Friday, December 5, 2008

State of the Market - 12/5/08

I said last night that today was setting up to be a very important day for the markets full of news and maybe a turning point one way or the other. Sometimes Wall Street disappoints us with blah performances at those junctures, but today we saw the opposite. Futures were down pre-market and the jobs number did turn out to be even worse than expected, which pushed futures even lower. The market did open lower and continued steadily lower for a little over an hour. It did put in a morning bottom right above the recent lows from Monday on the S&P and Nasdaq around 815 and 1400 and bounced right up to the lows of yesterday afternoon as lunchtime approached. Things looked pretty good at that point, but there was a sharp pullback around 12:30 that looked bad at the time. The markets righted themselves, however, and moved to new highs shortly after that. They consolidated for most of the 1:00 hour, but broke out nicely at the end of it which also took them out of the rising channel the indices traded in for most of the day. They consolidated those gains as well for about a half hour, forming nice looking bull flags from which they broke out of again around 2:30, rising to new highs for the day. There was a pretty sharp pullback to start the final hour, but stocks held their previous breakout levels and continued higher all the way into the close, ending close to their highs and with good sized gains across the board. Volume looks like it will be a little stronger.

Technically, there were some bullish developments to come out of today. Stocks held their recent lows from Monday almost to the penny and then rallied from there. That is bullish because so far we have maintained a higher low. The Nasdaq did break above some lateral resistance from this week around 1500, but still has to deal with the 1535 area. If it can clear that level on a closing basis, a higher high will have been put in and that would definitely be bullish. However, the Nasdaq did close right at its 20 day moving average which has been a point of trouble for a while, so we will have to see if we get follow-through here. The S&P closed right at its lateral resistance around 875 and needs to clear 896 on a closing basis to put in a higher high. It closed a bit above its 20 day moving average but it could still hit resistance here. Finally, the XLF closed above its most recent high and the financials showed relative strength all day. That is a good sign because the market can't move higher for more than a week or two if the financials don't join the party. So overall, there is definitely reason to be optimistic after today but I would say it should be cautious optimism, because there are still some technical hurdles that need to be overcome. Let's see if the market can do that next week.

As for my trading, the early action played out pretty much as I expected. I thought we would see a gap (although I didn't know which direction) and from there some choppy trading. I was looking to play some inverse ETF's based on the open, but what I saw was king of weird and led me to stay away from them, at least early. The indices were moving lower, but they seemed to be doing so in a very weak way. I also noticed that while the rest of the market fell slowly, the financials (I was watching SKF) really didn't move one way or the other. I didn't like that for some reason and I think that was the main reason I sat and just watched instead of jumping into those inverses. I thought it was a perfect setup from which to get whipsawed, and I didn't want any of that.

I did get drawn in later though when the market bounced. I actually was impressed with the way financials were showing relative strength versus the overall market, so I entered UYG at $5.49. I also entered SSO at $22.82. I kept my stop losses around 2-3% for both, using intraday charts for those levels. Unfortunately for me, the sharp pullback that came at 12:30 knocked me out of both of these with small losses - UYG at $5.37 (2.4% loss) and SSO at $22.46 (1.78% loss). I guess I set my stops too tight because they were barely hit, but I was really looking for quick follow-through and I didn't want to mess around if we didn't get it. It just seems it came later - sucks for me, especially with the UYG move that I ended up missing.

My real problem there was not noticing the rising channel on the 5 minutes intraday charts early enough. If I did, I may have waited to buy a bit and also would have set my stops a little lower. That channel played out well and if you traded it, you would have been successful, at least for a little while. I wish I would have noticed it earlier. I may have been able to stay in my original positions.

Although I was frustrated, I did go back into SSO later @ $23.80 and entered QLD at $24.62(which was showing nice relative strength) later in the afternoon. I felt I had to because I know this market is poised to move big and I didn't want to miss it. It is tough going back into positions at a higher price when you get stopped out and have already taken a loss on them, but sometimes you have to do it. I actually added to these later (SSO at $24.80 and QLD at $25.31), giving me fairly large positions in both. My average price is now $24.08 in SSO and $24.82 in QLD. I have a small cushion in both now so as of right now, I plan on holding them over the weekend with my fingers crossed.

All in all, a pretty good day for the bulls, as very bad news was once again shaken off, the recent lows were tested but held, and the market was able to put in a nice up day in the face of very bad conditions. This market has teased us before, however, so I would again be cautiously optimistic here, not overly optimistic. It would be very nice to see a move here that can last for more than a few days. Let's hope we get one. Enjoy the weekend - I'll be back at some point with a video. Take care.


Charlie G. said...

Thanks for your daily analysis and the videos as well. Good luck on your weekend holds; if I remember right the last couple weekends you stayed away form that, but then felt you missed big moves Monday. You seem to usually have a good pulse on things.

Mac said...

Thanks Charlie - we'll see if these work out. If I didn't have a cushion, I wouldn't do it. As it is, I am still a little nervous.

szaman said...

Good move Mac. I entered SSO right after 12:30 at 22.60 with stop set at the red tail at 22.36 on the 5 minute chart. Worked out well.Did the same for DIG with very small position. I wish I had taken a bigger position but this is a crazy market.Wanted to do the same for FAS but chickened out. I am playing with ETF's for now. I actually bought SSO yesterday 22.70 but got scared and sold after market at 23.42.I played with AXYS yesterday. was stopped out around 72.No plan to play individual names until the market setlles down. Thanks for a great blog. You have been the most calm and vesatile blogger so far.

Mac said...

Thanks Szaman. I wish my first stops weren't hit - I use recent lows on the five minute chart (like you it sounds like) and go from there. That quick spike around 12:30 messed me up. Oh well. I debated whether to hold my etfs over the weekend but I did - that could blow up in my face though. You just never know if this market.

I am looking at some of the oils here - DIG has held support three or maybe four times now and could rise.

I will probably stick to the etfs too - there just aren't enough nice charts out there. That's one reason I think this will just be a bear market bounce if it happens. It's not the end of the bear, but a month or so rally would be nice to play. Good luck.

Anonymous said...

You might be right on oil, it might go up now or soon - In the news today: "OPEC head says oil production likely to be cut soon"