Tuesday, September 30, 2008
I don't have a whole lot to say tonight because I don't think things have changed that much. As I watched the action yesterday I thought that it was possible the capitulation bottom I have been waiting for was in progress. However, after today, I don't know if I still feel that way for a few reasons.
First, volume yesterday, although higher than the day before, was nowhere near the climactic volume of September 17-19. That was somewhat surprising to me and in a real capitulation move, I think volume would approach those recent levels or perhaps even be higher.
Secondly, the put/call ratio was only around 1.2 yesterday, which is high but again not nearly as high as it has been at various points in September. If we were really experiencing a climax in selling pressure, I think it would be much higher, spiking to 1.7 or even higher yesterday.
Third, I think a real panicky-type selling situation would have had a big gap down this morning as panic built overnight which would possibly set up for a huge upside reversal. We saw none of that today. I am not an expert at market bottoms but I would expect a major reversal to be put in during one, and the way it looks now, we would have to get more selling in the coming days in order for that to occur.
In a real capitulation move, people just want to get out of stocks at all costs. There is massive selling with huge moves lower on individual stocks. The markets were obviously down a huge amount yesterday, but I didn't get the sense that people were just giving up and throwing in the towel. Perhaps this bottom, if we get one soon, will be different than others. There is certainly a lot of negativity and fear out there, and all you have to do is walk in any area with a lot of people and I am sure you will hear someone complaining about the market and asking whether it is too late to sell (I've heard those things at work myself). However, I think today was the opposite of what longer-term bulls should have hoped for. A day like today just postpones a true washout from occurring, and when it does occur it will likely be stronger and swifter than it would have been if it occurred already.
Those are all reasons I am expecting more selling at some point in the next week or so. Again, we could bottom around here, but I just don't think we will. Technically, I would expect any bounce to be capped around 1180 on the S&P 500 and 2130 on the Nasdaq for the very short-term. Really, anything could happen the rest of this week and because of that I have no plans on doing much of anything. Perhaps I will look at a few shorts if we bounce again tomorrow, but then the possibility of a new bailout plan getting passed comes back into play so we would have that to worry about once again.
Sometimes there are just periods of time where making a lot of money trading is hard to do. For my style of trading and my temperament, now is one of those times. I know that this current environment would do nothing but chop my account to bits if I tried to trade it, so I am and will continue to just sit things out. If you are out there trading right now, best of luck. If you're sitting out like me, take solace in the fact that at some point, things will get better, and when they do, you will be primed and ready to jump on a new uptrend. We just don't know when that will be, so we have to wait. Good luck Wednesday.
Monday, September 29, 2008
Just some random thoughts:
1) I was surprised the VIX wasn't higher than it was today - mid 40's is definitely high, but for the magnitude of selling today, I expected a little more. This is not good for the bulls and could lead to more downside from here.
2) I also thought gold would be up a bit more than it was. I put off any plans to buy today when I saw futures down this morning, but I did watch gold early on. When it didn't move much, I just shut my screen off and figured it was best to pass. Oh well. Perhaps the bailout getting voted down played into this.
3) I guess we can forget about the IBD follow-through day. The lack of great charts was a clue here. When we get a really good follow-through day, one that might really be the bottom, a lot of charts will be showing up of stocks with good fundamentals and good bases.
4) I wouldn't be surprised to see the biggest overthrow in Congress in terms of incumbents being ousted by voters this November. Speaking for myself, I plan on voting against the incumbent in all races. I continue to wish there was a third-party candidate to vote for for president. Whether you agree with this bailout or not, it is disgraceful how in a time of crisis all our politicians can do is bicker back and forth and try to put blame on each other. Perhaps that is a big reason we are in the state that we are in as a country.
5) There continues to be nothing to do here than sit back and watch history unfold. Even if we could short right now without worries of repercussions, I think I would feel somewhat weird doing so. It is not so fun to be short when you watch the meltdown of an entire economic system, at least in my opinion. Some things (well, many things) are more important than money.
I really don't have much else to say. What is there to say? I could talk about trying to catch a bottom and the fear and sentiment readings and all of that, but I am not interested in being a hero here. Anyone who sticks their neck out here trying to catch a bottom could very easily get it cut off. Maybe they deserve to. Sit, wait, and watch history unfold. That's the best strategy for the near future. If we bottom anytime soon, there will be plenty of time to catch a move up. And let's pray that somehow things will get better, and the armageddon-type scenario in our financial sector described by many will be somehow avoided. Good luck.
Sunday, September 28, 2008
The Bullish Outlook:
1) We did have a follow-through day (albeit a weaker one) so a strong rally could develop as is always a possibility when a FTD occurs.
2) The bailout removes at least some of the uncertainty that is out there, and by most people has been looked at as a plus, if for no other reason that armageddon was postponed if not avoided.
3) Elections are coming up and politicians (PPT?) will do whatever they can to get the market up a bit going into those elections.
4) There is a lot of money on the sidelines that would likely be willing to jump in if the market appears to be poised for a meaningful rally.
5) We did have a panic-driven environment from which stocks have bounced, including a spike in the VIX and many contrary indicators that are seen at other bottoms.
6) I have seen a few more nice charts popping up in my scans, although still not a ton.
7) We are somewhat oversold or at least neutral on those type of measurements, which is usually not the case right after a follow-through day.
The Bearish Outlook:
1) Markets that bottom on intervention from the government are typically not the strongest bottoms - it would be nice for the market to bottom on its own for once.
2) The recent trend has been to "sell the news" (see Fannie and Freddie bailout) so that possibility certainly exists again.
3) I am worried that most bloggers I read are just assuming that we will rally after this bailout is finalized and passed. It almost seems too obvious for me to work.
4) This bailout in no way is a panacea that will solve all the problems out there. If this happens and still more bad news comes out (let's say Wachovia or a bank of that ilk fails) then how scared do people get? Wasn't the bailout supposed to stop the problems? Without short sellers out there to provide buying support, then things could get ugly.
5) We are also coming in on earnings season and it is certainly possible that estimates are still too high and that there are still going to be a lot of disappointments out there. Look at RIMM if you have any doubts about how the economy is doing.
Obviously, there are still a lot of tradewinds out there that are going to make things difficult for us all, at least in my opinion. If I had to guess, I think we could rally for a day or two, but then pullback. I think any rally in the short-term (next few days) could be capped at around 1250 on the S&P 500 and 2300 on the Nasdaq. I am not discounting a meaningful rally from here, but what I would discount is a smooth uptrend from here. We may head higher, but I think it is going to be a very choppy and volatile ride higher. Markets just don't change from being news-driven to fundamental-driven over night, and there is still a lot of news out there.
Because of this, I think my basic game plan is not going to change that much. I plan on taking things slowly, keeping my positions small to start off, and take profits when I have them (if I get any). Right now, I can't see myself having any positions of over a few days, although I hope that's not the case. I am willing to be cautiously bullish and will trade accordingly.
Here are the long candidates I am watching. There are others but these look best to me. I again emphasize that I am not jumping all in here - I may test the waters a bit with small positions to see if we do rally, but will only add if the positions work out.
I am still watching gold closely, and if the market does sell this news, I will focus on putting some money to work here, since shorting is a lot more difficult now. After the recent explosion in gold, I told myself not to chase and just wait for a pullback. That pullback has happened though and has been very calm. Some other commodities however look weak (some oils, the ags) so if you do want to short and we do head lower, this is where I would focus. If we head lower, I will focus on the index ETF's like DXD, SDS, and QID.
Tomorrow should be interesting, as should this entire week. I am all for a great new bull market starting right here, and for America to overcome these problems and start anew. I hope this bailout works out and that we can all learn lessons from this, both Main Street and Wall Street, and not make the same mistakes again. I hope we as a country can get back to living within our means and being a nation of producers rather than just consumers. I hope all of these things can occur, but I just don't know how realistic those hopes are. To be honest, I am scared that they are all just pipe dreams.
I think this snippit from IBD states my outlook the best:
"Discussing the market's follow-through in Friday's edition of The Big Picture, we noted that a follow-through day by itself doesn't guarantee anything. No bull run has started without a follow-through. But not every follow-through launches a bull run.
That's why it's important to follow the market closely in these next few days and weeks.
Ideally you'd like to see the major indexes tack on brisk gains in healthy volume. You'd like to see leading stocks show similar action, eventually breaking out of well-formed bases.
In the meantime, be prudent. Don't dive back in headfirst, snatching up stocks recklessly. Let the market come to you. If the rally does gain strength, there will be plenty of buy opportunities down the road."
They are the experts and I think that advice is quite wise in our current environment. Good luck to all this week and especially to our country. Let's all hope we get through this.
Friday, September 26, 2008
1) A great trader that has big cushions in those positions that affords him the risk of letting those positions ride a bit, regardless of if they are short or long positions.
2) A gambler who likes betting on the outcome of a political event. Not only on the outcome, but also the market's reaction to the outcome. There is nothing wrong with that if it is what you are comfortable with - it's just not my cup of tea.
3) An undisciplined trader. Please don't take that the wrong way - I am not trying to offend anyone. But if you think it is worth holding positions right now going into this news-driven weekend when there is no edge out there for shorts or longs, then I think that's what you are. I hope things work out for you. Sometimes though you have to know to sit things out and have the discipline to do so.
I am in cash and my gut feeling is that I will continue to remain in cash for the near future. That is what is presented to us right now and there isn't much we can do about it. It certainly doesn't pay to try and fight it.
I am glad the weekend is here. Have fun, try to get away from things, and we'll see what Monday brings. Take care.
Thursday, September 25, 2008
If you want to go out and buy a bunch of stocks tomorrow, go ahead. I don't think it is smart though. I have one or two that I am watching and may try taking small positions in, but these stocks are either low-priced (under $5), fundamentally poor, or both. My gut is that today will not amount to much of anything. There just aren't the charts out there that we need to go higher. There is absolutely no leadership. None. Perhaps after a few weeks those IBD-quality charts will start showing up and from there we will move higher. Right now, however, I just don't see them. If I did, I would post them. If they start showing up, I will post them.
Here is my current watchlist - you can check them out and see if any of them excite you. Just because they are on this list doesn't mean I am looking to buy them:
QCOR, UFI, THFF, ACET, NCIT, ALO, CLNE, LRN, STSI, MER, RMG, ABMD, NPSP, HA, CREE, MED, and RCRC.
I am keeping a close eye on gold. DGP, GG, RGLD, and AEM are charts I am watching because I think they are at key levels here. I was waiting for a pullback and that looks like what has happened. I still don't see any way this bailout is beneficial to the U.S. dollar.
Technically, I thought this was going to count as an IBD follow-through day, but the late swoon nixed that notion, at least in my opinion. The S&P may finish over the minimum 1.7% threshold, but the way the market closed was certainly not impressive and is what you want to see on a FTD. You want to see a huge up day with tons of volume, showing that people are rushing back into the market. Today doesn't meet that description in my opinion.
If IBD does say we followed-through, I would still not classify this as the best follow-through day I have ever seen. The main problem(besides the way we closed) I have with it is that there just aren't any really, really nice charts out there, showing a great lack of leadership in this market. IBD pointed out in their intraday summaries that there were very few high-volume gainers today, and studies do show that follow-through days that occur without many new leaders breaking out typically turn out to be disappointing.
I made one small move today, buying UYG @ $19.83 based on its intraday chart and because I thought we were getting the FTD. It did move higher from there, but reversed and I was stopped out at $19.63 about an hour later for a loss of less than 1%. No big deal - I am definitely not giving positions room to run right now because anything can happen
I didn't see anything else that interested me so I didn't do anything else today, and perhaps that is for the best. The news still scares me as well so from my perspective it pays to be cautious. I don't mind dipping my toes in to see if the water is OK right here, but that is all I am doing - testing the waters. This is still not a time to make big bets on anything. There are all sorts of things lurking out there that can turn those big bets into big losses very quickly, and the problem is is that you just don't know when those things will pop up and bite you.
Overall, even though we moved higher today, the close was very weak and I still don't get the sense that things have changed that much. We are still in a very news-driven environment. It would not surprise me to see a little bit more of a rally if the bailout gets passed and that bit of news is behind us, but that doesn't mean we have hit "the bottom". If there were more charts out there, I would be more optimistic here. As it is, I still have to be somewhat tentative and probably will remain mostly in cash until I see a lot of quality charts making quality moves. It's still tough out there - be careful.
Wednesday, September 24, 2008
Whenever this thing gets resolved, I would imagine there will be quite a large move one way or the other. I don't have any idea which way it will be, but I will try to be ready. If we head lower it is still so hard to short right now thanks to your friendly federal government that any accompanying trades would be virtually useless. Somehow IBM got added to the no-short list today. That makes a lot of sense, doesn't it?? As I read on a message board today, why don't they just ban all shorting and get it over with already.
Don't have much else to say today - things haven't changed and may not change for a while. I am at least encouraged as an American that this is taking a while and our representatives are at least on the surface using common sense for once by taking their time with this request. They are not just giving in and doing whatever Paulson wants. It seems like they are actually listening to their constituents for once. We'll see how long that lasts, but at least it is encouraging for now. If this passes, let's hope at least some things are added (that I mentioned last night) to make it a little fairer for people like myself, who lived within their means the past ten years, still owns the same house I bought ten years ago even though it is a little too small for my growing family, and did not cause any of these massive problems.
Good luck Thursday - hopefully you are sitting this period out. You can still be ready, but waiting for the right time is important in trading. Now is not the right time.
Tuesday, September 23, 2008
Perhaps after this bailout news is out of the way one way or the other, things can go back to being relatively normal on Wall Street. I somehow doubt it, but hopefully they can. I will still wait for the IBD follow-through day, but there are few stocks setting up in great patterns and no leadership, so even if we get one, I don't know that it will amount to much.
Not much else to say. There is no reason to be trading right now and sometimes that's how it is in the market. Remain patient and let's hope a better atmosphere to make money in comes along soon.
I didn't get to check out any of the hearings today, but reading through some articles, I have to say it is somewhat good to hear that Congress is not just rolling over and doing whatever Paulson and Bernanke wants. I hope they put up more of a fight. Two things that stood out to me that makes me even more upset about this idea is that they want to pay significantly above current values for these toxic assets (in order to get the banks to participate according to Big Ben) and also that the taxpayer gets no equity stake in these companies that we bailout. As if the bailout itself wasn't bad enough, we also have to give them sweetheart deals and allow them to keep all the profits if these sweetheart deals allow them to continue on doing business?? That truly sounds awful and downright corrupt.
I read a few articles today about how Sweden faced a similar situation in the early nineties, and how by receiving equity in exchange for providing capital to these banks. This equity in the long run allowed taxpayers to get off with a relatively low bill but at the same time forced banks to pay for their mistakes. Moral hazard wasn't running wild as it is now because the banks were forced to write down their losses and could not just dump them on the taxpayer without a heavy cost to their own business. They actually did have to pay for their mistakes. I am not an economist, but that sounds like common sense to me, along with the morally right way to do this. So why isn't it being considered? Well, we all know common sense and Washington don't mix, let along morals and Washington, but if this does pass the way Paulson wants it to pass, it will be a complete farce and quite possibly the biggest fleecing of honest Americans in history. Let's hope Congress pushes him on this and does take its time before approving this deal. Good luck Wednesday.
Monday, September 22, 2008
The big story today was crude - a massive rise in oil and other commodities as traders seem to realize that the dollar will not hold up if the government keeps with its plan on monetizing all of this debt by creating more money out of thin air. I began investigating gold over the weekend, but after today I will probably wait for a pullback. It is still too volatile out there for any positions. Tomorrow is the first day we could have an IBD follow-through day, and perhaps if we get one, I would look at trying a few positions. I still see few great stocks, however, so I kind of doubt it.
There isn't much else to analyze right here from my perspective. The government is going to do anything it can to prop this market up, as they showed last week. Maybe it will work. Today certainly wasn't an impressive start to this new "bottom" that could be in place. If we continue to fall due to any delays in this bailout, then I can see the government outlawing ALL short selling like a few other exchanges have done recently. On the other hand, if the bailout is passed, then we could have another huge one or two day rally. I don't want to be short when the bailout is announced, and I don't want to be short if they ban short-selling completely (which I am expecting them to do soon.) All in all, that leads me to doing nothing but continuing to sit on my hands. Oh, the fun.
I may not be posting as much over the next few weeks until this market works itself out because I honestly get depressed when I think about this stuff too much. I'll write if anything major happens. I am beginning to realize that this might be a turning point for our country, and not a good one. Things may never be the same, and that is sad. So if you don't see as many posts up, just consider it a way for me to keep my sanity for the time being. Good luck if you are trading this mess. I stick by my opinion that this is a market to sit out of, and if you do that, perhaps things will settle and you'll be ready to go when things improve. Let's all hope they do.
Sunday, September 21, 2008
Technically, we are overbought on the short-term based on my scans, but that doesn't mean we can't still move higher. I still am of the opinion that technicals just don't matter as much right now - the only thing that does seem to matter is the news.
I just can't trade right now. My mind is not right to do so, and my heart is not into it. Maybe I am the only one who feels this way and just need to get over everything. If we do happen to get a follow-through day this week (starting on Tuesday) perhaps I will start looking more seriously at taking a few longs. For the most part, however, I don't think there is a good risk/reward to do so right now, and I know if my mind is not right, I am setting myself up for failure and losses. The day to day news and rumors that are out there are the only thing that is driving this market, and that is not an environment that I am interested in participating in. That type of environment produces wild, quick swings and lots of opening gaps like we saw last week, which makes swing trading(holding positions for several days or weeks) very tough. If I do trade at all, I most likely will close out positions at the end of each day, something I very rarely did before.
What if there is a delay in getting this bailout passed in Congress? What if a big bank like Washington Mutual fails anyway? What if we get some heavy selling without the benefit of short sellers ready to act as buyers to cover their positions? What if short selling is banned completely, not just in the financials? Don't laugh - it happened in Australia already. What if people finally realize that the government can't keep bailing out everyone and their brother without dire consequences to the U.S. dollar? These are all possibilities and I do not want to be holding positions if these news events are announced.
I continue to be very frustrated and almost sad right now. Our country is in very, very bad shape, and I don't know that there is anything that is going to get us out of it except time, barring a miracle. When I say I am not in the right frame of mind to trade, this is what I am talking about. I am worried about other things, more important things, than trading. I would imagine a lot of you out there are doing the same thing. I have begun to investigate things I can do to protect the money I have (such as gold and foreign currencies) rather than trade my account higher. Maybe I am just being too pessimistic.
I really hope we can pull through this. I hope I am really just overreacting to what is going on here. I hope last week was the bottom of this bear market and we will move steadily higher from here. From what I have read, however, I am just not that optimistic about any of things. Be careful out there readers. We are in a very dangerous period of time.
Ok, enough of this - onto some football. I need something to get my mind off of all this stuff. Good luck next week. Feel free to share your thoughts in the comments post.
Friday, September 19, 2008
Technically, I do find it interesting that the indices found some resistance at their 50 day moving averages today, and if I was in a better frame of mind, I would say that this rally will fail here. However, as I mentioned last night, technicals may not matter here. I do think we are setting up for a major fall, and the short covering of the past two days can't prevent that. If we get a follow-through day starting Tuesday, then maybe I will change my tune.
I once again made no moves today and continue to think I will be sitting on my hands for quite a while. The action early today was crazy. ZION hit $131. SKF was halted for several hours. I read many stories of quotes lagging and orders not going through on several other blogs. Just too crazy and unpredictable for my tastes.
Last night, I showed some stocks I was watching in case we do bottom, but there were about three or four stocks I was really interested in if we happened to rally for real. They were CRDC, CLNE, STSI, and FSYS. Only one of them moved higher (FSYS) and I think rather quickly that told me all I needed to know about this rally. With all of the volatility, charts are an absolute mess now both short and long, and since you never know what news will come out that is going to move this market, doing much of anything remains difficult from my perspective. I do see a lot of charts that finished way off their highs for the day.
I would have been interested in taking some inverse ETF's off the opening gap, and I still may (SDS and QID), but I am scared about waking up one day and reading that the government has outlawed all shorting, with all the Proshares ETF's being liquidated at a set price. Seriously, I kid you not. How do you think those SKF holders felt today? I am putting nothing past these guys after what I have seen recently and will continue to stay in cash.
There are many reasons I am really upset and bothered by what I see going on right now. I mentioned many last night. One more thing that is bothering me is purely selfish. I feel I have worked very hard to try and learn how to trade - reading, studying, making mistakes, learning from those mistakes. It has been a long and difficult journey like it is for any trader. At some points this year, I felt that I had gotten to a point where I was comfortable with my ability to make money in the markets. I thought I was at a point where I could consistently pull profits from my trading. I knew I was going to make mistakes, and that I still had a lot to learn, but I thought I was doing well. This week makes me think that this journey was all for naught. I don't know if our stock market is ever going to be the same. I may be overdramatizing this (and I really do hope I am) but this year has done more in my opinion to hurt the credibility of Wall Street than anything I can think of, and it is probably only going to get worse.
Yes, I know, the game was always rigged. I realize that. The big boys always had the inside info and as an individual trader you were always a step behind them in that area. But at least the small, individual trader had a chance if they worked hard and followed the time-tested rules of price and volume action. With all of this government intervention and propping up of this market, I don't know if the game will ever be worth playing again, or at least I hope just any time soon. The past two weeks has made this market seem like simple gambling more than any other time I can remember. Trading is something I can enjoy. Gambling is not something I enjoy.
If the government is going to blatantly interfere in the markets and continue to socialize all losses on the backs of the American taxpayer, then any edge I have as a trader is pretty much gone. I am asking myself right now if all the work I put into trading is even worth it. I may need to look at other ways to supplement my income if this is how the market is going to act and be acted upon for the near future. I probably would be better off playing poker or something rather than risk my money in an environment like this.
This rant may come off as whining, and I don't mean it to sound like that. I know life is unfair. I really do hope this whole thing works out somehow and we can avoid financial armageddon, not so much for me, but for my son and future children. This whole thing is very disturbing to me, not as a trader, but as an American. I wish there was a legitimate third-party candidate running for president this year - I would vote for him or her likely in a second.
I am glad it is the weekend, although I cringe to think what Sunday night news will come out this time. The fact that we rallied today is meaningless to me. The moves put out there by the Treasury and SEC today show how bad things really are (that they are not telling us about), and I have a feeling that the recent lows will soon be tested. I hope they aren't. I hope we can legitimately rally from here. However, the action in individual charts doesn't give me any warm feelings about that happening. Perhaps my outlook will change after going through my scans.
It is funny how people never learn from history. From everything I have read, our government is following the script of 1990's Japan to a T. If you are not aware, that is not a good thing, and the next decade will not be fun if it plays out the same way.
Enjoy the weekend. I know I need it. Hopefully I can keep my computer off and stay away from any news channels to clear my mind of all this garbage for at least a little bit. Good luck.
Thursday, September 18, 2008
Honestly, this type of action makes me just want to take all of my money out of my account and just not play this game any longer. It is so rigged it is unbelievable. And I am not saying this because I am about to lose a ton of money or being hurt financially in any way. I am completely in cash and have been successful this year (up close to 90%). We could rally big tomorrow and I honestly just don't want to even participate if we do. The United States Stock Market has officially lost all credibility in my eyes. Maybe it never had any and I was just naive. But the steps today are absolutely ridiculous. As Bear Mountain Bull states, perhaps it is time for a worldwide boycott of the stock market. I am for that.
I haven't even mentioned the plan to give $400-700 billion more of taxpayer money to the stupid banks that caused all this problem that was "leaked" today. From everything I read, the idea proposed today involves setting up a taxpayer-backed fund for banks to dump their bad debt upon. We get to pay for it. Sounds good to me, how about you??? This is in addition to the $80 billion of taxpayer money given to AIG, and the potentially trillions of dollars used to bailout Fannie and Freddie. And we still haven't mentioned the Bear Stearns fiasco among others.
I hate to say this, but I think we may be witnessing the beginning of the downfall of our great nation. I sincerely hope I am wrong. By doing this ridiculous crap, these idiots are basically admitting that things are much worse than they are letting on. They are panicking, and in all likelihood will actually increase the odds that what they are trying to prevent (a total crash) will actually occur. By taking away short sellers, they have just eliminated built-in buyers for stocks. This constant intervention is in no way what our country was founded upon.
I wonder how many times George Washington and Thomas Jefferson rolled over in their graves today. This is truly a shame.
On the plus side, volume was the heaviest its been the past week and looks awfully climactic to me. Combine that with the reversals put in, and the possibility of a bottom is certainly there. The buying interest today in terms of 4%+ breakouts was as high as I have ever seen. The VIX also spiked above 40 today before reversing hard as well. All of these could signal a possible bottom.
On the downside, let's not forget just two days ago, when the market rallied a huge amount late in the session on rumors about AIG getting bailed out. A lot of people figured (and I have to admit I was in this group) that we would continue higher for at least a little short-covering rally. The next day (yesterday) we were down instead 500 points. I also don't like the fact that this entire move was triggered based on a RUMOR put out by those fine, upstanding journalists at CNBC. People want to lock up short sellers??? How about locking up Charlie Gasparino, first for the Ambac crap he pulled earlier this year, and now for putting this out there. As long as it is the shorts getting hurt, I guess it's OK, huh? (By the way, I have been in cash for the past two weeks, so I am not biased here)
So overall, I am leaning to more upside here but would not be surprised by anything. Seriously. A 500 point up day or down day tomorrow would not be a shock. The amount of volatility the past few weeks has been staggering, and there is no reason to think that will end all of a sudden. The chart below shows the buying/selling interest that I do as part of my scans each night. Over the past eight sessions, I have had four days of over 1000 4%+ breakouts(1) or breakdowns(3). A normall high reading is around 300, and I have not had a 1000+ day, either positive or negative, this entire year up until the past eight sessions. Because of this, I am expecting more jaw-dropping swings to come. This volatility is also a reason I plan on waiting for a true, IBD follow-through day before getting heavily long in this market. From my perspective, there is still just too much risk out there and I would rather wait for some confirmation of a bottom, even if it means missing out on a few percentage points in a move.
Here are some of the charts I am watching from the long side. I wish I had more, and I wish more of the ones I have below had max BOP levels that told me they were really being accumulated, even in this mess of a market. Unfortunately, they don't, and we as traders have to take what the market gives us. I am also not seeing a ton of high quality IBD type stocks setting up. Am I planning on going out tomorrow and buying a lot of these? No. I want the market to prove itself a bit. Again, I am planning on being patient here and not jumping the gun, therefore hopefully avoiding a possible whipsaw that is always a possibility in this market. If this is the bottom, then there will be plenty of time to get fully invested on the long side.
Overall, today was certainly a great day for the bulls, but I am going to temper my enthusiasm for the time being until we see if this can be maintained for more than thirty minutes. If we do bottom here, there are so many shorts out there that a rally could turn out to be very powerful, so it pays to be ready for it. I would frankly be all for a rally starting here - I am bored out of my mind right now just sitting and watching, even though I know it's for the best. But we also have to remember today's move took place in less than an hour, was caused by a rumor, and was most likely led by monster short-covering. We saw something very similar two days ago and it amounted to absolutely nothing. All in all, there is nothing from today that I saw that tells me this market is about to get any easier. Oh yeah, options expiration is tomorrow. Be careful and good luck Friday.
Technically, today was a very strong showing once again, much like Tuesday. Let's just remember however what happened yesterday after so many people (including me) were expecting a continuation of the bounce following Tuesday's reversal. The markets closed right near their July lows, which I guess will be heavy resistance. If we move lower tomorrow in a powerful way like Wednesday, then I still think the fear and panic that we have seen recently comes back into play and it gets very interesting. If we move higher tomorrow and follow-through, then maybe we can bottom here.
It is days like today that make me happy I have stayed out of the market the past week or so. I don't think I am arrogant enough to think that I would have traded these massive swings properly and made a ton of money in this volatile environment, especially with me not being at my computer a lot now that I am back at work. More than likely, I would have been chewed up and spit back out by the market, wrecking not only my account but also my confidence so that when it was time to start making moves, I don't know if my mindset would have been where it needed to be. Sometimes cash is the best position for lots of reasons.
I am taking the same approach to today's action as I have the rest of the week - I want Wall Street to prove itself to me. I will follow the IBD method right now in terms of looking to get long. I actually wish the fear and panic would have gotten worse (and who knows, it still may) because the further stretched we get and the more extreme the fear gets, the better the bounce will be whenever it happens. If we bottom here though, that's fine. We will probably get a nice rally, especially going into the elections. But I will wait for a follow-through day as early as next Tuesday. I may miss some of the move if we get one, but at the same time, if we get a huge reversal lower tomorrow and have a mini-crash Monday, then I will miss out on some major losses as well. I do find it amazing that a RUMOR put out by CNBC can make the market move several percent in the course of thirty minutes. That in itself tells me all I need to know about this market and how news-driven it still is.
I really don't have a good feeling either way here as to if this is the bottom or if we still have further to fall. I have been compiling a watchlist of stocks that I would look at if we do get a new rally going (unfortunately it's not that long) and plan on putting some of those up tonight - not as buys, but as stocks to watch. I also continue to look for shorts that might work out if we head lower. Just like I said last night, be prepared for anything.
Wednesday, September 17, 2008
I once again did nothing today, as a huge gap down didn't allow any low-risk positions to be put on anyway. Trading remains difficult here unless you are a day-trader, and I can't be that right now, so I just have to remain patient. It is way too late to short here - I thought we would bounce a bit today - but I would be very careful trying to buy dips. You may be able to play some intraday bounces on the short side, but if you do, I have not done my scans yet, but I would guess we are getting closer and closer to extreme measurements in a lot of areas. The VIX spiked again and is closing in quite quickly on the 40 level that is pretty important in past bottoms.
If you are not already short (and to be honest, I probably would have covered my shorts anyway by now - I don't know that I would have the patience or guts to sit through all of these swings without taking most of my profits), there is nothing to do here other than sit tight and watch history unfold before your eyes. And I do get the feeling that we are witnessing history. It is going to be a very interesting next few days, especially heading into the weekend.
The only good news out there right now is that this type of action will bring us closer to a very nice, tradeable bounce and perhaps even a more serious move higher. I have no way of knowing when that will happen - I will keep an eye on the same measures I normally do - but history shows that when capitulation occurs (and that does look to be where we are headed), markets are usually higher several months afterwards. And if we don't bounce soon after this carnage of this week and possible further carnage ahead of us, well, then, we probably all are screwed anyway. Let's hope that doesn't happen. No charts to put up tonight - no sense in trading right now, at least for my style and from my perspective. If I have any interesting observations or thoughts, I'll post later. Good luck Thursday.
Tuesday, September 16, 2008
In terms of AIG, it seems like everything hinges on what happens to them. I found this bit on Bear Mountain Bull - he posted it from Financial Sense and written by Frank Barbera. I thought it was a great description of where we are at right now.
"For the last few days, the US Financial system and perhaps, the global financial system, has moved to the brink. Events surrounding American International Group (AIG) seem to have brought this crisis to a head. A global titan with operations in over 130 countries, AIG’s insurance business has counter-party risk relationships with virtually every major institution in the world. Words probably cannot accurately depict how serious a problem the implosion of a company this large would be for the greater financial community. Thus, it is putting it mildly to suggest that at the moment, a great deal depends on whether AIG can receive the funding it needs to avoid a further downward spiral. Such a spiral would undoubtedly trigger a torrential chain reaction of counter party defaults in the CDS market which stands at more then 40 Trillion in notional value. In the case of the demise of AIG, the word ‘melt down’ is of the few terms that would apply with ripple affects spanning the globe.Thus, as markets wait to see if AIG can bypass its liquidity problems, it is very clear that a large move, either straight up (sigh of relief), or straight down (abject terror) is in the offing."
I guess Warren Buffett was right when he said derivatives are "weapons of mass destruction".
So what do we as traders do? Well, for me, I think think staying in cash is still the best strategy here. I mean, really, do you want to be short C and WB when/if it is announced that AIG has been bailed out by the government, which no doubt will cause a large short-covering rally??? In the same vain, do you really want to be long a bunch of stocks when/if the government keeps its recent backbone, doesn't back AIG, and the company files bankruptcy, setting off a chain reaction of let's just say very bad things, causing the market to really tank??? I know I don't. There is still just too much risk out there relating to these news events, so therefore, I think having the discipline to stay out of things until the path becomes clearer is the right move right now.
In terms of my scans, I did see a few more longs pop up tonight but my BOP scans hit a new low for the year on the long side - not really what I want to see if we were really at the start of a new bull market. I see a few that I like the look of - CLNE, STSI, EHBI, ICAD, TACT, NPSP - as possibilities. Overall, the quality of longs I see is not good, however, and until I see more set up, with really good volume patterns, I can't get too optimistic here, even with a bullish-looking reversal put in today on the indices.
It is possible we put in a short-term bottom here, and again, if the news somehow plays out positively the rest of this week, then it probably will be a bottom. However, check out a chart of any major index and look at January 9, 2008. The market was down big the previous day, opened much lower, and then reversed to put in a large gain for the day. Sound familiar? It didn't quite work out for the bulls, however, as it only took four more days for the that reversal bar to be broken to the downside and another very sharp move lower took place. That could certainly happen here, with us getting a true washout that gives us a good, tradeable bottom.
I guess what I am trying to say is be open-minded and be ready for anything. I have a watch list of longs that I will watch, and if we get some resolution of the news issues, I would be OK starting a few positions in them to catch an upswing in the overall market. I am also watching some shorts that I will focus on if we make another move lower. I don't have a bias right now and am ready to go when the market tells me it is ready to go as well. Good luck Wednesday.
Technically, today was certainly not a surprise given the selling from yesterday and some of the fear measurements that hit high numbers. The bullish reversal looks impressive on a daily chart, especially since the Nasdaq broke through its July lows and then recovered. So is this the bottom? Anything is possible, I guess, but I still think we are not done going down here yet. Where are the charts setting up that might tell us a move higher is on the way? Was yesterday really capitulation? Was that the best the bears could do? These are all questions I would ask myself before considering a bottom here, and unfortunately, most of the answers I come up point to more downside. Although the selling was strong yesterday, I don't know if it was panicky where people were just trying to get out of stocks at all costs. Panicky selling would not have produced a bounce ten minutes into the session that lasted for several hours like happened yesterday. There was only one reading last night (put/call) that pointed toward a possible bottom here. That's not enough in my opinion. I would expect more from a true capitulation day. That's my two cents, but maybe I am showing my inexperience here.
I would also point out that the true market reaction to a Fed decision often takes several days to reveal itself, so we'll see if tomorrow is a reversal of today's reversal.
There really isn't much else to say. I still don't know news-wise that anything was resolved with AIG, and this situation sounds eerily familiar to the Lehman and Bear Stearns events. Unless the Fed bails AIG out, then I doubt any loans they get will solve their problems. They will just delay the inevitable fall a little longer, making it even more unpleasant when it happens. And if the government does come to the rescue once again, that opens another can of worms that will affect this economy for much longer than the next week or so. My game plan from last night remains the same - I will be looking to possibly get short a few names as this market bounces as those stocks approach resistance levels, but will not force anything. If my outlook changes after going through my scans, I will let you know, but as of now, I am not expecting any. Good luck.
Monday, September 15, 2008
One reason I think we have further downside to go is that besides the put/call ratio, there are not many signs of extremes in the measurements I follow. My Market Map is nowhere near extreme levels, and the T2108 is just now reaching oversold territory. I would also look for the VIX to get up near 40 or even 50 for a really solid, panic-filled capitulation bottom to possibly be put in. Going through my scans, I was kind of shocked at how little major damage I saw done to charts other than the obvious suspects in the financials. Commodities were hurt, but I really didn't see a whole lot of stocks breaking to new lows on heavy volume. Because of that, I have to assume we have much further to fall before we can even think about looking for a bottom.
With the Fed decision tomorrow and myself having no clue as to how the market will react to it, I plan on sitting things out once again tomorrow. If the financials do rally, I may look to get short a few stocks near resistance points that would give me clear stop loss levels to get out at just in case. I put the XLF below to show where I think it may fail on a rally attempt. I am watching WB, BAC, and C as possibilities as shorts with the same overhead resistance areas as possible entry areas. If they don't get this high or don't rally at all, I will not chase and instead will just stay in cash.
There are a few other setups that I am watching but again am going to wait until some of this news passes and is digested by the market. (WGOV, RBCAA, HOT, MGM, SNDA, BIDU, MSTR, CREE, PENN, OEH, FCFS, FSLR, SQNM, VISN, NETL, GHM, JCG, GTLS, IPHS are on the short list.) We're still in a market where news is trumping all things sensible, including technicals, and it pays to be extra careful in that environment.
Tomorrow will likely be quite volatile once again, so the mantra remains the same. Cash is the best option right now (unless you are already short before today), but if you do have any winning positions, I wouldn't let them run too long without taking profits. Whatever you do, be careful. This is a very dangerous period of time and if you are not careful, you can ruin your account quickly. No need to be a hero. Good luck Tuesday.
Technically, as bad as the selling was today, some important technical levels have still not been totally breached. The S&P 500 closed just below the July low around 1200, but the Dow and Nasdaq still have a little farther to fall before breaking these key levels. The 2160 area on the Nasdaq could act as temporary support and 10,820 on the Dow may act as support. I think we could get a technical bounce at some point soon but that would just be a chance to get short. To be honest, though, in this environment, technicals may not work like they normally would. The VIX did get up above 30 today (31.08) but if we are going to get some capitulation here over the next few weeks, we need much more fear than that. I don't think there is any doubt that there is more downside to come in the next few weeks.
From everything I observed today, I am glad I did not trade. Perhaps my quotes were just being weird, but for the first ten minutes of trading, things looked relatively calm. The Dow was only down around 100 points. Then out of nowhere my quotes started flipping out and the Dow and S&P dropped about 2%. It was crazy. I just thought to myself - what if I had money in the market right now? I would probably be going crazy myself. I can't even imagine what it was like to try and get orders placed. I also saw a lot of gaps that immediately bounced, probably trapping some late shorts that wanted to try shoring the open. I'll repeat myself again - it is just too tough out there right now. Stay away and wait for a better opportunity.
The one thing about trading that I know I tend to forget and I am guessing many traders do also is that there is nothing that says you have to trade all the time. If the market wants to act in a ridiculous, untradeable manner, that's fine. It doesn't mean I have to join in the party. Being in cash is a position, and a lot of times it is actually the best position to be in. (For instance, now!)
If I had to make a guess at what happens, I think the Fed gives in and lowers rates tomorrow, which may or may not cause a quick short-covering rally. If I was lucky enough to be short today, I probably would have covered a lot of my positions during the session. I don't think a bounce will last - I still think eventually we will strongly break these July lows (after perhaps several attempts) on all indices and move lower in hopefully the final leg of this bear market.
In terms of trading here, I will continue to do my scans but as I mentioned earlier am happy being in cash and I'm not in a rush to do anything. Sure, I would like to get short some financials, but not here. I will wait for a bounce, most likely up to their recent lows, where at least I will have a clear stop loss. I am looking at XLF around $19.60. If the Fed cuts and we get a reflex bounce from that, that's where I may look to add some small shorts. If they don't bounce, I will just miss the trade and stay in cash.
We are in an environment where capital protection is #1, #2, and #3 on the agenda. A better time will come (hopefully) and when it does, I want to be ready to jump on the opportunities that present themselves. I hope no one is considering buying these dips here - definitely not smart right now. We are nowhere near a panic-selling extreme. Instead, I think the smart play is simply sitting back, watching and observing this action, and being patient. If we happen to get a quick bounce, I would probably look at shorting, but in no way with a big portion of my portfolio. I will be back later to look at the indices and a few charts that I will watch for possible short entries if they bounce. Good luck out there.
Sunday, September 14, 2008
I have no clue what is going to happen tomorrow. There is still a lot of time between now and tomorrow's open, and a late-second, government-sponsored plan still wouldn't surprise me. Right now, this situation reminds me of the Bear Stearns event in January, and that turned out to be a short-term bottom. In no way am I suggesting we are near a bottom in this. What I am saying is I am going to wait until tomorrow opens before predicting what is going to happen, because this market has been as unpredictable as any I can remember.
I have to say I am happy to be in 100% cash, although obviously part of me wishes I was short at least a few financials going into Monday based on what things look like now. The risk from my perspective was just too big to be short or long going into this weekend - how many of you really thought there wouldn't be a government-funded bailout by this time when the weekend started. I knew I did not want to step into a Monday morning gap like we had with the Fannie-Freddie bailout that would give my account a big hit. Since I have had a pretty good year up to this point, I am focusing more on holding onto and maintaining my gains rather than grow my account agressively, mainly to the market atmosphere. Perhaps that's the wrong mindset, but it is right for me. If good opportunities come up, I will look to continue to grow my account but right now, I just don't think there are many of those out there.
Tomorrow, it looks like many traders will small fortunes if they were short, and others are going to take massive hits to their accounts and possibly their life savings. I give those traders who were short great credit - they have more guts than I do. I will likely continue to just watch tomorrow from the sidelines and use it as a learning opportunity. I was only 10 years old when the 1987 crash occured, and I did not trade through the 2000-2002 bear market, so these panic situations (if we do indeed get one) are something that I need to experience first before trying to attempt to trade them correctly.
If you are a risk taker, and want to try and catch more downside, I would focus on the brokers and big banks that haven't bounced as much as the others. Some banks like WFC and USB have held up fairly well. I would instead focus on names like C and WB, both of whom's charts look poor. Other names I would watch are FCSX, IBKR, GS, MS, LM, and BLK.
I would also try to take profits when you get them. No one has any idea how this whole thing will exactly transpire, but it wouldn't surprise me we get some wild swings up and down which can wipe out any profits on shorts you get very quickly. It is going to be a very volatile environment, and in that atmosphere, I wouldn't be greedy.
Whatever happens, good luck. The potential exists for this to be a historical event in our nation's economic history, and no matter what your outlook on the market is, let's hope we can survive it over the longer term as a country (and learn some lessons from it as well.)
Technically, I put the index charts below but I have a feeling all of these news events will trump the technicals. The S&P is very close to what should be heavy resistance but the Nasdaq is kind of more up in the air, with no clear technical signals that I see.
On the long side, I continue to see very few stocks with great fundamentals setting up great chart patterns. I like to use the BOP indicator in Telechart as a key signal in terms of looking for longs, and my BOP scans just aren't giving me any new charts. In fact, the number of stocks in my BOP scans have been at lows for the year for about the past three weeks - typically only 50-70. When the number of stocks in this scan start increasing and get over 100 again(which is where it was at back in April and May), perhaps I will start looking harder at longs. Until then, I have to pass for the most part. My long watchlist is below and you can see how small it is right now.
I am still focused totally on the short side but don't see many great setups here either. What I am seeing is a lot of commodity stocks (namely the coals and steels) that are bounce a bit on lower volume and will soon approach heavy overhead resistance. I put an example of the type of setup I am seeing below.
Here is the list I am watching: CLB, CLR, GNA, AGU, CMI, EGLE, MOS, CF, CMP, ESEA, GMXR, CRZO, ACI, MON, HK, PVA, CWEI, PCX, and ZEUS
So why do I have a problem with these? Well, if the Fed decides Thursday that they need to throw these stupid banks another bone and lowers rates, the dollar will get hit and commodities will likely rally. So although I do think these stocks will have a tough time getting through these levels, I would rather wait to see what the Fed does rather than getting caught in a surprise squeeze that gives me some quick losses.
Other than commodities, I do see some other stocks setting up bearish flag patterns from several different sectors. I am only putting up a few charts because of what I've mentioned earlier - I think this week could be among the most volatile we've had in a long while and establishing new positions may be difficult.
On Friday, I asked for some thoughts about this market and if it is stranger that bear markets of the past. During my weekend reading, I found an interesting post from Rob Hanna at Quantifiable Edges that seemed to at least give me some solace that I am not going crazy. It is the market, and we are seeing action that, as Rob stated in his post, is "nearly unprecedented."
Part of being a successful trader is knowing when to be in the market heavily, but also knowing when to be on the sideline doing absolutely nothing. I could be wrong, but I think this week is a week where being on the sidelines might be better unless you are a daytrader. The current situation seems more like gambling to me than trading. If you decide you have to trade, I would recommend taking profits quicker than you normally would, because you never know when a reversal will kick in, taking stocks higher or lower in dramatic fashion. With all of the news events this week (especially the Lehman news which I think could have a severe impact on the market Monday - just don't know if it will be positive or negative) I will likely have my screen turned off and take it easy. Good luck if you decide to make a go of it.
Friday, September 12, 2008
I am not going to analyze the market technically right now either because I think there are going to be other things happening soon that may override any technical outlook that the market is showing us. The reasons why are stated below.
I did virtually nothing today other than get stopped out of my CREE short for a very small gain (less than 1%). I even turned off my streaming quotes. I am now back to 100% cash, and that is probably a good thing. After yesterday's bounce, I had no desire to chase the gap lower with shorts. Unfortunately, there aren't any longs to check out either, so back to the sidelines is it for me. The real reason I am sitting out is because we are at a point over the next five days (including the weekend) that a LOT can happen and I have no desire to bet on possible outcomes that I have no idea about, especially in a market that is so news-driven to begin with.
First this weekend is Hurricane Ike. It looks massive and no one knows how this will play out. Obviously, I would assume commodities will be affected, but I don't know how. I am sure many people made big bets before Hurricane Gustav, and some probably won big and some lost big. I don't like to play the betting game however. Regardless, say a prayer for those people on the Texas coast that this storm will slow down and not cause as much damage as expected.
There is also the whole Lehman/Washington Mutual mess and the possibility of another government bailout. I know that Hank Paulson said he was "adamant" (according to Yahoo Finance) that no taxpayer money would be used for any of these possible deals, but let's be honest, if you believe anything Paulson or any of his Wall Street cronies say after the past nine months, then you are either an idiot or just extremely naive. If a deal comes down, I am sure the markets will react positively, just because that's what they do. I am guessing that right before I watch my Steelers take on the Browns this weekend, we will hear some news - it is a Sunday night, and that's when the PPT likes to come in on their white horse the most.
Finally, we have a Fed meeting on Tuesday. I, like every other trader, have no way of knowing what Big Ben has up his sleeve. There is talk, however, of the Fed lowering rates, and it wouldn't surprise me at all. The dollar has rallied strongly while commodities have taken a hit, so why not throw Wall Street and the failing banks another bone? As always, it isn't even that important what the Fed does - the reaction is the important part.
All in all, it looks like a real mess out there, and with all of these news events coming to a head at the same time, I don't think I want to participate in what I would guess will be an even more volatile market than we've had the past few weeks. I may end up missing part of a big move, but there are just too many question marks out there for me to make any big bets. I just can't do it. More than likely, we will probably move sharply higher then sharply lower next week (or vice versa) and end up pretty much at where we are at now, not really going anywhere. That sounds fun, doesn't it?
I really do believe the best place to be is on the sidelines right now. I thought last Thursday was going to be a meaningful day, but the fact that it led to nowhere means this market is still not presenting a lot of good opportunities to make money. Hopefully it will someday soon. But right now, at least for me, there are way too many question marks out there about way too many things, and because of that, I recommend treading very carefully here. If I have any other thoughts or observations, I will be back this weekend. Take care.