Tuesday, December 2, 2008

State of the Market - 12/2/08

Another up and down day on Wall Street today, as stocks attempted to bounce back from the massive selling we saw yesterday. Futures were up a good amount pre-market, and stocks did start modestly higher at the open. However, they quickly pulled back and things looked quite bleak. They firmed up a little before 10:00, moving higher for about an hour. They consolidated a bit, tried to break out again right before lunch, but couldn't get much going and started pulling back around 12:30. The breakdown started slowly, but picked up steam around 1:30 and the market lost nearly all of its morning gains. They bounced briefly at 2:30, but that bounce had the looks of a bear flag, and the selling continued as the closing hour approached. The bulls did step up though soon after that and pushed the market higher in the last 45 minutes, even battling back from a sharp pullback at 3:30 to close with nice-sized gains and at their highs for the day. Volume appears to be higher which is good for the bulls to see.

Technically, the indices closed right at what seems to be some heavy resistance, both on the daily charts and the intraday charts. I am watching 1450 on the Nasdaq and 850 on the S&P 500 as key levels, which is right above the closing numbers on both of these. Perhaps if we get over these levels convincingly, this bounce I talked about last night could last longer, but as of now, I am not convinced that today was anything more than a relief move after yesterday's carnage. The move today only regained about a third of the percentage losses from Monday. We need to keep that in mind - there was a lot of damage done yesterday and it's not going to be fixed in one day.

On the video last night, I compared the current setup to November 4 and 5 , and so far, it looks like it is playing out the same way. Today was a weaker bounce compared to the selling of the previous day or days, and stopped right around the 9 day moving average. Even the VIX dropped back below its short-term moving averages today, just like it did on 11/4 and 11/5. If the setup holds true and continues to play out like it did then, we could move higher tomorrow and get above the 9 day moving average before reversing and heading a good bit lower. I have no way of knowing for sure if that will happen, but I am looking for that possibility and therefore will continue to look to short any bounces.

I was back at work today (that's why there were no Twitter posts) so I didn't get to watch that much of the action but I was able to check in at lunchtime when the market was rallying right up to the resistance areas I mentioned last night. The advance really seemed weak as well, especially when the market broke to new highs, so I looked to get short as was my plan last night. The only position I entered was SKF at $154.49. It was a larger position than the one I had yesterday but kept a tight stop right underneath that area. It took off nicely right after I entered. That didn't last, however, and my stop (which I moved up) was hit at $158.72, giving me only a 2.6% gain. I wish this would have kept moving obviously, and the chart really did look good until around 3:15, but with this market, it is never easy. I am glad I at least was able to get something out of today. I didn't make any other trades.

As a reader stated well last night in the comments section, we always have to "expect the unexpected" with this market, so I know we could rally further from here. However, I still have to think today just provides a better opportunity to go short again, which is what I will be looking to do. Timing it will likely be difficult but I will do the best I can to do so. As always, I will keep my stops pretty tight as well - don't feel like taking any big losses right now after having such a good day yesterday if I mistime things or this market feels like proving me wrong once again. If my scans show me anything different than what I am thinking right now in terms of getting short, I will be back later and let you know. Until then, take care.


Anonymous said...

Looks like an inverted H&S possibly forming on the Qs, starting around Nov 11th.

Mac said...

Maybe - I see it on the 60 minute chart but to be honest I've seen this type of pattern look like it's been forming several times in the past month and nothing has ever materialized. We'll see if this time would be different. As always, anything is possible with this market.

Gio said...

Aren't you glad u got out of your inverse ETFs yesterday? That was a good move in itself.

Tomorrow will probably be flat. i hope its flat so I can see which stocks that have re-rallied on low volume I can short.

Real action comes in Thursday in anticipation for economic news.

Is the kid gonna be a 2009 baby?


Mac said...

Yeah, I am. In this market, you have to take gains when you get them.

A flat day would be good just to take a rest - we'll see. You made a good call on the rally today - I didn't think it would happen during the afternoon swoon.

The baby is scheduled to be delivered Dec. 30 if it doesn't come earlier, so it will be a 2008 baby. thanks for asking. Nice little tax break I guess.

MarshalN said...

Hope your wife doesn't see the "nice little tax break" comment! :)

Mac said...

Oh, she knows. It's funny - when she went in to schedule the delivery, the first thing the doctor told her was, "well, if we do it then, you can get the tax break, so why not?" If it's good enough for the doctor, I guess it's OK.

Gio said...

Lol @ "little tax break". Your doctor is hilarious!