Thursday, November 6, 2008

State of the Market - 11/6/08

First off, the video from last night seems to be working fine now - it may take a little while to load but as long as you have Flash player, it should be fine. Let me know if you have any problems though.

Another pretty bad day today on Wall Street, as yesterday's selling continued and was heavy throughout the day. Futures were lower overnight and stayed lower pre-market, even with an attempted bounce after England cut rates by an unprecedented 1.5 points. When the market gapped lower, the selling just continued from there, and stocks systematically sold off through the morning, through lunch, and into the early afternoon with no real attempts at bounces. A temporary bottom was hit around 2:00 and stocks did attempt to bounce, but by 3:00, stocks started selling off again and ended up closing at their lows for the day. Definitely not a good day for this market - volume appears to be quite a bit higher today as well.

Technically, I said last night that the indices were holding onto support by the skin of their teeth and that the bulls needed to make a stand quick. The bulls however were nowhere to be found today and as I look at the charts, I am not seeing any support for the S&P and Nasdaq other than the October lows around 845 and 1500 respectively. That is scary. The VIX also moved much higher today, although it is right near its former trendline so maybe it hits resistance there. All in all, though, there isn't much I see that is bullish in the short-term other than we are getting oversold. That doesn't mean we can't be up big tomorrow - if for some reason the employment numbers are good (and that's a big if) maybe we get a short squeeze going - but for now the name of the game is defense and shorting if you were able to get positioned well the past two days. I don't think I want to be a hero trying to catch a dip right now.

One of the most frustrating parts of trading is reading the market correctly but not profiting from that correct read. I am somewhat frustrated right now for this reason. Today, I had a meeting until around 10:30, so there was no way for me to get positioned early on. By the time I was able to check the market, most stocks had already broken down and I did not feel comfortable chasing shorts lower. I therefore made no moves and rather frustrated. All I have right now is a short in WIRE, which is working out well, but I just wish I had more. After having a position in SMN yesterday around $68 and SDS on Monday around $83 but getting stopped out prematurely from both, it definitely is not fun to watch the market head lower without me. Nothing I can do about it though except hopefully learn a lesson.

That being said, I don't know if I would short right here. After two huge down days, I just think you are setting yourself up for trouble if you chase to the downside. If we happen to bounce soon, perhaps up to the short-term moving averages, I would look to get short. This weekend I was slightly bullish longer-term. My mind has changed however and I now have quite a hard time believing we get a nice longer-term rally going after the false breakout and the major selling of the past two days. I am not looking to buy this dip yet and I think the short side of the market is the correct side to play. However, I will probably not be initiating any new shorts until we do get a little bounce - that's all.

The only bright spot I see is that some of the charts I posted in the video this weekend as potential "leaders" have held up quite well during yesterday and today's carnage. There are only a few (and that itself is a big problem) but if you check out LHCG, AFAM, VASC, APSG, and CBST, you will see stocks that have been resilient over the past two days and I would be interested in these if for some reason the selling stops. Of course, these are all medical stocks which typically do a little better in bear markets.

Tomorrow's trading will likely be driven by the jobs number, so be careful. We have quickly become somewhat oversold in the short-term, so a panicky sell-off early in the session could reverse upward, which is one reason I don't want to short tomorrow. More than likely, I won't be doing anything tomorrow, other than possibly taking some profits in my WIRE short. Good luck Friday.

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