Thursday, December 4, 2008

State of the Market - 12/4/08

The stock market continued its range-bound trading for most of today, moving lower, then higher, then lower, and finally higher, but still not going much of anywhere of significance until the final hour. Futures were lower pre-market, and stocks did fall sharply at the open. A bottom was put in quickly however, and they bounced back and actually rose to new highs briefly before 11:00. Those highs couldn't hold though and stocks fell back down to their morning lows, barely breaking through them around 1:30. They rallied back again from there, but fell back down as the final hour approached. That final hour caused a breakdown and things got ugly quickly. A bounce in the last twenty minutes took stocks off their lows, but the bulls still have to be disappointed about how today turned out. Volume appears to be slightly higher.

Technically, that last hour really made things bad. It was nice to see the market recover from the opening lows in the morning, but I never had the sense it was ready for a powerful breakout. It never got much above the 871 level of the 20 day moving average I pointed out last night and now that it is below the 9 day moving average again, things don't look good. The late bounce takes a little bit of the sting away, but it certainly looks like we could head lower soon. I know we don't have to - remember, "anything's possible" - but it looks likely as of now. The VIX held its 50 day moving average today and never went below it. That is bearish.

I made a few trades today. The first one was one that I originally thought was stupid - taking SKF at $132.13. I say "stupid" because this market was slow all day and wasn't going much of any place. Those type of markets are usually the ones that will kill you. SKF moved lower throughout the day and when I saw it bounce off its lows and through a trendline on the 5 minute chart, I went into it. The market was falling at this time too and I was unimpressed with the effort the bulls put in up to that point, even though they turned positive. It didn't seem to be a powerful move at all to me, so I tried a short. I was stopped out later at $126.96 for a 4.1% loss.

This turned out to be a good thought but I mistimed it. I went back into SKF later in the final hour at $136.44 as it broke above some lateral resistance. It also clearly bounced off its 200 day moving average at that point which I mentioned last night in the video. I was very hesitant to do this but I thought it was worth the risk. I did not however enter any other inverses at the time because I fully expected the market to reverse again and move higher (my cynical nature I guess), and I didn't want to be caught for more losses. I don't like the way this closed and since I don't have much of a cushion in my position right now, I have to decide whether to hold this overnight or sell out after-hours. For some reason, the inverse ETFs are all bidding lower right now than they closed by 1-2% - I don't know why.

My stop was hit in AXYS during the final hour as well at $69.43 which gave me a 1.6% loss. No reason to mess around with stocks that aren't going to work right away in my opinion, at least in this market. I will say though that the fact a good looking stock like this one couldn't hold its breakout is not a good sign at all for the overall market. I am considerably more bearish after this failed breakout. I will have to see if there were others - I would imagine most of the watchlist I showed last night look considerably worse today.

I don't know if today's slow pace was due to the economic news due out tomorrow or not, but it was quite a boring day until that last hour. I don't know that tomorrow will be the same type of day - I would assume there will be a little bit more fireworks when the jobs number comes out. Last night, I said I really thought things were up in the air, and maybe they still are - I will keep my mind open as always. The action today however was certainly bearish and since we are overbought and right below heavy resistance, a more severe pullback is certainly a possibility. Unless we get some surprisingly bullish news tomorrow morning, I unfortunately think that's what we'll get. Be careful out there and good luck Friday.


MarshalN said...

I wonder how well this will work in the current market.

Trade only in the final hour. Go with the flow -- usually by 3:10 the trend of the last hour is clear, and an acceleration is typical near the end. Cover the positions (longs or shorts) near the end of the day...

Just a thought. I wonder how well it would've worked in the past few weeks.... judging from the way the market's behaved recently, it might not be all THAT stupid even though it sounds ridiculous.

Mac said...

I don't think it is nearly as stupid as you think it is. I wish I had the discipline to only trade during the first 10-15 minutes of the day and during the last hour - I would likely be a lot better off. The last hour is when the big boys trade (so it is said) and I certainly think it is a good idea. Nothing will work all the time, but the trend has seemed to be the trend accelerates between 2-3 every day. With as volatile as it has been, you could probably catch some nice moves in that last hour and like you said, just cover before the end of the day.

seeer said...

Based on the trendline theory I bought some DXD at 73 USD when the Dow hits 8300. Looks like it was a good idea, at least for now.

Mac said...

Good luck - who really knows with this market? Certainly looks like we should test lower levels soon.

seeer said...

Sorry, I was wrong. I bought the DXD when the Dow hits _8600_, not 8300 :)

MarshalN said...

Yeah, you need to always cover before the end of the day or those 2% gaps can kill you. I've done this a couple times these two months and caught a few nice moves.

Maybe it's time for some testing of this theory.