Wednesday, December 10, 2008

State of the Market - 12/10/08

On news of another bailout/handout for the automakers, stocks looked poised to bounce back today from a disappointing session yesterday. Stocks opened higher and continued higher throughout the morning, but it was a very choppy and difficult ride upward. They hit a peak during the lunch hour and fell for the next few hours, testing their lows from yesterday afternoon before bouncing a bit for the last hour and a half into the close. This bounce allowed them to finish in the middle of their range. Volume appears to be mixed - higher on the S&P and lower on the Nasdaq.

Technically, after looking at the 10 minute charts, the past few days look like nothing more than consolidation, and that is good. When I saw these yesterday, I was concerned they were forming head and shoulder patterns (and that is still a possibility, especially on the Nasdaq) but it doesn't look as bad to me today. It is good to see that the market pulled back once again to test support levels (880 on the S&P and 1535 on the Nasdaq) and held those levels. As long as that happens, I have to think the action so far is very constructive. I think originally I was hoping for a few days of flat action, but I think I now realize with the volatility, a flat session is almost impossible anymore. So even though the point losses were large yesterday, support held for the most part so perhaps I overreacted a bit to the action. Now that I look at even the daily charts, I think the action looks good. It looks like we are resting and that will allow the market to perhaps bust above their 50 day moving averages in the next few days. Let's just hope those levels mentioned above continue to hold. If they don't, then the story completely changes.

S&P 500 Intraday
Nasdaq Intraday

There were a lot of things I didn't like with the midday action - financials were lagging, intraday charts were wedging higher and losing momentum, and just too many stocks moved a little too fast for my taste(mainly the commodities). I also saw the VIX have a sudden spike down for seemingly no good reason. Because of these things, I decided to enter a few inverse ETFs around lunchtime. I entered DUG at $29.66 as it bounced off some support around $29.30, and later entered SKF at $115.11 as the financials broke through their gap of a few days ago. They weren't huge positions but I figured I could add to them later if I chose. When they moved a little higher, I moved my stops up so I was basically going to breakeven on the combined positions if I was stopped out. I was stopped out of DUG at $30.15, which gave me a puny 1.5% gain. I was also stopped out of SKF at $112.87, which gave me a 2.2% loss. Since the DUG position was bigger, I basically broke even with a slight gain. Oh well. The fact that we didn't break down with all of those factors I mentioned is bullish I guess.

Taking an early look at the charts, I am seeing some bullish pullbacks on stocks like ACM and INSU which is great. After doing my scans, I will see if there are more that are consolidating their recent gains properly. Last night, I was kind of unsure of where we would go but was slightly bearish. After today, I am still not totally sure where we go from here but would say I am slightly bullish now. Let's see what happens - I wouldn't mind a few more days of consolidation - but based on the charts I see, there are several positives right now. As always, however, remember the motto of this market - "anything can happen". The fam may be going out to eat tonight and wrap up some Christmas shopping, but I'll try to do a video later. Take care until then.


szaman said...

Mac- What are your thoughts on DIG and SSO?

Gio said...

u saw what happened to AXYS today? Not sure how to trade this now.

Anonymous said...

HI Mac, could you provide some insights about HIG? Thanks a lot! Elena

Mac said...

DIG and SSO - really depends on what the market decides to do here. If we are consolidating, then SSO will probably work once the S&P gets over its 50 day. I would be a little more cautious with DIG just because it has run so much, but it could always run more depending on what the market does.

Gio - I was out of AXYS as soon as it went back below $70. If a stock doesn't work right away, there is no reason to hold it. I actually deleted it from my long watchlist today.

HIG is interesting just because I am seeing a lot of charts like this - put in a big bounce, and are now resting below their 50 day. I will post some of these tonight, but I have to admit these beaten-down stocks are not my expertise so I don't know for sure how they will act.