Friday, November 7, 2008

State of the Market - 11/7/08

After heavy selling the past two days, pre-market futures were actually up today as market in Asia reversed off their lows. The employment numbers released at 8:30 were not that great, but markets liked them enough to open slightly higher, pulled back right away, but then moved higher again from there around 9:50 to break some lateral resistance from yesterday. Things looked promising at this point, but the breakout couldn't last and stocks pulled back starting at 10:45. From there, they kind of chopped their way back and forth through lunch, forming a coiling pattern that looked like it may lead to a breakout or breakdown. That coil turned into a sideways channel as stocks continued to move basically nowhere for most of the afternoon. Around 2:40, we had a false breakout which soon reversed, and stocks headed sharply lower for the next twenty minutes, breaking through the bottom of the channel as well. They tried to rally back up to the bottom of those channels, hit resistance, fell back, but then bounced again into the close, finishing with nice gains. Volume appears to be pretty low once again today.

The day started well for me as I was able to cover my last short WIRE near the low of the day at $17.27. I planned on covering this morning anyway so when it gapped down, I jumped on the chance. This gave me a 10.8% gain, which given my recent string of bad luck, is nice to have, although it wasn't a huge position. We'll see in a few days if I was too early in covering.

I was hoping for a gap down to possibly get long, but when that didn't happen I decided that I would watch the 920 area on the S&P for a possible break above that level. When it did occur, I went long some SSO ($28.98) and QLD ($31.16) and set stops below the recent lows. I was expecting a nice move higher through the rest of the session, but when that obviously didn't occur, I ended up getting stopped out of SSO at $28.47 for a 1.8% loss. That stop was just barely hit. My stop in QLD was barely missed. I added more to QLD at $31.45 as it looked to breaking out of the coiling pattern around 1:00. That breakout didn't materialize and I was stopped out at $30.82 for a 1.5% loss.

You make some money, and then you lose some money. That's how it's been for me for about the last two months. My account is grinding nowhere and it is frustrating. At least I can take solace in the fact that I am sticking to my sell rules and not letting these losses get out of control. I do need to do a better job however of only taking the best setups and also not getting into positions too late. I also continue to set stops that are just too tight for the double ETFs I have been trying to trade.

One thing that stands out to me now is I did notice early in the session today that although the market was up a good amount like I thought it would be, there were no "good" stocks moving up with it. The charts I showed last night were doing virtually nothing, and some were even down for the day. Right there, that should have been a warning to me that this bounce was not as strong as I had hoped and perhaps a sign that I should not try any swing longs today. Things are always easier in hindsight, but now I see that the weird action in leading stocks was foreshadowing a possible reversal later. Then again, around 3:00 the market looked awful and did not look like it would rally at all. Things remain very difficult.

After today's action, I am basically going back to the drawing board. I thought early this week that the volume was giving warning signs that a pullback was imminent. Unfortunately, I didn't profit much from that call. Last night, I had a feeling we were due for a nice little bounce, but I also didn't profit from that call today. So I know right now that I need to work on my entries and being disciplined enough to stay out of things if the entries I want don't present themselves. For instance, today I wanted a gap lower that I could buy, which I thought would set up a bullish reversal. When that didn't happen, I decided to chase a breakout, which turned out to be dumb because it reversed. Make a plan and stick to it - that is my lesson from this week.

Today shows that this market is still quite volatile, and unless you are several steps ahead of the market, profiting in this environment is difficult at best - at least it has been for me. When that's the case, it is probably best to stay out. I don't think there is an edge to shorting or going long right here, so that (staying out) is probably what I am going to do. I would like to lean bullish here - we'll see if I can do that after I do my scans. I just don't know yet. I will probably be back at some point with a video or some charts. Good luck and enjoy the weekend.

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