still potential for a rally.

My only problem with the action today is that I was not really able to profit from it, even though I have been expecting it to happen. I did enter SMN at $67.87 this morning as it broke above some resistance, but that was a little late and when it pulled back rather sharply, I was stopped out at $65.72 for a loss of a little over 3%. The time to get into these inverse ETFs was yesterday at the close obviously, but I was thinking the market might gap up today and looked to get short there. Chasing the way I did didn't allow me enough cushion to absorb the intraday volatility present in these ETFs. My only position right now is short WIRE, and it kind of stinks that I wasn't more short during today's session.

To be honest, I don't really know what my game plan is right now - I will have to wait until my scans are done to get a better grasp of things. Originally, I was planning to buy a pullback, but I have my doubts buying one so severe as this one today. We'll see what happens - bulls have to come in tomorrow and hold things up, and if they don't, then maybe we head down a lot further, maybe even toward the recent lows. I also don't know about shorting right here either, not with the lack of heavy volume today. The lack of volume on both sides right now makes things difficult. I'll try to be back later with some more thoughts if I get any. Good luck.


amro Nasr said...

Hey Mac,

I guess the treasuries were signaling this move after all. Very interesting. I tried to leave a comment yesterday answering your question but it didn't post. I must have hit a wrong button somewhere. I do agree that this market strains the brain for any cohesive ideas.

Mac said...

Hey, I did get your comment yesterday and I thought it went up because I responded to it. Anyway, it is still a tough market. Still haven't done my scans so don't know which way to lean right now.