Friday, October 31, 2008

State of the Market - 10/31/08

Futures were lower early in the morning, but fought their way higher as the morning progressed. Stocks opened slightly lower and sold off slightly for the first fifteen minutes, but put a low in around 9:45 and moved steadily higher from there until around 11:45. They consolidated through the lunch and broke out to new highs for the day with a quick 20 minute pop around 1:15. A pullback ensued and the lunch time consolidation was tested, but it held, and stocks attempted to breakout again around 3:00. That breakout reversed, and stocks headed lower throughout the final hour, giving up most of their earlier gains. However, they did get some intraday support at the lunchtime lows and bounced a little into the close. Volume was quite a bit lower today, which takes the shine off the gains somewhat.

Technically, the market had a nice move most of the session, but reversed right around its 20 day moving average. If we are going to trade in a range for a while, then this area makes sense as the top portion of that range - the Nasdaq and S&P 500 reversed near their highs of a few weeks ago. The late bounce made the reversal look much less damaging as it did around 3:50, but we'll have to see if the highs today will act as resistance for near future. I continue to hope for some consolidation here as I think it will make a potential breakout have that much more potential.

I said last night that I was really hoping for some consolidation for a few days and if that happened, I would get more bullish. Today wasn't consolidation, and if I was long, I would start to get a little worried here about a pullback. This market could certainly continue to run as it works off its oversold condition, but I can't chase anything right now after a 140 point, 4-day move in the S&P. If the pullback I expect soon occurs on lower volume and we can hold the short-term moving averages, then I would look to possibly buy there. But again, as I said last night, there isn't a ton to buy right now. Volume wasn't great either today. So in the short-term, I am looking for a pullback soon and would remain patient in terms of looking for longs. There is no need to chase longs here, especially with volume falling off on a lot of the individual stocks I see.

In terms of my trading, I was watching the S&P closely today and looked at 985 as a key number for it to get over. I thought that would be a likely place for a possible reversal - that is where it made it most recent highs on October 20. When the breakout couldn't hold at 3:00, I went into some SDS ($83.39) as a possible play on this reversal and kept a tight stop on it. I also shorted WIRE at $19.33, which was a chart I posted last night. Volume was quite weak on this one as it bounced the past few days. That is all I did - I thought about pushing it a little heavier on the short side, but with this market, I still thinking going "all-in" on either side is not a smart play. My attitude was "let's see if these work out before moving in with more positions." The late bounce affirmed this thinking, as my quick gains mostly disappeared. I still have these positions and plan on holding them over the weekend, although I am always nervous about that.

I'll be back at some point this weekend, but right now, the indices look more bearish to me as volume has fallen off each of the past four days as they have rallied. We'll have to see if the 3:00 pullback means anything for next week's direction. The weekend is here - time to take a break. Take care.

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Thursday, October 30, 2008

Some Charts to Tell The Market's Story

Just got back from taking my son out for his second "trick or treating" - it was pretty cool seeing him go up to the doors and get the candy; I think it will be even more interesting in a few hours when all the sugar kicks in. But since my wife is taking him over to her aunt's house and I am staying back to give out candy, I figured I would put a few charts up tonight since I haven't posted too many recently due to the lack of worthy ones to post. I am not saying all of these are "worthy" but I think they give a good idea of where we are at in this market.

With all of the damage done done to the major indices during October, many charts were destroyed and it will take a lot of time for many of them to repair their damage. Recently, I have seen a few charts pop up that look decent and today a few of those brokeout. Unfortunately, I am literally posting all of the ones I am seeing below. I really wish there were more. This first group need to rest or pullback before buying as I would certainly not chase breakout in this environment.

AVAV, VASC, LHCG, ISYS

This second group of charts are what I am watching setting up. I again wish there were more and unfortunately, most of the few I see have major flaws that prevent me from getting too excited. I will continue to watch them and see what happens.

UTEK, AFAM, CRD-B, APSG

Airlines seem to be near the top of low-level bases, but with their 200 day moving averages still under their 50 day moving averages, along with sub-par fundamentals, I don't know that these are stocks I want to jump into on the long side. That is my IBD-side talking.

LCC, UAUA, ALK, HEV

Oil stocks have put in nice bounces over the past two weeks after being crushed, but now many are approaching key areas that may be turning points on these bounces. Based on what I see, I am leaning more to look at these as possible shorts instead of playing them as possible breakouts, but I am not discounting further price appreciation.

HK, CRK, ATN, CHK

Speaking of shorts, I saw some nice setups pop-up in my scans tonight as these stocks have rallied right into key resistance levels. I can't say for sure that I will take any of these, but these are fairly low-risk as long as you use a stop loss above the resistance levels highlighted below. That's assuming we don't have another huge gap up or down tomorrow which is one reason trading is so tough right now - good entries are hard to find.

VMW, IPHS, WIRE, AXYS
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Going back to the title of this post, the charts tell me that I should be slightly more bullish than I have been recently and should be willing to give the market a chance to prove itself to me. That being said, every time I have thought this way the past few months, the market has shoved it right back in my face. I hope this time is different and we can get something productive going to the upside. However, I am not taking anything for granted however and will try to be prepared for a rally or further pullback - hence the possible shorts. As I said in my first post, ideally we rest here for another few days or more, which may allow some charts to tighten up. We shall see - how often has this market cooperated recently. Good luck Friday.

State of the Market - 10/30/08

After falling over 400 points in 15 minutes to end yesterday's trading in the red, stocks did the logical thing today - move higher. Welcome to the stock market. Futures were up big pre-market due to overseas markets rallying on the news of the Fed rate cut. GDP numbers did not hurt the futures, and stocks did open higher and moved up furiously for the first fifteen minutes of the session. They attempted to consolidate for about an half hour, but could not there and fell lower, making a low right before the lunch hour began. From there, it was a steady climb higher, with stocks coming close to challenging their morning highs around 3, but could not breakout and fell a bit into the close, although the last ten minutes was a complete reversal of yesterday's close, with a quick pop that brought stocks back up near their highs for the day. Volume however appears to be lower.

Technically, it looks like stocks may be trying to consolidate here between their 9 and 20 day moving averages. I actually hope that is true, because some rest and sideways action would be the best thing that could happen to this market if you are hoping for a nice, tradeable bounce developing into the end of the year. I am in that camp and would love to see another day of consolidation tomorrow. Individual charts are still ugly for the most part and rest on the indices could allow some of these charts to get back into buying shape. Let's hope that happens.

I made no moves today and I have explained why over the past few days. I am ready to act if the market tells me it is ready to reward me for acting. So far, it is not doing so. What it is telling me is that it still really enjoys jerking people around, both shorts and longs. Why do anything when the market is acting like that? Perhaps though the market is getting tired of doing that.

All in all, I have no problem with today's action. I think it is constructive. If we see some more consolidation over the next few days and then we can break above yesterday's highs, then I would look to try some longs out. I would love to see a lighter-volume pullback tomorrow actually. That's what I am looking and hoping for - we'll see if we get it. 970 is a big number on the S&P 500, as is 1705 on the Nasdaq. Remember tomorrow is quarter-end for mutual and hedge funds, so don't be surprised if we see some games being played. If I see any charts starting to set up after going through my scans, I will be back later. Good luck.

Wednesday, October 29, 2008

State of the Market - 10/29/08

Fed days are usually volatile, and today wasn't an exception to that rule, although compared to the recent volatility, today seemed quite calm to me. The day started with a slight move higher, a pullback around 11:00, then a steady climb back up and past the morning highs. There was a sharp pullback right when the Fed decision was announced, as is normally the case, but stocks righted themselves from there and did rally sharply, breaking to new highs around 3:00 and continuing higher from there. That is, until they lost all their gains and then some in the course of oh, 15 minutes. To be honest, I don't know what happened late - I was in transit from work and go home right at the close, but as I look at my Scottrade intraday charts, I am seeing gap downs, so maybe the charts are just messed up right now. Regardless, that close was awful and puts into doubt a lot of the good that was done yesterday. Volume was also heavier than yesterday so that is not good.

Officially, IBD put the market back into a confirmed rally based on a follow-through day on the Dow and S&P, but they were very clear in pointing out that there is really nothing to buy here. Today was distribution on those two indices, and that is not a good sign at all. Typically, a distribution day immediately following a FTD is a clear signal that the FTD will not work.

Last night, I pointed out how yesterday's action reminded me very much of October 13 (we reversed lower in hard fashion the next day) and after that close, that comparison certainly looks like it could be applicable. I also noted yesterday that there was a lot of resistance to overcome for the major indices, and today that resistance was blown past in the afternoon, but since we couldn't close above it, again, things look at lot like they did on October 13/14. We'll have to see if it will play out the same way - maybe the close was just some Fed day hijinks - but nothing surprises me anymore. Overall, though, I can't say today was bullish.

I didn't do anything today, as I still don't trust this market. There was no way I was putting a position on before the decision was announced, and then when the rally took place, I just didn't trust it - I expected a reversal as soon as I entered, and it turned out to be a good thing that I didn't do anything - my gut feeling turned out to be right. That's what this market has done to me - I question everything - and it will take a while before it gains my trust back. You have to remember at times like these that there will be plenty of time to get into nice charts IF this is really the bottom. Rushing in and chasing however will get you into trouble, especially in this extra-volatile environment. Since there were very few charts (virtually none) setting up in nice patterns, there is no need to jump in here - none at all. It's just like your parents always said - if you friend jumped off a bridge, would you? Obviously not. Just because others are jumping in here and trying to trade all these moves doesn't mean I have to. I am open to a rally here, even after the nasty close, but I am not ready to make a move guessing when or if it will materialize yet. The next few days should tell us a lot.

I will see what my scans show me, but as of now, I would expect the late pullback to continue early tomorrow. That is no way is a guarantee - honestly, right now who knows what this market will do 12 minutes into the future let alone 12 hours. Fed days also usually lead to several reversals of trend in the days following the actual decision. So basically we could just be in for some more choppy, volatile moves the rest of this week. Today the 20 day moving average acted as some resistance for the indices. We need to see if the 9 day moving average will act as support now. I will look for the lows of today to hold or we will likely be in for further pullback. Nothing can be easy right now, can it? Good luck if you are trading this mess. I will likely remain on the sideline, although perhaps I would take small chances on an inverse ETF or two upon further breakdown tomorrow. Take care.

Tuesday, October 28, 2008

Quick Update on the Scans

My breakout numbers came in at 2029, which is the highest numbers I have had this year(actually ever I believe). Now I have not gone through these scans and checked the charts, and my guess would be there still aren't many high-quality charts moving higher here, but that number is encouraging and is really what I expected to see back on October 13.

I still don't know if today means we are going to move straight up for here or even maintain a rally for more than two days - this market just remains too tough to know for sure about anything. Based on the breakout strength, I think there is a better chance of it happening now than there was back on the 13th. There are a few things to remember however. The biggest rallies always occur in bear markets - that is a fact. I think it would have been more productive in terms of a long-term rally if stocks could have moved steadily higher with four or five days of 1-3% gains on heavy volume instead of blowing their top in a one-day "super move". I think the Fed decision throws another variable into play here as well - no one knows how the market will respond. I don't know if the market even knows what it wants from the Fed. Will too big a cut be seen as another sign of how bad things are? Will too small of a cut seize things back up in the credit markets? Who really knows?

The chart below shows that although today was impressive, it in no-way is an "all-clear" sign to jump into the waters tomorrow on the long side. Basically today just took the indices back up into some levels of heavy resistance. If we can follow-through tomorrow with a heavy volume up day (and I am just talking about a 2-3% gain - I am not looking for another monster move) then perhaps things can move higher into the end of the year. That doesn't mean the bear market is over - it simply means we are long overdue for a significant bounce higher and maybe this will be the start of it. I think it is much too early to tell and I would rather wait for a little confirmation.

Dow, S&P 500
Chart from Telechart 2007, Courtesy of Worden Brothers, Inc.

I am sure you will read a lot of different opinions tonight on what today means and some very bold predictions for the rest of this week. I am not really in the prediction game - I would rather react to what does happen instead of guessing what will happen. I still think now is not yet the time to make big bets. Perhaps some of those prognosticators will be right and we will post a huge rally from here. Just remember though that the people who have been trading heavily the past few weeks are likely sitting on major losses anyway and today may just have recovered some of those losses for them. If you have been mainly sitting out, you will have the temperament and capital to make some big-time money whenever the market is ready to move for real. I think it pays to be a little patient here though to see if right now is that moment or not, rather than taking a guess and having to pay for a wrong guess in a severe manner.

I am off to a birthday dinner, so I am done for the evening. Take care and good luck tomorrow.

State of the Market - 10/28/08

After having an awful close yesterday and looking like they were about to break to new lows for the year, stocks did exactly what you would expect them to do in this market - stage a huge rally. That's what this market is and there isn't much we can do about it. World markets were very strong overnight which caused futures to be up substantially this morning. Stocks did gap up, moved higher for the first thirty minutes, but then fell sharply for the next hour, likely frustrating those who bought the gap open. Around 11, stocks hit a bottom, rose from there through the lunch hour, approaching their morning highs around 1:30. They pulled back at that point, but 2:00 caused another spree of buying which pushed stocks to session highs. The buying got even stronger in the last hour, and stocks finished with huge gains of over 10% on everything except the Nasdaq. Volume appears to be a little higher but not absolutely huge, which is what I would like to see on a day like today.

Today does nothing to excite me about buying stocks yet. Technically, we closed just above some downtrend lines and the short-term moving averages I talk about often, but just barely. Since volume was questionable too, I have my doubts about today and its meaning. Actually, it reminds me a bit of October 13, when the market had its highest precentage gain ever, gapped up the next day, but quickly reversed and fell quite a bit lower. I will have to wait until my scans are finished to see if the breakout numbers were better today. On October 13, they were quite low and that was a sign of trouble. If I see the same thing tonight, I may look at fading any possible gap up tomorrow.

The key right now remains follow-through - we need to get some tomorrow with heavy volume. If that happens, then perhaps we can bounce for a nice month-long or so rally. Until that happens for sure, however, I continue to not trust anything this market does. That's what the volatility of the past month or so will do to a trader. Additionally, there are very few real nice plays out there setting up(I am watching ISYS and UTEK, but that's about it), and I stink at trying to bottom-fish, so I may just sit it out for a while. You also have the Fed meeting to deal with and no one knows how the market will respond to their cut. All in all, we still have quite the mess out there and it will probably take some time until things improve and calm down in terms of a market that is tradeable.

I am still hopeful that at some point we can get a nice oversold rally going that is playable. I read a newsletter this past week from an IBD-style master trader and he suggested that all the volatility that we are seeing now is really tapping the emotional and mental fortitude of many market participants. I have to agree on a personal level to that idea. He also said this type of environment causes a lot of people to eventually just give up, and that is when the market can turn and form a true bottom. Perhaps this crazy volatility will get us to that point soon. I really hope it does. I keep expecting a capitulation but maybe we bottom in a different way where people just give up. I do read a lot of people that are really frustrated with this market (myself included) so that is one thing I am looking at and hoping can be a good sign.

If you are trading out there, good luck to you. I don't think we will have any clue if today meant anything until we see what happens tomorrow. It makes sense that we would continue to rally, which basically means we will probably be down 1,000 points tomorrow. Still tough out there - trade (or better yet, don't trade) accordingly. If the scans turn out well tonight and the numbers are better than last time, then I will be back later. If not, it probably means staying out of things and not chasing this bounce. Take care.

Monday, October 27, 2008

State of the Market - 10/27/08

Another day, another 400-point trading range on the Dow and another day where very little was accomplished. Foreign markets got thrashed once again overnight, and based on the futures, it looked like things would be bad once again. Stocks did open lower, but the low for the day was made quickly and stocks bounced higher from there. The lows were tested by the Nasdaq later on, but basically the rest of the day was choppy and no progress was really made. There was major selling in the last half hour with stocks breaking their earlier intraday lows and finishing with large losses. Volume appears to be lower to flat.

So once again, we didn't "crash" or have that one-day huge move lower like other market have had(although that was one nasty close), but that doesn't mean this market is holding up in my opinion. I think actually it would be beneficial to get a washout soon rather than this drip lower. Buyers still are not showing up. The market can rally 200 points off its morning lows, but there is no push higher than that. That's the best the bulls can do right now. With the market as oversold and beaten down as it is, we should have had a major rally by now. Maybe it still happens. Since it hasn't, I think it shows a lot about the state of affairs in the economic world.

Technically, the Nasdaq and the S&P 500 closed just slightly above their most recent lows(1493 and 840 respectively) and that certainly makes one think we will break through those lows soon. Maybe that will lead us to a washout and a temporary bottom, but how many times have I said or thought that over the past few months with no results?

Honestly, I don't care about this market right now. I have completely lost interest. My posts have been more infrequent recently because there is nothing really to post about. There are no setups on charts, and in my opinion, technicals are virtually worthless at this juncture. Anyone that tells you they are making a lot of money right now is most likely lying. This market is too spastic/psychotic/schizophrenic - choose your own adjective - to do anything productive trading-wise. Looking back, I should have realized this last week as well instead of trying to catch a bounce, but you live and you learn. If I can steal a line from AlphaDawgg from iBankCoin.com from a post he wrote today, "when the market is gay, stay away." I certainly think that description fits this market.

My basic attitude now is "wake me up when stocks can close above their 9 day moving averages." When that happens, perhaps we can get a short-covering, bear-market bounce going that would be tradeable. Until then, there is no reason to watch this chop and give any more of your money to this market. It's too late to short in my opinion, and there is absolutely no reason to go long yet. Patience remains of the utmost importance right now. Take care.

Friday, October 24, 2008

State of the Market - 10/24/08

It's the weekend, so the commentary is going to be short tonight. I think there are two words that can best describe this market - crap shoot (unless that is really one word and I misspelled it.) I mean, seriously, was there anything yesterday to tip off that we would be looking at a limit down open? I didn't see anything at all. Then, when everyone is expecting a monumental collapse, the market comes out and basically just does what it has been doing the past few weeks - chopped around in a 400-600 point range intraday and besides that, not doing too much. Yes, we finished off the lows, but we have done that many times in the past few weeks. Bottom-line is that I don't think today does anything to help show us where we are headed over the next few weeks.

Obviously today wasn't a crash. I was kind of hoping it would be, just because perhaps that is what we really need to put in a meaningful bottom or at least set up for a rally that would last more than two days. This month has been a slow-motion crash, and maybe it will just end with a quiet reversal that will stick. Who really knows? Again, right now it is a total crap shoot and there is no reason to trade it. Can anyone out there honestly say they know what Monday will bring us? Technicals still don't seem to matter, and fundamentals certainly don't matter right now. Unpredictable news events seem to be the key driving force in trading, but even then, you get weird reactions to news, so who knows? Seriously, if you trading right now, you probably would be better off going directly to Las Vegas or playing online poker.

There is no way to play this market. You can't go short and you can't go long. There is just nothing to do right now, nothing productive at least. I am hopeful we do at some point get some movement up, and I am pretty sure that will eventually happen, but for the moment, this market is just schizophrenic and completely random. It is best to stay away.

Have a good weekend - as usual, I think we all deserve it. At the risk of stating the obvious, let me say that this market sucks. Take care.

Stops Are Good

I know I have complained the past few days because I have been quickly stopped out of virtually every trade I have put on, usually to see the position go the way I thought it would after getting stopped out. However, when I see a morning like we are likely to have today, it reminds me of how important using stops is in trading. I have nothing to complain about today. Being 100% in cash means I can sit back and not have to stress about this market. Sure, I have lost a little bit recently trying to trade this volatility, but I can't complain when I think of what is going on with IRAs and 401K accounts across this country. It is very sad.

I have never seen a "limit down" open in my trading career and it doesn't look good. Good luck if you have positions on today - shorts or longs. I would imagine spreads will be all over the place and getting good fills will be difficult. I will not be trading at all today - no point in messing with this. I guess it goes to show you the old trading axiom of "a market can go as high as it wants to go and as low as it wants to go" certainly holds true. Be careful right now and again, let's hope that somehow our country can pull through this crisis and be better for it. I think historybooks will show that what we are living through right now will be one of if not the most challenging economic crisis we have ever gone through. I hope those same history books show we got through it. Take care.

Thursday, October 23, 2008

State of the Market - 10/23/08

Stocks were all over the place once again today, as this market and its direction gets harder and harder to decipher. Stocks started slightly higher, quickly fell, but then rallied back up and around 11:00, it looked like stocks could run a bit after being beaten down for the past two days. However, after reaching those highs, stocks just drifted lower, couldn't hold their morning lows during the lunch hour and stocks fell down hard, breaking through yesterday's lows and in the case of the Nasdaq, they broke their lows from two weeks ago. At 2:00, stocks did begin to bounce into the close, which allowed the Dow and S&P to close higher and the Nasdaq to close off its lows. Volume was higher on the S&P and Nasdaq.

Technically, it is really becoming quite hard to get a technical feel for this market. Normally, I would say it is bullish for the Nasdaq to break its recent lows but then close well off those lows. Normally, I would say it is bullish that the S&P broke its triangle pattern to the downside but closed higher for the day. We aren't in normal times however, so I don't know what to think anymore. We are still at historically oversold here on many measurements and I think a big bounce would not be a surprise at all. It also wouldn't surprise me to see these recent lows broken hard to the downside next week. Nothing surprises me right now. What I am going to focus on is whether this market can get over its short-term moving averages - it has tried twice in the past two weeks and has failed both times. I am watching 950 on the S&P and 1700 on the Nasdaq as key levels. If we can clear those on high volume, then maybe we can get a small trend going higher rather than this current roller-coaster ride that is taking us nowhere.

S&P 500, Nasdaq
Chart from Telechart2007, Courtesy of Worden Brothers, Inc.

I stupidly made two more small trades today - SSO at some intraday support (although I should know by now that term doesn't really exist anymore) at $29.33 and QLD at the same support at $31.32. I was expecting a rally today and after stocks bounced back, I thought it was worth taking a shot on a pullback that we could move higher. I ended up with 3% losses on both of these positions. These last two weeks haven't destroyed my account or anything - I am down about 4.5% since I jumped back into this mess but am still up 75% for the year. In hindsight though, I was doing so well staying out of this market and remaining patient, but thinking I would miss a big bounce, I let myself be pulled into trading conditions that have frustrated and confused even the best of traders, let along someone of my experience. Lesson hopefully learned though - you always have to be on the ball as you can easily let yourself slip into bad habits if
you are not careful. We're still not in conditions that will allow you to make a ton of easy money. Hopefully, those conditions will present themselves at some point in the near future.

If I see anything interesting in my scans, I will post later, but I just haven't in recent weeks so I doubt I will see anything new today. Let's hope for once we can get some follow-through tomorrow to the late bounce and this market can move in one direction for more than a few days. Good luck Friday, stay patient, and stay positive. Better times will come at some point - we just have to wait for them. Take care.

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Wednesday, October 22, 2008

State of the Market - 10/22/08

Another bad day on Wall Street today as the positive reaction to earnings last night didn't last very long. Overseas markets were down big and futures responded here by heading lower into the open. Stocks gapped lower and fell from there for the first half hour of the trading session. They rose from there into the lunch hour and came close to challenging the gap open, but couldn't do so and fell back down to challenge those morning lows around 2:00. Those lows held on the first test, but were tested several times after that as well. They finally cracked during the final hour as stocks broke down hard, and only a very late bounce took stocks above some key resistance points on their charts. Not a good day at all for this market, and volume was slightly higher, although still not super heavy.

Technically, it seems like the indices are forming triangles and broke through those today to the downside. The 900 level on the S&P is important and it was broken slightly today, closing just below it thanks to the late bounce. You can see below that the indices are sitting right now near key support at the bottom of these possible triangle patterns. If we don't hold these areas tomorrow, then all of this talk of a bottom may turn out to be just that - talk. We shall see.

S&P 500, Nasdaq
Chart from Telechart2007, Courtesy of Worden Brothers, Inc.

I did nothing today as this market is just extremely frustrating and I don't have any confidence trading at the current time. Right now, when I put on a trade, it seems like I feel the trade should work, but I am not confident at all that it will work, if that makes sense. Days like yesterday have frustrated me so much that I just really don't feel like messing with things right now. It turns out I did make the right "play" yesterday buying into SDS and DUG, but since the trading yesterday was so up and down, I was out of them via stops before I could realize any gains on them. I mistimed it I guess, but it definitely sucks. Those two positions would be up around 11 and 19% respectively right now if I was able to hold onto them overnight. There is nothing I can do about it - this is just how the market is trading and I would guess the volatility is making it tough for many traders, not just me - but it certainly is extremely frustrating, especially swing traders.

As it is, there isn't much to do right now after the heavy selling we saw today. We are probably due to bounce again sometime soon (tomorrow is a possibility) if the recent pattern holds true (buy the dips, sell the rips) but I am not confident enough to put money on the line for that possibility. Earnings also will still be on stage and the reaction to them is what no one really knows until it happens - looks like AMZN was pretty ugly but I don't know if they are big enough to affect the whole market. Good luck if you're trading this market heavily - I think I am back to the sidelines after trying to make a go of it for a few days. All these gaps, intraday reversals, up and down action - just makes it too difficult to get positions put on. Take care.

Tuesday, October 21, 2008

State of the Market - 10/21/08

Another day filled with roller-coaster action for Wall Street today, as futures were lower and the market opened lower. The first half hour or so saw a fairly tight trading range, but those were eventually broken to the upside and stocks moved higher, although not above yesterday's highs. For the rest of the morning, stocks pulled back to the lows of the early session, and fell through those lows hard around noon. They hit a temporary bottom around 1:30, rallied strongly from there and looked like they would turn positive for the day. However, the indices were rejected at their morning highs, and stocks fell hard back into the close. Both the Nasdaq and S&P 500 underperformed today, and both closed near the intraday lows. Volume may be a little bit higher than yesterday but was still below-average.

Technically, the story pretty much remains the same as yesterday. Resistance has yet to be clearly broken to the upside on heavy volume and until it does, I think getting bullish right now is premature. We could still break out sometime this week, but the main variable now is probably earnings, and no one knows for sure how they will turn out and how the market will react. There is a good chance we just chop around here for a while, which isn't necessarily bad. If we do quiet down a bit and move sideways, stocks will slowly be able to repair all of the damage done to them over the past two months, and bases that look good will start to form.

I made two trades today as I was watching some inverse ETF's intraday. Due to the market volatility, both were very frustrating. Around 12:00, the ETF's cleared resistance and broke to new highs for the day. When they pulled back to those levels about an hour later, I decided to take a shot there - I went into DUG at $45.50 and SDS at $91.62 and put stops below those support levels. Those levels held initially, but later broke and I was stopped out (DUG at $44.84 for a 1.5% loss and SDS at $89.89 for a 1.9% loss). The trades weren't terrible setups but still were not successful and I am still not listening to my own advice about staying out of this market due to its wild swings. It remains hard to start positions and stay with them, at least for me and for my style of trading. Today was another in a series of trades that turned out to be correct but of which I was stopped out prematurely. The easy answer is to loosen my stops, but I know I can't do that in this environment because as soon as I do, the position runs against me big-time and I get a big loss. The best answer is probably just not to trade until the intraday volatility lessens, and that is really what I should do.

We'll see what tomorrow brings with all the earnings reports coming out, but today was quite bearish and I still think there is a better chance we head lower in the short-term than breakout here. The short setups I posted this weekend still look good in most cases. If we can clear Monday's highs on heavy volume, then I would start looking at getting long. Until we do, I just see a lot of chop and trading that is a good recipe for failure, as I have found out recently. Patience is a virtue in trading and I need to remember that. Good luck Wednesday.

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Monday, October 20, 2008

State of the Market - 10/20/08

Sorry for the late post - I just got back from the dentist where I got my first crown put on so I was away from my computer for most of the last hour of trading. I may be back later with some more thoughts after going through my scans, but at first glance, today was basically what I expected on Friday. The morning pullback was bought, stocks moved steadily higher, and ended up closing at their highs of the day going away with sharp gains in the last half hour of trading. This is why I went long early Friday in anticipation of a move like this, but Friday's reversal messed that up for me at least. If you held through it and got the benefit of today's move, congrats to you.

Where do we go from here? Well, the indices closed just above their 9 day moving averages - this is one thing I've been waiting for. I consider that to be bullish, but they just barely closed above them and volume today was really, really low compared to last week's session. I definitely don't like that. They really couldn't get over their trendlines as well, so I can't say we "broke out" today for those reasons. On the bullish side, the VIX did breakdown significantly and perhaps that is a sign of more gains to come. All in all, as much as I would like to say today gave me some clarity as to where we are headed in the short-term, I can't say that it does. I want to see some follow-through tomorrow with higher volume. If I was still invested here, I would let my positions ride on the long side but with a fairly tight stop. Since I am not invested however, I think I can wait a bit longer to see what happens. If volume was heavier today, I would probably be more excited. Unfortunately, it wasn't.

Dow, S&P 500
Nasdaq, VIX
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

If I see anything interesting when I do my full scans, I'll share later. A quick look at the shorts I listed last night tells me that those setups still look decent. I am seeing quite a few bear flag setups in the commodities - rallying on lower volume. Based on what I am seeing right now, I don't think I would buy a breakout here - I would probably look for more of a reversal lower - but that is just a guess. We'll have to see what tomorrow has in store. Good luck.

Sunday, October 19, 2008

Still Historically Oversold, But Friday's Action Was Quite Bearish

After Thursday, I was pretty optimistic about the short-term direction of this market. After seeing the market sell-off rather hard at the open Friday and then recover to put up large gains into the afternoon, I was even more optimistic that perhaps a nice bear-market rally was getting some legs. The sell-off in the last two hours Friday however turned all of those thoughts upside-down. Now, I really don't know where we are headed in the short-term - no good feeling one way or the other.

Here are the indices, and just like Tuesday, the 9 day moving average acted as strong resistance for all four major indices. In addition, it looks like steep downtrend lines are being formed on all the indices. As long as the market stays below these levels, I have to stay cautious and at least neutral if not bearish. Around 1:30 on Friday, I thought there was a very good chance these levels would be broken to the upside. Obviously the market isn't ready to do that yet.

Dow, S&P 500
Nasdaq, Russell 2000

Another reason I was optimistic going into Friday was the action of the VIX during Thursday's trading - it put in a large reversal after hitting levels (mid-80's) not seen except I believe on the day of the 1987 crash. There was no follow-through to this reversal however on Friday and the VIX actually closed higher. It seems to be holding a steep trendline and continues to close above its 9 day moving average. That is not bullish.

VIX

Since we haven't broken out or gotten anything going on the long side for more than about a day, I can't be very bullish right now. At the same time, I continue to see record levels in terms of oversold conditions on my scans. The numbers have actually gotten even more extreme over the past two trading sessions, even though the market was going up a bit. These numbers make me hesistant to short heavily at this juncture.

I did find some short setups in my scans this week so I am posting them below. It's still pretty tricky out there so you may want to take profits as you get them.

AGU, CF, MON, PENN
MPWR, GHM, IPHS, WGOV
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

So what does this all mean for the upcoming week? My current feelings are that we are likely to just continue having sessions with large intraday swings like we saw last week, but that those swings still won't really take us anywhere meaningful. Basically, I think we stay in a range for a while with the 9 day acting as upward resistance and the recent lows acting as support levels. If we break either of those levels, then the outlook obviously changes. It's hard to imagine the market heading even lower with all of this historical levels indicators are hitting, but if we move sideways for a few weeks, then perhaps those indicators come off their lows and then we start a new wave lower. Anything is possible. If we do stay in a range, however, I think trading will likely remain difficult and all trades should be very short-term in nature. If you have a position that moves for you more than a day, I would consider locking in profits, just because that's how the swings have gone recently.

I was fairly active trying to make some swing/day trades last week with very limited success. Perhaps that was Mr. Market telling me I need to go back on the sidelines until things become better for my style of trading. That is likely what I am going to do next week - not much of anything. I just don't have a good feel one way or the other right now, and I don't feel like giving any of the gains I worked for all year back to such a crappy and undeserving market.

I am still hopeful we can get something going at some point - I would love to get long and make some gains on that side of the market after being short for so much of the year. But with all the damage done to individual charts, it is going to take a while for stocks to build bases that would be worth buying anyway. I'll be ready and will watch for signs - I just don't know that we are going to get any in the near future. Good luck this week. Be careful - it's still really tough out there.

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Friday, October 17, 2008

State of the Market - 10/17/08

Following a bullish reversal yesterday, futures were down this morning on the release of poor housing numbers. Stocks gapped down at the open but were able to hold there, rallying higher and actually turning positive at various times during the morning hours. Stocks moved sideways into and through the lunch hour, but broke out around 12:50 and moved significantly higher for the next hour or so. They started to pullback at 1:40 and did so all the way back to the lunchtime consolidation area as the final hour approached. Those areas held for a while, but when stocks couldn't bounce up, they just fell through and closed with losses across the board. So overall, a very disappointing end to what shaped up for half the day to be another very impressive performance by stocks.

As much as I didn't want to after my trades the past two days, I felt I had to test the waters on the long side early in the session after the market bounced a bit. I went back into SSO at $30.48 and QLD at $33.46 - right now these ETFs are the only thing I am playing due to the lack of bases in individual stocks. I also kept my UYG position from yesterday although it came precariously close to my stop loss a few minutes into the session. It sucked getting stopped out of them yesterday, but I felt I couldn't let that affect my current decision-making and I did have sort of a hunch we would reverse higher. As I stated last night, I thought there was a lot to like about yesterday's action.

I added to my UYG position at $10.62 and to my QLD position at $35.64 as the market broke out above some intraday resistance. I was very happy when the market was up almost 300 points, and I fought the urge to take my profits right there. That was a mistake. As the market ran up against its 9 day moving average, I probably should have looked harder at taking at least some profits there, but I was optimistic at that time following the morning action. I have pointed out in the past that this is often an area of reversal, and it was on Tuesday this week. As it is, I let my positions go and ended up getting stopped out of QLD at $34.60 for a 1% gain. I thought I gave it plenty of room to move around and the stop was still hit. I went back in at $35.92.

Around 3:20, when the market did break through its consolidation area to the downside, all of my stops were hit. SSO was hit at $31.36 for a 2.65% gain. UYG was hit at $10.29 for a 0.34% gain. The second QLD position was hit at $34.27 for a 4.6% loss. That was my real mistake for the day - reentering that position. It is the only one I took a loss on.

I really feel like I mismanaged positions today and let myself get influenced by a longer market outlook than I should have allowed. I was very optimistic when I saw stocks bounce back from the heavy selling this morning and I let that affect my outlook too much. This is still a market that can't be trusted for more than a few days(maybe not even that long), and with the volatility out there it makes sense to either not trade at all or just make all trades short-term in nature. Nothing I can do about other than adjust my trading. If this is how it is going to be, then I need to take profits when I get them and not be so greedy.

I am very frustrated right now and am happy it is the weekend. After the past few trading days, I need to get away from this market as it is driving me crazy. Overall, my account hasn't been hurt this week - down a little from the start of the week but pretty much flat - but it is just frustrating to make some good entries on trades and not get anything out of them, and that's what it feels like to me right now. I was encouraged by the market action yesterday and especially by the way stocks bounced back from the early selling today. Around 11:00, I was really thinking that perhaps yesterday was the start of a really nice bear market bounce. However, the reversal at key resistance (9 day MA) leaves me back to questioning things. The intraday charts look very ominous with head and shoulder patterns, and the late selloff takes away any optimism that the earlier bounce gave. Perhaps this is just how it is going to be for a while - up, down, up, down, but not really going anywhere. Enjoy the weekend. I'll probably be back sometime with some other thoughts. Take care.

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Thursday, October 16, 2008

Nothing Definitive, But Some Encouraging Signs From My Scans

Quick post after doing my scans. I'm still not really finding any great setups - that will take a while in my opinion as stocks need to base for several months before the damage done over the past few weeks can be healed. That being said, my Telechart numbers look a lot better today than they did on Monday, which is one main reason I am cautiously optimistic that we could move higher from here. Let's look at the numbers(by the way, these are all the early results and could change slightly after Telechart does their final update).

#1) Breakouts - There were 1485 breakouts (4% or higher) today on higher volume. This is the type of number I expected on the record-breaking session Monday, when there were only 547. That low number worried me Monday and it turned out to indeed be a sign of trouble. Today is a much better sign. Also, in comparison to yesterday, the buying interest was higher today (net positive of 1202 - 1485 breakouts vs. 283 breakdowns) than the selling interest was yesterday (net negative of 1025 - 38 breakouts vs. 1063 breakdowns). Considering that the losses yesterday were almost twice as big as the gains today, I have to think it is bullish there was more buying interest today. This is the main data point I was looking for - I hope all these numbers make sense.

#2) I had a large increase in the number of oversold stocks in my scans today, as well as an increase in the number of stocks down 50% or more in a month. That in my mind is bullish, for the more these get stretched, the more powerful a bounce can be.

#3) The VIX had a much more traditional reversal today (high of 81 and closed at its lows of 67) that is more like one I am used to seeing at the start of a bullish move in the market. Last Friday, the VIX still closed in the upper half of its range.

#4) Volume did increase today on the up move and technically, the selling of the previous two days did occur on lower volume. I don't how much technicals matter in a market like this, but it is something to consider.

I am not naive enough to think that these data points guarantee us a big rally here, but I think they help. I don't know that I will get extra aggressive yet on the long side, but if we open higher and can hold the open tomorrow, I may look to slowly add more exposure to the long side via more ultra ETF's. I will continue to use stops because in no way is it certain that today's reversal will be the one that matters. I think there is a good chance it is, but we have to see. This is the craziest market possibly in history and in an environment like this, it is quite important to remember the market can do whatever the heck it wants to do, and you must respect that.

The charts I am watching haven't changed from my last list posted. Most are just the ETF's.

Good luck Friday. Let's hope today was the start of a move higher that we can make some money from. Take care.

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State of the Market - 10/16/08

Another very choppy day today on Wall Street, but overall it was constructive as stocks fought back after being driven down early so that is a welcome sign. Stocks moved higher for the first 15 minutes of trading today, but fell from there rather hard. By 11:00, stocks were down big once again and it looked like the recent lows were due to be tested. Stocks rallied from there into the lunch hour. When they met resistance near the opening highs, they pulled back a bit, moving sideways and consolidating until the final hour began, when that consolidation was broken to the upside and stocks moved higher to post impressive gains. The buying intensified in the last hour as a pullback held support and stocks finished with large gains. Volume was higher which was good to see.

Technically, the indices came close to testing their recent lows today and I think that today's action could be qualified as being "close enough" in that regard. If today's lows are broken soon, then I think we crash through the other recent lows. At some point, buyers need to put a floor under this market and this would be a good time to do it. We have to see if there is any follow-through tomorrow - with options expiring, who knows what will happen? I will still watch the 9 day moving average as a possible area of resistance - right around 1765 on the Nasdaq and 970 on the S&P. If we can get through these and close above them, then perhaps this market can move higher more than for just one or two days.

I didn't do much of anything during the morning and after seeing the further selling, I am glad I didn't. However, when I saw the market reverse to the upside, I decided to look for possible "low-risk" (I don't know if those really exist right now however) setups. I entered QLD at $31.65 and SSO at $28.73 in the afternoon after it looked like they were poking above an intraday pullback, and put my stops below the lows of that pullback. It wasn't more than about ten minutes that I was stopped out as the market reversed quickly, giving me a 4.1% loss in QLD (sold at $30.43) and a 2.9% loss in SSO (sold at $27.94). After the late bounce, these trades were very, very frustrating. My stops were just a little too tight.

Perhaps because of some buyers remorse, I did go back into QLD later at $33.46, and into UYG at $10.08. I kept stops under the low of the breakout point, and my QLD stop was hit again at $32.48, which gave me another loss of a little less than 4%. Once again, very frustrating. UYG wasn't hit and I still have it, but right now, I am ticked off pretty much for losing these trades and seeing them move higher.

I am pretty sure I got a little overconfident after catching the reversal on Tuesday, and this has led me to taking some questionable trades the past few days. I have been pretty good in terms of discipline the past few months as this market has tanked, but the trades I've made the past two days hurt. It's not that I lost anything on them - it's just the way I was stopped out just to see them move higher. This market is just too tough and too volatile to do a whole lot unless you have an iron stomach for taking potentially large losses, and I know myself well enough to know that I don't have that. I can't give my positions the 5-7% that stocks seem to need in this market intraday - it is just not my style and doesn't fit my temperament. Because of that, I have to realize it probably isn't smart for me to trade much here because what happened today will probably happen again - I will set a stop that's just a little too tight and it will get hit. I still don't feel comfortable enough with this market though to make me let my positions swing a little looser. It would have been better to just not trade.

Today was impressive and I like the way the intraday charts look right now, but with the volatility we have been having, it is hard to know for sure if this will be for real. Because of that, it may be hard to play a bounce perfectly. It may pay to wait a bit to see if today can turn into something better rather than jumping in blindly or too early. It is still entirely possible we could have another reversal like we saw Tuesday. You just never know right now. It is sometimes hard to wait when you think the market is going to take off without you, but you must remember that if we do get a sustained rally, there will be plenty of good opportunities to make money. I have to remind myself that right now. I will be back to let you know what I find in my scans. If the numbers are better than I saw on Monday, then I will become more bullish in the short-term. Good luck Friday.

Wednesday, October 15, 2008

State of the Market - 10/15/08

Not a good start today for Wall Street, as a poor retail sales number rattled traders, and stocks gapped lower to start the day and continued to drift lower into the lunch hour. Through the lunch hour stocks moved sideways, as the 950 area on the S&P 500 looked like it would act as support. Around 1:30, that support vanished, and stocks fell to new lows for the session. A bounce ensued a little after 2:00, but ran out of steam in the last half hour and stocks fell hard, closing with major losses once again. Volume does appear to be lower.

Technically, the indices followed-through on the downside to Tuesday's bearish reversal and could fall further from here. I did think we would need to test the recent lows before a good, solid, possibly permanent bottom could be put in. I in no way thought we would do it so quickly, and maybe I am jumping the gun here. We still haven't gone that far yet, but the selling was pretty severe today and I think if it continues tomorrow and Friday, then the idea of a nice bear-market rally starting here disappears in my opinion. I don't think a test of the lows this quickly after they were established is bullish at all, and if the bulls don't step up soon, then perhaps we break those lows soon. These are just guesses, to be honest, but I think 909 on the S&P 500 and 1635 on the Nasdaq may be important number to hold, as these were the lows last Thursday before the reversal started Friday. The crazy times continue.

As I stated yesterday, I didn't have a good feel one way or the other of where we would head today. Perhaps I should have just stayed away because of that, but I didn't. After the gap low, I saw yesterday's lows as a key level, and decided that if they held, I would look to go long, and if they broke through those levels to the downside, I would go short. That wasn't a bad decision - I just picked the wrong instrument to do it with. I went into SKF at $124.40 and set a stop below the morning lows. That was hit a little bit later to give me a 2.4% loss. I made the position a bit larger than I should have as well, so I gave back a little bit of my gains from yesterday. For some reason, the financials actually held up better early on during the heavy selling period. I would have been better off just holding my SDS overnight but this market has me sort of spooked with all of its gap-ups, gap-downs, and news-driving moves.

Normally, I would have been done for the day, but I decided to keep an eye on things and looked for a low-risk place to possibly get long, like I said I wanted to do for the past few days. We did pullback, and so I figured it was worth taking a shot. On the intraday chart, there was what appeared to be strong support from intraday action Monday, so I thought that may be an area worth looking at buying with a tight stop loss to limit risk. I did enter into SSO at $32.079 and UYG at $11.36, using the lows of the day as my stop loss levels. I figured it was worth the risk because my losses would be small if it didn't work out, and that I still had a little money to play with from yesterday. It didn't work out though - both stops were hit later (UYG at $11.14 and SSO at $31.63) and gave me losses of 2.0% and 1.5% respectively. That caused me to give a little bit more of my gains from yesterday back to the market.

When I said I didn't know where we would head, I should have stuck with that and not traded today. I probably got a little overconfident catching the reversal yesterday and that cost me today. But today proves the action is still difficult to gauge - I thought we would pull back, but I didn't expect it to be this quick and this forceful. It makes establishing positions once again difficult. As it is, I will look for possible points where a bounce back up will occur but I kind of expected one by now so it may be tough to pinpoint when it will happen. I may just sit back and not trade the rest of this week, especially with options expiration on Friday and more earnings reports coming out.

I am still of the opinion the next few weeks will be choppy with the market having large intraday swings but not really going anywhere productive. If that holds true, it makes sense to take profits on longs if we bounce for more than a day or two, and to cover any shorts if we fall for more than a day or two. I was way too early getting out of SDS, but if I still had it, I am positive I would have sold out today. From what I see, that's really the only way to trade this market. It is still a tough market for traders with a time frame more than a day or two. As it is, I guess I am still looking for a bounce sometime soon - I just don't know when. I think it's too late to short here. If we gap down tomorrow, I may try to buy a few ultra ETF's with very tight stops like I did today and see what happens.

Good luck tomorrow. I apologize for not putting up individual charts as much recently but I really haven't been finding setups in individual stocks due to all the carnage, so I have just been focusing on the ETF's until more bases hopefully set up over the next few weeks. After today, I am starting to doubt if that will happen. Take care and be careful out there.

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Tuesday, October 14, 2008

State of the Market - 10/14/08

After setting a one-day record yesterday, the optimism continued pre-market today on Wall Street, as futures were up big and stocks did gap up again at the open. However, that was the high point of the day for stocks, as they slid after about ten minutes and by 11:30 had given up all of their opening gains and then some. From there stocks did bounce back up and went back to the positive side, but couldn't hold those gains and the market drifted back down and through its lows for the day. A bounce ensued as the final hour began, but didn't do much and stocks couldn't really get over their overhead resistance. All three major indices closed with losses, but the Nasdaq was much worse than the S&P and Dow today with a loss of over 3%. To be honest, I don't know why tech was down so much in relation to the other indices. Volume was slightly higher today but not by much.

Technically, I pointed out last night that I thought the 9 day moving average might act as a possible reversal point in the short-term, and that is how things played out today. I am still looking to get long at some point in the near future, but I really don't have a good feel either way for where we head tomorrow. Ideally, what I would like to see happen here is some quiet trade for a few days before the market takes off again to the upside. I am not naive, however, and really have no expectations of that actually happening. I think more likely is that we have a lot of days like today, where we have a gap either way to start the day off, followed by some sharp reversals. In the end, we may not end up much of anywhere on those days, much like we did today.

After passing on a good intraday opportunity yesterday morning on the long side, I said that I would stick with the game plan I wrote about last night and did enter two inverse ETF's after the gap open we had today. I entered SDS at $79.408 and SKF at $109.85. I did not go "all-in" with these trades because they are short-term trades and I know how volatile the market is right now - about two-thirds of my account stayed in cash. For anyone to go "all in" right now is not smart in my opinion. I was very much tempted to take profits around lunch-time when I was up a good amount, but I resisted that urge and just moved my stops up instead.

My stop in SKF was hit at $113.37 for a 2.95% gain - not much overall, but I know I have to keep stops in this type of market. It kind of stinks though to not get a bigger portion of the reversal today. My SDS position did not get taken out until a little later when my stop was hit at $87.85. That gave me a 10.4% gain, which isn't too bad. The SDS position was almost twice as large as the SKF so all in all I am happy. I don't know that I would have held them overnight anyway. Looking at them right now, I think they still may have room to move higher (with the market moving lower) but I don't feel confident enough of that outcome to put any money on the line to find out.

Today is most likely what my trading will be like for the near future, and possibly for the rest of the year. I may take some opportunities once in a while intraday if they pop up, but I still can't see myself buying positions with the intention of holding them for a longer period of time. Although I think we may head higher over the next few months, I think it will be a very choppy, very volatile ride and that will make it difficult to not get stopped out of positions. If we do happen to base quietly a bit over the next few weeks (again, doubtful) then more stocks may start popping up in my scans and that may lead me to being more active on the long side. I would love for that to happen - we'll just have to wait and see if it does, because I think there are still a lot of questions out there.

Good luck tomorrow - as I said earlier, now that we pulled back, I can see us going either way tomorrow and for the rest of the week. Ideally, I would like to see a further pullback before entering a few long ETF's, but as always, I realize the market rarely gives you what you want as a trader. After I do my scans, perhaps I will have a better feel and a better idea of where I would look to perhaps get long again. Take care and be careful out there.

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Monday, October 13, 2008

Some Interesting Numbers From My Scans

Short post tonight. Just wanted to point out some interesting numbers I saw in my scans and ratios tonight that really surprised me, considering how much we were up today.

#1) There were only 547 breakouts of 4% or higher today on heavier volume. This is a good number, but nowhere near the numbers of I have gotten in the past on heavy up days. On September 30, we had 603 breakouts. On September 18 and 19, we had 1852 and 1248 breakouts respectively. I expected a huge number today (over 1500 is the number I had in mind) and was surprised when we didn't see that, at least for a record-setting day.

#2) My price/volume scan (the main one I use to find IBD-type long candidates) had only 28 stocks show up today. This scan looks for stocks above their 50 and 200 day moving averages and were up on the day with higher volume, and under normal conditions, even in a bear market, I can find at least between 40-50 in this scan. This highlights the problem I am having in terms of finding charts that are worth playing for my style of trading.

3) My oversold reading has quickly gone back to completely neutral in one day. If you saw the chart from this weekend, you can see how extremely oversold we were, but at least on this one Telechart measurement I use(it is based more on individual charts rather than the indices), that has been taken care of and we are back to being flat. The momentum indicator is still oversold however so these may cancel each other out.

GXDX, AVAV, and SVR are three IBD-quality stocks that I am adding to my watchlist tonight. I really don't see any others. And the above info pulled from my scans takes a little bit of the shine off the action today for me. Not all of it - it was certainly impressive and I do think we could be seeing a bottom here. I just think it will be a process with some pullbacks mixed in, perhaps sharp ones, and I think for the near-term, things will continue to be volatile. In terms of swing-trading, I think it is too late to buy and I think the possibility of a pullback soon is strong with as many crosscurrents still facing this market.

Because of this, I am leaning to possibly adding some inverse ETF's with tight stops at some point tomorrow if we rally a little further, or if we gap up again. If you look at the charts below, you can see why I am thinking this and where I may take a shot at entering a few of these. The lower volume really bothered me today. Perhaps I am overreacting because it was a holiday and such but I just expected more on such a big percentage move. Bottom line is that I won't be chasing longs here, and although in all likelihood I won't do anything at all, I may try a few of these inverse ETF's near resistance to see what happens. I would keep the stops very tight however because I do realize that I could be completely wrong and this is not the time to be stubborn and locked into any outlook, at least in my opinion. Just like stocks moved much faster to the downside than people expected, the possibility does exist of a few more days of very powerful moves to the upside.

S&P 500, Nasdaq
DDM, SSO, UYG, URE

As I write this, the futures are up big once again. If this holds tomorrow, I may indeed try to fade it. Perhaps that is stupid, but we shall see what happens. If we do pullback, that's when i would be looking to get in - not here. Good luck Tuesday.

State of the Market - 10/13/08

More government "guarantees" from around the globe brought out buyers today, as stocks gapped up at the open, barely pulled back from there, and continued to rise throughout the rest of the day, putting in major gains. The buying really accelerated in the last two hours, and stocks put in their biggest one-day gain in in history. As everyone in the world knows, the market was at historical oversold levels after last week, and a bounce was not only expected but overdue. However, today's bounce came on much lower volume, and stocks are still very much "messed up" from a technical perspective. Perhaps today is the start of a much bigger move - I hope it is - but I am going to make it prove itself to me before I get too bullish. I still think the environment we are in is very susceptible to wild swings and lots of head fakes, and I will trade accordingly.

Once again, I didn't do anything today. Part of the problem with this type of market is it seems like everyday we have a gap - either up or down - and establishing positions is difficult in that environment. If you did hold longs over the weekend, congrats to you - you deserve the gains you got today for taking on that risk. I knew I wasn't going to chase the gap up at the open, but I did say to myself that I would look at entering things on the first pullback to the gap low. I said that, but when the opportunity to do so came around to do just that (I was mainly looking at SSO and DIG at that time) I just sat there and did nothing. Obviously by the way we closed, I am somewhat upset I didn't act. I passed on lower-risk opportunities that turned out to be good ones. That is a weakness I have shown this year - passing on good opportunities - and something I still need to work on.

As it is, I am certainly not buying here. My game plan is to remain patient and not chase stocks higher. I want to see how stocks deal with their short-term moving averages, namely the 9 day, which typically acts as strong resistance on strong moves lower and is just above where the Dow and S&P closed today. Ideally, I would like to see stocks test their recent lows once again, if for just a brief moment, as I think that would give a better "line in the sand" for stocks to move higher from and for a longer period of time. If nothing else, I would at least like to see stocks pullback and see if more panic ensues or if buyers come in to bid them up. That would tell us a lot about the sustainability of any rally here and if sentiment has indeed turned, or if today was just a major short-squeeze of historical proportions, which could be the case.

Still lots of news out there, and as such the volatility will remain high. This is a day-trader's paradise, but as I mentioned this weekend, for me and my style it just isn't ideal. Add in earnings reports coming out in droves, and the craziness will continue. So as hard as it may be, I am willing to wait to see how this plays out a little further. I know I am missing some gains (as I did today) but at the same time I have to remember that I would have likely sustained some major losses last week if I was trading, so it's all good. I still don't feel like blowing too much of 80+% gains for the year on questionable "bets', and I still feel like that's what any trades I would have made over the past week would have been. There will be opportunities that present themselves in time - it may be this week, or it may not be for another few months - but they will come. I'll be there and hopefully ready for them when they do. Not much to do right now however with the huge move today - I would probably look to get short more than long in the short-term, although I don't plan to do either. Good luck to all Tuesday.

Saturday, October 11, 2008

Hard to Find My Type of Long; Still Lots of Questions Remain

Not quite sure how to get my thoughts down best this weekend so I am just going to go point by point here.

First off, there is no doubt that the past two weeks have been the among the worst (if not THE worst) in the history of our stock market. My Market Map scans show this as they are at levels I have never seen and probably will never see again. For instance, I had 457 scans show up in my "down 50% in a month" scan. If you think about that - over 450 stocks losing 50% from their high of the last twenty trading days - it is truly amazing and not something I expect to see again in my lifetime (at least I hope so). The rubber band has been stretched just about as much as it can without absolutely snapping, so a bounce can happen at any time. I don't think I need to tell any of you any of this - unless you were in a cave for the past week, you realize this already.

Market Map

Everything points to us putting in a temporary bottom around here - everyone and their mother has been trying to call one and pinpoint the exact moment when it will occur - and perhaps Friday will prove to be a turning point for the market in the short-term. It was good to see the reversal in the morning, and it was also good to see after falling all the way back down to its morning lows and threatening to break through those that stocks were able to reverse once more into the close. I didn't like the last half-hour or so, but I'll mention that later.

I have no way of knowing when the bottom will finally occur - no one does. It is impossible to tell for sure that a bottom has been put in until a few weeks after. I think that will hold true here. As it is, I still think this market is news-driven and until it isn't, or until the news is clear and positive, I really don't think it is smart to put too much stock (no pun intended) in any day-to-day movement in this market. For instance, let's look at Friday. I am already reading a lot of blogs calling this "the bottom". It certainly does hold some of the characteristics that typically appear when one is formed. If it really was a panic, v-bottom, why would the market fall over 300 points in the last thirty minutes or so like it did? For me, there are just too many questions still out there to do much of anything, and I am guessing those questions will hold me back from being very aggressive just yet.

For my style of trading (swing trading with optimal holding periods of several weeks to months) the opportunities just aren't there right now. Going through my scans, I see none of the patterns I typically trade whatsoever - none at all. I see some bullish tails that might turn into reversal patterns, but I am not an expert at those and I know I am not strong at trading stocks off their bottoms. I would much rather buy stocks that are strong and breakout of bullish patterns or pulling back to support levels. I can be successful with those patterns. With the carnage of the past two weeks, those type of setups just don't exist right now. The patterns I see all look the same. There have been no stocks which have held up well. All the stocks I see are below their main moving averages now. Much like the indices, charts now all just look like waterfalls. Some fell more than others, but they all fell sharply, and I have no edge in terms of picking which ones out of all those similar charts are more likely to move higher. Since I have no clear edge based on my current skill set as a trader, I can't be too agressive. I just can't.

It is certainly frustrating to sit here and do pretty much nothing week after week. I have accepted it though and realize that it might be that way for a while, at least for my style of trading. I know there are traders out there that are making a lot of trades right now, but they have different approaches than me. I may make some small trades, and there are a few charts that I think may workout OK if we bounce soon, but I can't see myself being very aggressive right now until things settle down and things become clearer. If you trade a similar, CANSLIM-type style as me, I would suggest the same outlook here. I would rather be conservative right now and wait for some confirmation before jumping in too early to a move higher and get some quick and sharp losses.

Here are a few charts I am watching. I have no problem going long at some point in the near future - in fact, I would love to and hope I get the opportunity. I just need to be patient and wait for that right opportunity. Even this weekend, we have already seen another measure taken by our government as they will now buy stakes in banks. Do you know if the market will take this news positively or negatively? I have no clue. No one knows. That's the point. In a few more days, I think we will know if Friday was meaningful or if we still have not yet hit the point of max pain for traders out there that might be necessary for this market to turn for real.
For me, I am willing to give up a few points on possible trades in exchange for those answers.

STSI, FRM, JOSB, FFH
TWP, SQNM, FSYS, HEV
CHK, ARD, THOR, BMI
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I apologize if I sound like a broken record, but my opinion on things hasn't really changed. Anyway, hockey is about to start so I am out of here for the rest of the weekend. Good luck as always next week.

Friday, October 10, 2008

State of the Market - 10/10/08

As a relative newbie to trading, all I can really say to describe this market is "WOW". Today was the wildest day I have ever seen trading and I assume it was the most wild day for a lot of traders out there. Things started very poorly early on, with the Dow falling a huge amount in the first ten minutes of trading, only to reverse powerfully and rise to a modest gain for the day around 10:30. That bounce looked great, but it didn't last and stocks fell from there throughout the rest of the morning, all the way down to test the morning lows between 2 and 3. Those lows did hold, and stocks rocketed higher once again in swift fashion, turning positive in the last hour of trading. A late pullback prevented all of the indices from closing positive, but it was still a positive sign for stocks to reverse the way the did. Volume was also very heavy today.

Due to the early reversal, I did wade back in to the waters this morning with a small position in UYG at $9.09 based on the intraday chart. It did move higher, and I set my stop pretty tight at $8.94. For some reason, my stop was not hit - Scottrade messed up there - and I ended up having to cancel it and sold out at $8.77 with a limit order. It was a small loss so no big deal, but it did remind me that not only are trading these markets tough because you don't know what is going to happen next, but execution of trades is always tougher in an environment like this, and that is something totally out of your control. I am back to 100% cash once again.

I did nothing else - actually I was away from my desk for most of the session. I know there is no way I could have made any money though - way too crazy out there right now. Perhaps today will be meaningful and we can move higher to start next week off. I would love for this to be a temporary bottom, because as stretched as we are, the bounce should be very powerful. I'm not saying that any bottom that forms here will be THE bottom, but I don't really care. I am all for playing a bounce and hopefully picking up some nice short-term gains. Timing this bounce and waiting for a little confirmation is the tough part. If today happened on a Monday, I would be less apprehensive about try a few longs here. As it is, with two days of possible news items ahead of us, I will likely continue to sit out and wait for a clearer, better opportunity. There are just too many bad things that could happen over the weekend for me to feel safe about holding any longs.

I will try to post some charts I am watching as possible swing trades higher assuming the market cooperates - mainly I am focusing on the double long ETF's as plays due to no individual stock charts looking good. As I've said this week, we have to bottom soon at some point unless the world really is ending, so it pays to be ready for it. Enjoy the weekend, and good luck next week.

Thursday, October 9, 2008

State of the Market - 10/9/08

The destruction of our financial system continues. Things started well for stocks as they opened higher and stayed that way for first half hour or so of trading. However, the bears once again gained the upper hand intraday, and stocks sold off through the morning. They went basically sideways in the afternoon, but at no point did a strong upside bounce present itself. Around 2:00 (which has been the trend recently) stocks broke their morning lows and just collapsed from there. I was away from my computer for the last hour of the day and was very surprised to see how bad the selling was to end the day. A late bounce took stocks a little off their lows, but that doesn't mean much when you have another 7% loss for the overall market. Surprisingly, volume was lighter than yesterday and still not very climactic. That is scary.

When we are as oversold as we are right now, you really can't short here. Yeah, we might crash, but I think everyone is expecting that, so maybe it won't happen. On the other hand, if you're not expecting a crash, then you are probably expecting a major bounce, and that does make sense. Problem is, when will it actually happen? Why hasn't it happened yet? I read a lot of people buying this morning and yesterday and the day before. How do you think they are feeling right now? Do we have to get some capitulation in order for it to occur?

These are all questions that are difficult to answer right now. Common sense tells me that a crash with a huge bounce is the outcome that makes the most sense here. This market isn't necessarily acting on common sense however - it is acting on fear of the unknown. With every day that passes, it becomes more obvious that we are dealing with a situation that may not have any historical precedence to reference. Since we don't know just how bad things will get, how can we know where we are going?

If you are trading right now, more power to you and I wish you good luck. I remain in cash and will continue to do so until we get a clear sign that the market is ready to bounce. I am a little disappointed I didn't catch any of the last two weeks from the short side, but am also not naive enough to think I would have ridden my shorts all the way down here. I am sure I would have covered long ago. I don't see much point trying to short right now - a bounce will kill you quickly, and the only reason to short is to play the "end of the world" scenario. If that's what you think is going to happen, does it really matter how much money you have? I still thinking being patient and not exposing yourself to these daily swings is the best plan of action. The long side is the only play right now, but you must wait. It's tough and boring, but sometimes that's what trading is. I will continue to look for a rally attempt and a follow-through day, and hopefully we will get one eventually. As I look at the carnage of the past few days, including today's close, I am glad I have been disciplined enough to not try and catch this falling knife.

I hope we are getting close to that clear moment when the market will show us it is OK to wade back into this market and play what should be a major bounce off these historical lows. If it doesn't happen soon, then all of this analysis probably doesn't matter at all, because we will have much more to worry about than catching a bottom in the stock market. If you remain patient, remain disciplined, and keep your emotions out of this market, you will be much better prepared to successfully navigate the bounce we get, rather than be so frazzled with losses to ride an uptrend higher or so behind in your account that a bounce really doesn't matter. Good luck Friday - as always, it should be interesting. I am glad I am sitting on the sidelines.