Saturday, November 29, 2008

Video - Weekend Market Summary - 11/29/08

Here is a video for this weekend. I did take a few inverse ETFs on Friday's close so I am expecting a pullback here for various reasons mentioned in the video. I know it doesn't have to happen, but it looks pretty likely here. I also highlight a few short candidates that may work out if we do pullback early in the week. Good luck Monday.


**** Here's a link that should work better for IE users if the first link doesn't work.

Wednesday, November 26, 2008

One More Chart to Look At

XLF
Chart from Telechart 2007, Courtesy of Worden Brothers, Inc.

Ok, that's really it for the night. Have a great Thanksgiving and I will see you Friday or this weekend.

A Few Charts For You To Analyze

No comments - just wanted to post these and you can draw your own conclusions. Happy Thanksgiving!

S&P 500, Nasdaq
McClellan Oscillator, VIX
Inverse ETFs
All Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

State of the Market - 11/26/08

The market started today with a gap down, but that was quickly bought and stocks moved higher throughout the rest of the morning into the lunch hour. They consolidated through lunch, broke to new highs, but then pulled back. The lunchtime consolidation acted as support, however, and stocks broke to new highs for the day around 2:00. They continued higher into the final hour, pulling back only slightly at times but finishing right near their highs for the day.
As of now, volume appears to be lighter, however, and unless there was a really big push late, today is the fourth straight day of gains coming on successively lighter volume.

Technically, the Nasdaq and small caps took the lead today after lagging yesterday, which is certainly good to see. If a real rally is going to develop here, these are the indices that you want to see lead because they hold the smaller stocks that can move fastest. Almost all the indices, however, closed right at their 20 day moving averages (the Dow and S&P are slightly above it) and it will be interesting to see if they pullback from here. They are all also nearing two month downtrend lines that could act as resistance. The McClellan Oscillator is almost overbought and is approaching the extreme level it reached on November 4. On the bullish side, the VIX did breakdown below its 50 day moving average and support around 56-57, so we'll have to watch if it continues to move lower from here.

I said yesterday that I was hoping (from a bullish perspective) that the market would rest today and Friday on lower volume, which would allow the market to set up for possibly much larger moves next week when traders return and volume picks up. I didn't think it necessarily had to pullback - moving sideways would have been fine. I thought that the worst thing the market could do is rally here on low volume and get overbought going into next week. Well, that's exactly what it looks like we got after today. The market continues to melt up and up but volume continues to get smaller and smaller. If I was a bull, I would not be real excited about today and in fact unloading some positions (sucks for me I don't have any to unload).

In order to have a meaningful rally (one that lasts more than a week) we have to have buyers push up stocks. Mutual funds and hedge funds - the big boys - have to come off the sidelines and buy stocks up. Retail investors can't maintain a rally here, at least in my opinion. I could certainly be wrong, as this market has proven very clearly that it can do whatever the heck it wants this year, but it would be surprising. I know this week is Thanksgiving week, and that volume is traditionally less this week, so maybe the light volume really doesn't matter. I can't just dismiss it though like it is no big deal. If I saw more charts setting up and new leadership emerging, maybe I would be more forgiving. However, I am still not seeing a ton of new leaders emerging here. Maybe my scans will show me some tonight and I will change my mind.

I do not plan on trading Friday at all with the half-day and the low volume, so I will likely not be back here until sometime this weekend, when I plan on putting together another video with some charts to watch. Right now, I am actually hoping for another big day up on Friday, as I think it would allow this market to get even more overbought and make a potential short-term short setup even better for this market next week. That's what my gut is telling me right now may be setting up, but as always, I could be very wrong. I certainly wouldn't be buying stocks here after the move made this week.

I hope all of you have a great Thanksgiving holiday. I am certainly thankful for many things - my wife, my two year old son, my son that is on the way, our collective good health, a steady job in these tough economic times, and many other blessings, most of which I know I take for granted. Hopefully, we can all take a few minutes tomorrow during the turkey and football to reflect on what we have and learn to appreciate it even more. Take care.

Tuesday, November 25, 2008

State of the Market - 11/25/08

A choppy day today on Wall Street as stocks started to digest two big days of gains. Futures were up once again pre-market and the market did open higher, but the gap up was pretty much the high for the day. Stocks fell from 10:00 to 11:00, bounced into the start of lunch, fell to new lows through that lunch hour, but then bounced again around 1:00. This bounce also failed, with stocks making new lows after 2:00. They didn't breakdown severely, however, and stocks did bounce back into the close, giving the Dow and S&P small gains and the Nasdaq small losses. Basically, the market moved in one hour shifts today, up and down, but didn't really accomplish much. Volume declined for the third straight day.

Technically, I still think the verdict is out, much like I said last night. The Dow is still underneath its 20 day moving average and has been up three straight days on declining volume. The S&P looks similar. The Nasdaq is still below some heavy resistance and will need to get above the 1485 area before I would get really bullish. The VIX is closing in on its 50 day moving average and I will be watching to see if it bounces off that like it did back in early November. After I do my scans and see if any more stocks are setting up, I think I will have a better feel as to where we are headed.

I would classify today as consolidation, and I think that is good. I really didn't like to see the opening gap because I was worried that this move was going to wear itself out too quickly like the other ones have recently. I am glad we pulled back off the opening gap. I think that is constructive. I think it is bullish that we didn't break down completely in the afternoon when we certainly could have. I think in the recent past, an opening gap would have been sold off really hard, but this one wasn't. Perhaps it is the Thanksgiving week that had a factor in the overall light selling. Resting here for the rest of this week on lower volume would be excellent and could perhaps set up a nice move into the year end when traders return next week. I don't want to get ahead of myself - I am just saying it is possible if we rest. These short sharp rises are fun for daytraders but are not good for building longer-term rallies. You don't want the market to blow its top in two or three days. You want it to be a process.

I did try a few inverse ETFs today, as I was looking for a pullback, but as had been my luck recently, they only worked briefly before reversing and stopping me out. I got in SDS at $97.31 mid-morning and was stopped out mid-afternoon (after moving my stop up) at $96.45 for a 1% loss. I tried SKF at $165.41 mid-morning but was stopped out at $161.55 for a 2.3% loss. My real problem was not entering these at the morning gap. I had a hunch we pullback, but didn't go with it right away. When I wait for some confirmation, it seems to ruin any cushion I would have in terms of this volatility and then I get stopped out. My losses continue to be small but they add up after a while and hopefully I can end this losing streak soon and get something going positively. I am definitely frustrated right now. I continue to try my style in an enviroment not suitable for my style (too volatile) so I have no one to blame but myself.

We'll see what tomorrow brings - I hope we get some more consolidation. The low volume is almost guaranteed for the rest of the week, and I will give the market a pass there as long as the market doesn't blast off. I want to see some quiet days, and this seems like a good week to do that. You don't want another 200-400 point move tomorrow on low volume - you want that to wait until next week and you want it to come on heavier volume. I am certainly willing to be bullish and I would love to see the market do nothing for the rest of this week, setting up a big volume move (and a possible follow-through day) next week. That would also allow more stocks to possibly setup in decent bases. However, I am aware how often the market has followed the script I hoped for this year (not much). If we more action like we did yesterday, I will have to go back to looking on the short side. Good luck Wednesday.

Monday, November 24, 2008

I'm Remaining Patient Here and Not Chasing Anything

This is it in terms of nice charts I see right now. Four nice charts isn't going to do it in terms of getting a nice rally going. If I saw more, I would be more optimistic right now. As it is, I am expecting a pullback soon, perhaps more, although I am aware that doesn't have to happen.

OPTR, COGT, ASEI, TSYS
Chart from Telechart 2007, Courtesy of Worden Brothers, Inc.

I noticed that some of the inverse ETFs bounced off (in some cases they closes right at) some possible trendlines today. I don't know if that means anything but if we gap up tomorrow I may start to look at these again. Perhaps that's stupid as I realize this market could continue higher but I just have my doubts right now.

SKF, SDS
SMN, SRS
Chart from Telechart 2007, Courtesy of Worden Brothers, Inc.

I am hesitant here and plan on passing on taking any longs at this point. As I said earlier, the play for the last few months have been sell the rips and buy the dips and hope you get lucky with your timing. Perhaps this time it will be different. Perhaps this is the start of the big, tradeable rally that I along with likely every other trader in the world has been waiting for. I hope it is. I think that would be great. One of these rally attempts has to stick, right?

Luckily, I don't have to guess whether it will be the "one" or now. I can just step back and wait to see what the market does. I can let it prove itself to me a bit more. If this is the start of something special, I am not going to miss that much over the duration of the rally. I like the way the Worden Report put it tonight, commenting on the bearish lower volume today:

"If the market can show doubt and trepidation--so can you. Back off until you can determine whether this is just a very short-term condition, or whether it is warning of a severe continuation of the bear trend--something that could take a real hunk out of the market."

I think waiting a bit longer on the long side and being patient will probably turn out to be wise here. We have GDP numbers tomorrow I believe so perhaps that will drive trading. I'm sure it will be an interesting session as always. Good luck.

State of the Market - 11/24/08

Bailout nation added another chapter in their newly found history today, and the stock market responded positively. Futures were up early, faded a bit during the pre-market, but the market did move higher in the first few minutes of trading. It pulled back from there, forming a bull flag, and then broke out around 10:00 and moved higher for the next half hour. They consolidated into the lunch hour, moving sideways to slightly higher, and pretty much stayed in that sideways pattern throughout most of the afternoon. Every breakout attempt was weak, but so was every breakdown attempt. They finally did move higher when the final hour started and at one point was up huge once again (Dow +500), but there was a sharp late pullback that took stocks off their highs for the day. The gains were still very good however, and I think it was an impressive day for the bulls. Volume however was mixed - it looks to be close to the same on the S&P but lower on the Nasdaq.

Technically, the Dow is the best looking index but the late reversal was right off its 20 day moving average. The S&P 500 closed slightly above the 840 area I thought would be important but not by much and is right at a month-long downtrend line. The Nasdaq and Russell 2000 look the worse and still have some overhead resistance to overcome. One bit of good news for the bulls is that the VIX broke down today and looks poised to test its 50 day moving average again. There are also some possible Moneystream divergences (positive) for the indices that would bode well for further price appreciation. We'll have to see if they play out that way.

Dow and S&P
Nasdaq and Russell 2000
All Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

When I woke up and saw the news of the Citi bailout, my first thought was that the gap would be faded. I expected a bigger reaction via the futures - I really didn't think up 150 on the Dow was a big deal given the circumstances. So I was a little cynical about the "rally". As the market broke out around 10:30 and climbed higher, I did notice that the momentum indicator I use in Scottrade continued to weaken as stocks rose. I also noticed volume was very, very low. That, along with some heavy technical resistance I saw around 840 on the S&P, made me look at taking some inverse ETF's. I did try SDS at $104.14 as the market consolidated, and put a stop at new lows for the day. My stop however was hit around $101.97 for 2.1% loss. I thought it was worth the risk there.

As much as I was tempted, I resisted the urge to buy stocks today. I can't chase here - I just can't. The time to get in was late Friday as the market started taking off, but as I said last weekend, the action looked so flawed to me that I didn't think much of it. What bugs me is that the type of action I was looking for took place November 13 - it had all the signs - and that amounted to nothing. I played that well, but it didn't turn out well. Hopefully I'll learn something from this, but I don't know right now. It seems like the lesson is to take big risks and hope things work out. Unfortunately, that's not really sound advice, at least from where I sit.

In terms of the bailout, is anyone getting a little sick of this, or am I the only one? When I see the markets move higher simply because of this news, a big part of me just loses interest in trading. I've said this before, but it is becoming quite obvious that our government is leading us down a one-way street right now, and there is no place to turn around. First Bear Stearns, then Fannie and Freddie, then AIG, and now Citi. You can rest assured that something will happen to the automakers as well. What about Bank of America and J.P. Morgan? I'm sure bailouts for them are in the near future. After that will come bailouts for student loans, car loans, and credit cards. The moral hazard that was created by bailing out the first company (Bear Stearns) is coming home to roost now, and it is scary. If our government had all the money to do these bailouts, it might not be as big a deal. Since they don't have any money, I think it is a big deal.

So far, we have experienced massive deflation with the price of commodities and stocks falling drastically. At some point (although I don't know when) that dynamic is going to change, and all of this debt and fake money that is being created to monetize all that debt will get the inflation fires started again. I really hate to think what that will be like, but I think it is inevitable. And once again, we will have a situation where the people who did right (saved, lived within their means) will be punished and those who did wrong (overspent, built up huge amounts of debt) will be rewarded and helped out. That sucks.

Ok, that's my rant for the day. Back to stocks. So where do we go from here? The only game plan that has worked recently is to short strength and buy weakness (and get lucky with your timing) and I don't really see a need to change that strategy. Volume was somewhat low today and with the holiday trading schedule this week, volume will likely continue to be low. So it will be interesting to see what pushes stocks higher from here after the big moves of the last two days. We need volume. We need leadership. We need buyers coming in off the sideline instead of just shorts covering their positions. We need all of those things in order to get a meaningful rally that lasts for more than a few days. I don't know for sure that we will end up getting any of those things however. So as it is, I would be very careful chasing longs here and instead would look at some inverse ETFs soon. Timing will be the issue on those.

With the holiday, anything is possible. Common sense says that we should pullback soon after moving nearly 1000 points on the Dow in two days. None of these violent bear market bounces have stuck so far - we'll have to see if this is any different. There continues to be no leadership to speak of so that will make things tough. I'll see if my scans show me some stocks but the three leaders I mentioned last night (COGT, ASEI, and STRA) didn't do that much today. There were a little under 800 breakouts today above 4%, but the number was 1200+ Friday and remember, the selling on Thursday had over 2300 4% breakdowns. Those aren't the greatest numbers and don't give me a huge amount of confidence in the moves of the last two days.

I am still pretty confused overall. I hope I am not the only one. Lots of crosscurrents here - I see both bullish and bearish signs. The earliest we can get an IBD follow-through day is Wednesday, but with the holiday volume, I doubt it will happen. We remain in a volatile market and I wouldn't be surprised for us to be up again tomorrow and I wouldn't be surprised to see us pullback. I lean toward pullback here, but as always, I could be wrong. Good luck Tuesday.

Sunday, November 23, 2008

What I Know And Don't Know About This Market

After going through my scans and thinking about this market after Friday's late action, there are a few things I do know but quite a lot of things that I don't know. Let me share both.

I don't know if Friday's late rally was anything more than some short covering before the weekend or if it was the start of a meaningful bounce. I also don't know what will happen to Citigroup and whether they will get bailed out, go bankrupt, or sell themselves off to the highest bidder. I also don't know whether Congress will cave and bailout the three automakers. Unfortunately, those last two topics are really affecting trade right now and no one really knows what is going to happen there. That puts a huge amount of uncertainty in this market.

What I do know is that Friday's rally basically just allowed the indices to make up for the losses they sustained Thursday. The rally also took them up to the bottom of the channels they were in. There is quite a bit of overhead resistance that they have to deal with as well. If we gap up Monday, I would look at 840 on the S&P and 1460 on the Nasdaq as possible turning points.

S&P 500 and Nasdaq - Daily Charts

I also know that when I look at intraday charts (seemingly a necessity nowadays) I see a well-defined channel on the five minute charts of both the S&P and Nasdaq. The market closed right at or just slightly above the top of these channels. This could lead to a breakout with further upside, but it could also mean we reverse around here and the market moves lower.

S&P 500 - 5 minute
Nasdaq - 5 minute

I know gold rallied hard Friday but the dollar barely budged. I don't know why this happened, because normally the move in gold would cause an equal reaction in the dollar. I do think commodities need to move higher if the market is to get a decent rally going. I am going to keep watching this area as a possible clue as to where we head. I think we are definitely passed the time where falling oil is good for everyone. I think falling oil now just signals more deflation, which is certainly not what the market wants to see.

Gold vs. Dollar
All Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

I know that based on my scans, the buying Friday (1261 4% moves higher) was about half as strong as the selling was Thursday (2389 4% moves lower). I also know that we are still oversold on many of my ratios and that late bounce didn't take a lot of those conditions away (although the McClellean Oscillator is back above -2000.)

I know that there are a total of three stocks that look interesting to me on the long side - COGT, ASEI, and STRA. I really wish there were more because for a tradeable rally of over a few days to occur, we have to have more individual charts setting up and ready to make moves.

I know that even though some of the above points are bearish, we are entering Thanksgiving week, which is traditionally bullish. Perhaps seasonality will help things along, although this is by all accounts going to be the worst retail season in recent memory. Volume will also likely be lighter this week due to the holiday, which could exaggerate the moves we get.

Are you confused yet? I think I am. My gut still tells me that Friday's rally was just short-covering - I don't trust it. I was cautiously bullish going into Friady, but as I said in my last post, I was expecting more panic in the morning and we certainly didn't get that. All the buying came within the last 45 minutes or so, which also is disconcerting to me. I am aware though that this rally could rally big tomorrow if the right news comes out. It will not take much in terms of positive news or even news that the market just perceives to be positive to push this market higher - Friday proved that.

Because of all this uncertainty, I think I am just going to have to watch Monday as best I can to see what happens and how the market reacts and just go with what I see. I would like to think I am market neutral here so I will not be surprised at whatever the market does early next week. I am pretty sure I won't be shorting - I would rather just wait out a move lower if we get one and look for some panic to show up in order to get long. If the market responds positively Monday, then I will probably look at the double ETFs (UYM, UYG, SSO, and QID) as possible plays with some tight stops. I am guessing we gap one way or the other Monday and I will watch to see if those gaps can be held and then go from there.

I don't know if these thoughts will help any of you out there this week, but it is the best I can do right now. I think the best way I can summarize this market is one that really wants to move higher, but has so much uncertainty around it, it just can't do it. We'll have to see what happens to those issues I mentioned at the open (GM, C, etc.) and then go from there. Good luck next week and be careful out there. This market will rip your face off if you let it. Take care.

Friday, November 21, 2008

State of the Market - 11/21/08

We had a pretty uneventful day on Wall Street today - that is, until the last hour of trading. Futures were up big pre-market as markets in Asia rallied strongly off their lows, but those futures fell as the pre-market session lingered and stocks couldn't move much higher than where they opened early on. They did gap up, pulled immediately back, took a run at breaking to new highs around 9:45, but really couldn't and fell for the rest of the morning. Lows were hit around 11:15, and stocks moved higher through most of the lunch hour until around 12:45. They came close to their morning highs, but couldn't get through, which led to another pullback through early afternoon. The market tried to bounce as the final hour starting and it did in a strong manner, busting above some trendlines around 3:00. This bounce took the indices right up to the lows of Thursday morning, which acted as overhead resistance. They paused just briefly there and then blasted off, finishing with huge gains of 5-6%. Volume was heavier although options expiration may have had something to do with that.

The late bounce seems to be attributed to the fact that Obama has or will nominate Timothy Geither for Treasury Secretary. This market was just looking for a reason to rally and I guess this was enough to do it. We'll see if it lasts.

Technically, I really don't know what to think of today's action. Most of the day, I was disappointed and I think I am disappointed now as well. Let me explain why. I am not disappointed that we rallied - I said last night I was expecting something soon. What I am disappointed in was the setup today and how the trading went. I was looking for a really bad selloff from which we could rally from and put in a temporary bottom. I wanted to see some panic selling. I didn't see any of that today. The VIX was down all day even after the market sold off the entire opening gap and move to the minus side for the day mid-morning. The put/call hit 1.29 this morning, which is high but certainly not extreme. I also don't like when the market just kind of fools around for most of the day like it did today before blasting off in the last hour of trading. It seems somewhat contrived and manipulated to me. When a market moves that quickly that fast and at the end of a week of trading, it strike me as short covering rather than honest buying. In order for a legitimate, longer-term rally to start, we need legitimate buyers to step up rather than shorts covering positions before the weekend.

At no point did I see a really good opportunity to buy today. I guess I could have bought the late breakout when the Dow got above 250, but I didn't feel like carrying a bit position into the weekend with the Citigroup situation still completely unclear (by the way, C closed down 20% and didn't bounce much at all during the last hour) and I still don't, so I don't think I will buy after-hours. I am still 100% in cash and to be honest, don't know how I feel about it.

Now if we rallied from the morning lows and moved higher in a steady move throughout the rest of the session rather than chopping around until 3:15, I would be happy right now. If we had some real panic this morning from which we reversed, I would be happy right now. I would have been much more interested in getting some ultra ETFs going if that happened. From what I saw this morning, however, I saw nothing that made me think the bottom had been put in yet by this market. Who knows, it still might not be. I guess I am just torn. I know we can rally from here but I was looking for a much different setup and didn't get it. That gives me less confidence that this will turn into anything that will last.

In terms of the indices, this late bounce took the S&P and Nasdaq right up to the bottom of the declining channel that I showed in one of the videos this week. We'll have to see if we follow-through Monday and can get above these levels. I think that will tell us if today was the start of something or if the last hour was just short covering.

The market rarely gives you what you want and for me, today shows that. I compared our current situation to October 9-10 in my post last night and it could certainly play out that way. Back then, Friday was a big reversal and then we did follow-through on Monday. The move Monday was huge but unfortunately only lasted one day. I am worried that what happened today could set up a similar situation in which this doesn't turn into a tradeable rally. I am worried this is just going to be another quick spike that dies out quickly since we had no real panic this morning. I don't know - perhaps I am just being too picky. Maybe I shouldn't question this late buying. My gut is telling me I should be questioning it however.

It's the weekend, so I am out of here for a few days. If I have any revelations over the next few days I'll be back with some thoughts. I sure have a lot to think about this weekend. Take care and enjoy yourself and the time away from this market.

Thursday, November 20, 2008

Scans Show Historically Extreme Levels - Could Turn Soon

Trying to figure out when we might turn and found some interesting numbers in my scans.

We closed under the magic "200" number on the main ratio I use which shows extreme levels. Historically, this is a level at which the market will put in a strong counter-trend move. This level was reached on a closing basis one other time this year - October 9. Coincidentally, that was also a Thursday. The following day, we put in a major reversal that, although it didn't last, would have certainly been nice to play on the long side. I looked at that day and today to see how the numbers matched up. The selling today was much heavier in terms of breakdowns which may mean the selling today was more panicky. That's good in terms of getting a bounce. The momentum meter is also more stretched percentage-wise and that is also good. However, there were more individual stocks oversold at that time via my Telechart scan than right now. Overall, it certainly looks like we are stretched far enough that a sharp reflex bounce is a possibility at any moment. I certainly would not be shorting here.


Here are the charts of the indices with October 9 and 10 highlighted to give you an idea of what happened then and what could happen now.

S&P 500 and Nasdaq

I also checked out the VIX then and now and unfortunately, I think the comparison here is somewhat bearish. The VIX back on October 9-10 (below) had put in a huge run-up and definitely looked like it was climaxing. A reversal of this was not unexpected at the time.

VIX - October 9

Here's the VIX from today. We did break above that trendline but I expected a much bigger spike today given the amount of selling we saw. We aren't even at new highs yet for the VIX, and it looks like it just may be starting to rev up. Hopefully, this doesn't mean anything, but it could mean traders are more complacent now than they were back then, which is not good.

VIX Today

Here's the McClellan Oscillator (T2106 in Telechart). Below -200 is usually quite oversold, but it did spike below this level back on October 9. We are getting there right now, but again, aren't as severely oversold on this indicator as we were back then. That is not bullish either.

McClellan Oscillator
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

So what does all this mean? Well, I wish I knew for sure. Here is my guess. I think we may have one more really bad day tomorrow. I just don't know that people will want to hold stocks over the weekend given all that has happened the past two months. I don't think the sentiment back in October was nearly as negative as it is right now, but I don't know for sure. If we do get more severe selling to wrap up the week, we will probably get down to the same oversold levels we saw back in October, and the VIX will likely spike as well, maybe to new highs. This could set up a very scary weekend, one from which we gap down Monday and maybe then reverse higher. This is just a guess. We could certainly reverse and move higher tomorrow. Options expiration throws a wrench in things because you just don't know what the market will do. There is still the news factor as well - who knows what Washington will do tomorrow or over the weekend and who knows how Wall Street will react to it?

I don't think I will look to buy any move lower tomorrow, but I would probably start looking Monday. I am hoping we do sell off tomorrow, or at least start the day with some more heavy selling. The worst thing that could happen in my opinion is a strong open tomorrow. We need things to get absolutely awful (I know, it seems like we are already there) if we are to get a nice tradeable bounce going. We need a washout. Let's see if it works out that way.

There are absolutely no individual stocks I would play right now, although I am sure some of these solars, commodity, and financial stocks will bounce heavily if we do reverse over the next few days. I would focus on the double ETF's - UYM, UYG, SSO, and QLD would be my favorites in that order. I may even look at the new triple ETF's - ERX (Energy Bull) and FAS(Financial Bull) although I don't know if I will be able to handle the swings. I think we may be approaching a huge opportunity though and these ETF's are likely a solid way to play it.

If we don't rally, then all this analysis would probably be for naught anyway. Historically, the rubber band that is the stock market is certainly getting stretched about as far as it can be stretched. That is, unless it, along with our entire economic system, is about to snap. I really hope that doesn't happen. If it snaps, we're all screwed anyway and the money made in the stock market isn't going to matter that much. I keep praying that we will be able to get out of this crisis OK as a nation and as an economy, but it is certainly scary what is going on.

So overall, I am on the lookout for a possible turning point soon, although I would rather be a little late to the party than a little early so I will probably wait things out tomorrow. I would much rather try going long early next week than tomorrow, but we'll see what the market has in store. Be careful here though - we are in historic times and no one knows for sure how low this can go. I am completely aware that the market does not have to bounce just because we are historically oversold. Mr. Market has written all sorts of history this year and there is no reason to think he isn't willing to write more. If I try any longs, believe me, my stops will be in place. No way would I let losses go in this type of environment.

My Steelers have the Thursday night game this week so I am of to get ready for that. Good luck Friday. If nothing else, it should be interesting. Take care.

State of the Market - 11/20/08

A new day, but the same old story for Wall Street, as stocks were sold off once again and things look even bleaker than they did yesterday. Futures were down pre-market and the market did sell off hard for the first hour or so of trading. They stabilized a bit around 10:30 and put in a nice bounce, with the indices turning slightly positive for the day in most cases, but that bounce only took them up to some downtrend lines on the intraday charts and they reversed lower from there. The pullback was orderly however, and around noon, stocks tried to make another move higher. They did break above their morning highs around 12:30, but momentum was not that strong at the time and they did end up pulling back from there. They tried to briefly bounce again around 1:40, but couldn't get much going and broke through the pullback lows. They stopped briefly near the late morning lows, but those couldn't hold either and the selling continued. It really accelerated in the last hour just as it did yesterday, and the indices closed near their lows for the day. Volume was a lot higher today.

Technically, I showed last night that we were clearly at the bottom of some channels and that if we didn't bounce and hold there, things could get very ugly. Well, those levels certainly didn't hold, and my guess is that things now get even uglier (although that is hard to imagine). I hear people talking about the 2002 lows as a possible support level, but I don't know how much support that is going to give given it is six years in the past. We shall see, but right now, the trend is definitely down and there really isn't any turning point in site from my perspective. We are and continue to get more and more oversold, and with the negative sentiment, maybe we are on the path toward a panic-type bottom. How many times, however, have we said that this year? The VIX didn't spike today that much given the amount of selling we saw - that is bearish.

I didn't do much of anything today. There was some fear out there this morning, as the put/call ratio was as high as 1.70 at the open, and that peaked my interest a bit, but it did fall throughout the rest of the day. I didn't sense any real panic during the selling as well so I didn't feel comfortable even thinking about buying anything early. I was tempted on the lunchtime move, but I noticed that there was a negative divergence on my Scottrade charts - momentum was not as strong on the lunchtime attempted breakout as it was in the morning, so I passed rather quickly. I wish I would have shorted the open but I didn't. Hopefully some of you profited off the shorts I showed in the video last night - most worked out very well. I know that in a few months I will look back and really be upset at myself for not riding this trend down more than I did - I could have made a TON of money short but I guess it is all part of the learning process. This is still my first bear market and boy, what a bear market to try and learn in.

Trying to catch a bottom here is likely going to prove very difficult. As I said yesterday, these declines can last much longer and be much more severe than anyone expects. We are also still not seeing much panic and until we do, we may just drip our way lower, regardless of the oversold conditions. Days like today are the worst. The morning bounce probably rose some hopes, but then those hopes were slowly dashed. And the type of selling that occured - the slow, deliberate selling - is very frustrating to watch, although the selling seemed to pick up significantly in the last hour.

It seems like a lot of traders (including me) are thinking, "ok, uh, Mr. Market, can we just get this over with? We know it is going to be very bad. But we would really like to just take our medicine now if it is allright with you." Unfortunately, Mr. Market always has a mind of his own. Respecting that fact is probably the most important rule of trading.

We see what tomorrow brings - it is options expiration I believe - but things certainly look awful and as I stated last night, a few more days of heavy selling is certainly in the realm of possibility right now. Trade accordingly - on the short side, take profits when you have them, and on the long side, well, don't play the long side yet. That's about as simple as I can make it. Hopefully this move is closer to ending and perhaps we can get a selling climax soon that will set up a really nice reflex rally. It seems like we are long overdue for one. Good luck Friday.

Wednesday, November 19, 2008

Video - Wednesday Market Summary

Here's a video for this evening and some thoughts on where we may be headed next. The selling is looking rather climactic (although volume isn't that heavy) and sentiment seems to be about as negative as I can remember. That doesn't mean we are going to rally - let's start with just an end to the selling first. I will likely be sitting tomorrow and Friday out because I don't feel real comfortable chasing shorts but we will have to see what happens. Good luck.




**** Here's a link that should work better for IE users if the first link doesn't work.

State of the Market - 11/19/08

Another really bad day for Wall Street, as a flat open quickly turned into more selling about an hour into the session. Stocks fell straight down from around 10:30 to noon, where they consolidated a bit before they moved lower once again. The selling in the afternoon wasn't as severe as in the morning, but I don't know if that is any consolation for the bulls. The indices tried to bounce as the final hour approached, but that bounce quickly rolled over and the indices went back down near their lows for the day without about a half hour left. Those lows were broken and stocks really fell hard in the final 30 minutes, finishing with very large losses. Volume also appears to be higher.

Technically, both the Nasdaq and S&P broke through the levels I mentioned yesterday and are now at new lows for 2008. The rally attempt, as weak as it was, is officially dead as is to be expected. Last night I posted a chart of the VIX that was perhaps bullish since it had no broken above a trendline yet. It really didn't move that much today given the size of the losses and is still below the trendline I showed last night. Maybe that is bullish. It is forming a bearish wedge pattern that if it breaks down from perhaps could signal higher stock prices. That may be a reach however. Unfortunately, these facts could be very bearish too, as it possibly shows that there is a lot of complacency out there. The VIX is not real close to its former highs, whils the overall market is breaking to new lows. That could be a scary combination.

I don't know where we fall to next or where the next possible support levels are. You could go back and check out levels from 2000-2002, but I don't know how those will act. Six years is a long time and support and resistance levels tend to lose importance as time goes on. 768 is the 2002 low for the S&P and 1108 is the low for the Nasdaq. The S&P is not that far away. Yikes.

Today is the death blow as well to most of the few nice charts left broke down today (CRI, GB, ALK). Without nice charts, any other factor facing this market probably doesn't matter in terms of us rallying. We have to have some sort of leadership (preferably broad-based) to get a meaningful move higher. We have absolutely none right now.

As I mentioned last night, we are getting quite oversold so it is possible we could reverse and rally at any time. I think it is important to remember that we are in the midst of a historically bad bear market, and oversold conditions don't mean that much in such an environment. We just broke to new lows. Let's think back to just a month ago. I had readings and indicators that were at levels I had never seen and historically were never seen. That did not prevent the market from heading even lower. We could see the same thing happen again here.

One lesson I hope I have learned from this epic bear is that trends can go much longer and farther than you think, especially to the downside. I would definitely remember that here. There is nothing that says we can't be down another 1000 points from here, maybe more. I am not saying it will happen (and believe me, I hope it doesn't) but it is certainly a possibility and you need to respect it. I don't think now is the time to try and be a hero, catching a falling knife. The way the market had responded to each of the four rally attempts (starting October 10) was more discouraging each time, and I think today showed the fatigue the bulls have right now. I think the bulls (whichever ones are left) are getting quite worn out here and may be ready to throw in the towel. I hope I am wrong, but it certainly looks like they are doing it after today's action.

I complained yesterday about getting whipsawed out of my two long positions, but I can't complain after today. I am in 100% cash and at least not losing any money in this disasterous market. It certainly looks like we are going to be moving lower for the time being, so defense is the name of the game. Don't get cute and try to catch the bottom tick on this market. You just don't know where that tick will be. As for shorting, it might work but I would keep my time frames short and be ready to get out if the market happens to turn. You are definitely late on the short side, but things look so bad right now that maybe, just maybe you'll get lucky and be able to catch a few points. From my perspective, however, I think it is probably smart to stay in cash and just continue to wait this thing out, as hard as that is right now. I keep saying that this thing will get better at some point in the future, but sometimes I wonder. What a crazy market. Good luck Thursday.

Tuesday, November 18, 2008

Numbers Say No Reason to Get Excited

IBD did not say today was a follow-through and it makes a lot of sense. We are still in an area where a big-volume move of over 2-4% would put the rally into a confirmed rally. That may indeed happen, but I am not holding my breath. Today was much weaker than it looked based on my numbers and that is disappointing.

The numbers I got in my scans were pretty disappointing for a day where supposedly the market followed-through. There were 257 upside breakouts today over 4% but there were also 608 downside breakouts over 4%. That (more breakdowns that breakouts) is not the ratio you want to see on a supposedly bullish day. There were also only 11 stocks in my price/volume scan, which tells me there aren't any new stocks popping up in nice bases. We seem to have the same group of stocks holding up that I have been pointing out and highlighting in my videos for the past few weeks, but without new stocks coming into that group, I don't know how much higher we move. We need more leaders, and from a variety of sectors, if we are to have a productive rally.

All that being said, we are pretty oversold based on my numbers so that is good for the bulls. The VIX also reversed off the same trendline I have posted several times in the past week. Perhaps that is a good sign.

Vix
Chart from Telechart2007, Courtesy of Worden Brothers, Inc.

Unfortunately, that is about it for the bulls to hang their hats on. Oversold can also certainly remain oversold, especially in this market. My game plan is to look at the resistance and support levels I mentioned in the first post today and go from there. I don't know if we will break through these recent lows soon, but each rally/bounce we have had around these lows have gotten progressively smaller and shorter. That likely means the bulls are growing weaker and weaker trying to defend this 8000/850 area on the Dow and S&P. One of these days, their defense will be so weak (and today it almost was) that thing may break wide open and if that happense, a big move lower is very possible. This market simply doesn't have any buyers, plain and simple.

As always, we'll see what tomorrow brings. I am starting to think we may break to new lows soon. Since my gut hasn't been that accurate recently, you may want to do the opposite of what I say, however. Good luck Wednesday.

State of the Market - 11/18/08

After getting beaten down the past two trading session, the market looked to be lower once again pre-market as futures were down and Asia had another day of selling. Futures did move higher however throughout the morning, which gave stocks a slight boost. The morning trading was up and down, but did have an upward bias throughout. As lunchtime approached, both the S&P and Dow tried to break to new highs for the day and did, but quickly pulled back again. That pullback quickly turned into something much worse, as stocks fell the entire lunch hour and in some cases broke to new lows for the day. Through 2:00, stocks continued to fall, putting in a bearish reversal, particularly on the Nasdaq. They consolidated a bit that hour before trying to bounce around 3:00. That bounce seemed to get rejected at the morning lows at first, but did bust through to close positive with a sharp rise in the last half hour. The Dow was up much more than both the S&P and Nasdaq. Volume was higher as well.

Technically, my guess is that IBD will put the market into a "confirmed rally" via a follow-through day for the Dow. They may not however. The 1.8% gain on the Dow was just at the threshold they use, and with the recent volatility, I would expect a follow-through day to be much more of a powerful rise in this environment. I think this is a really important point. A 1.8% rally means nothing in this environment. In addition, the fact that the Nasdaq and S&P did not put in a large move today is disconcerting to me. I'll be interested to see what they decide. By the rule, it seems like this will count, but I have my questions about how good of a follow-through day it will be.

Because I am a glutton for punishment I guess, I went back into SSO and QLD around lunchtime on a break of a downtrend line intraday. I entered SSO at $25.32 and QLD at $25.99. As usual, I did keep stops fairly tight - right around 3% although those were based on intraday support levels as well. I don't know why I keep trying to catch a move here - I should have the discipline to stay totally away. I guess part of me is just expecting a rally soon and don't want to miss it. Either way, I was stopped out of SSO at $24.44 (3.5% loss) and QLD at $25.13 (3.3% loss). That whipsaw is pretty much par for the course for this market.

My thesis last night was basically that since we declined the past two days on light volume, and neither day was what I would call "heavy selling", I though there was a good chance of putting in a FTD today. I just had a feeling - I don't know why. It didn't make sense, and maybe that is why I had the feeling last night that we would rally. When I saw the market move higher around noon, I thought it was worth taking the chance we get a short-busting rally going. I really expected one to play out. We may have indeed finished higher, but for me, this did not feel at all like a follow-through day or a powerful rally. If we kept going from lunchtime, then maybe I would feel different.

Why do I keep playing these things? Good question. I like how Gary Kaltbaum put it is his last commentary and these comments basically echo my thoughts:

"I do believe we are eventually going to get a 50-75% rally back up in this longer-term bear market that I started outlining back in 2001. I just don't know from where nor do I know when it starts.....I do know that I have to stay tough and not shy away when the market does ultimately turn. Right now, these moves are laying waste to everyone's confidence. There have been so many fits and starts that many don't want to play this game anymore...and I don't blame them. But there will be a point where the sellers do dry up...and the buyers do bid up. Many will be afraid of their own shadow. I will be trying to probe."

I guess that's what I've been doing recently - probing while trying to control my risk as much as possible. The moment you give up hope is likely the moment the market turns without you. So although I am frustrated just like seemingly everyone else with this crappy market and its crazy, volatile swings, I am trying to stay alert for a possible turn because when it does happen for real, I think it will be quite powerful.

That being said, I am slowing losing hope as this market continues to sap my ability to follow it with any interest. Getting constantly whipsawed will do that to you, but it is part of the job description. After being up close to 90% for the year a few months ago, I am sitting right around 70% for the year. Not bad, but not where I was obviously. What I have to do better is stay patient, stay disciplined, and not let myself get worried about missing the "big move" when it does happen. I don't know if today is the start of anything. My gut is no as of now. I now almost hope we do fall further here. Perhaps breaking to new lows will bring in an entirely new leg down which will keep me out of things and set up a better bottom. That would be good at this moment for my own personal stake as a new leg down would likely keep me out of trading for a while.

The weird part about the last two weeks in my optimism. I am not naturally the most optimistic person. I am usually very cynical and tend to be pessimistic. I don't know why I have been cautiously optimistic about a rally starting for about the past few weeks or so, but that is how I have felt. Maybe I read something. Maybe I saw something. I don't know what it was, but something changed my outlook. I was pessimistic and bearish pretty much the whole year until the last few weeks. Perhaps if my natural pessimism were in charge the past few weeks or so, I would have ridden this train lower and made some money. It's funny how things work out sometime.

For the rest of this week, I don't know what to think. I don't know whether to consider my feeling from last night correct or not. I thought we would rally, but this is not how I envisioned it. The more I think about today, the less impressed I am. However, I am just trying to keep an open mind. If this is the start of something, then I am fine with that. If it is just more tricks from Mr. Market, I am fine with that too. Numbers to watch are 1525 as upside resistance and 1428 as downside support on the Nasdaq and 882 as upside resistance and 818 as downside support on the S&P 500.

Right now, I am not really impressed with this late surge but I am interested to see if my scans tell me a different story. If they do give me reason for hope, I will be back later. Good luck tomorrow.

Monday, November 17, 2008

State of the Market - 11/17/08

More of the same today on Wall Street - choppy, listless trading with a downward bias along with a sharp move lower in the last fifteen minutes or so of the trading session. Stocks started lower, moved sideways for about half an hour, and then broke to new lows for the session. The market quickly bounced, however, moved sideways for a bit, and then put in a decent rally into the lunch hour that took the indices right back up to some overhead resistance near Friday's intraday lows and closing lows. They really could never get past that level, moving sideways for most of the afternoon until they broke down again in the last half hour, closing pretty much at their lows for the day. The only bright spot is that volume appears to be lower once again.

Technically, the rally attempt via IBD is still intact and tomorrow is the first day we can look for a follow-through day. Anything is possible in this market, but I am not holding my breath that we will get one. I wanted to see the bulls make a stand today after Friday's close and they really didn't do that today, although the selling wasn't crazy or severe. There just don't seem to be any buyers right now and until there are, there is little chance of a nice rally starting anytime soon. I will say that my long watchlist didn't have any stocks that look like they were hurt today and some were actually higher today. Perhaps that is one bright spot in an otherwise terribly boring and uninspiring market.

I don't have a lot to say today because I don't think there is much worth saying. At least it feels good I guess to know selling my ETFs on Friday after the close was the right decision. I continue to have no good feel as to what happens tomorrow or the rest of this week, and am keeping my mind open to pretty much any possibility. I am totally in cash and will keep an eye on things in case I need to act, but I don't get the sense I will be acting on anything in the near future. Good luck if you are trading right now. It's certainly remains tough out there.

Sunday, November 16, 2008

No Clue Where We Head This Week

After going through my scans, I really do have no clue as to what will happen this week. On Thursday, I was fairly confident we would put in a decent short-term bounce. Around 2:30 Friday, I was even more confident that was going to happen. The close puts everything in doubt for me. My individual charts really gave me no clue as well. I am seeing no new setups - short or long. I pretty much have the same watchlist on both sides of the market that I have shown in the recent videos. I will say my potential long candidates now look worse that my potential short candidates do.

Futures are down right now but we all know that can change in a matter of a few minutes these days. A gap lower would take us below intraday support from Friday and Thursday as well so I assume it would lead to some testing of lower levels. If the lows from Wednesday are breached, then perhaps we move lower and the reversal Thursday loses even more of its credibility. The numbers I would watch are 850 on the S&P and 1500 on the Nasdaq. I don't know about shorting here, but I might think about it if we open lower and break these levels. Stocks I would watch include HGT, RRC, HK, GDP, CHE, SQM, CLHB, SYNT, CINF, OTEX, GMXR, and KGC.

Sorry for no charts, but I really don't have any to put up. I know I have said this quite a bit the past four or five months, but I don't expect to do much tomorrow and maybe even this whole week. I was quite excited Thursday, but Friday's close destroyed most of the interest and hope I had in this market. It is virtually impossible to make money consistently right now. I read on another blog this weekend (I can't remember which one) that this market is so volatile that moves that used to take the major indices one to two weeks to make now are routinely made in the course of a few hours or less. In conditions this volatile, the best trade might be no trade at all. We shall see. Best of luck next week.

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Friday, November 14, 2008

State of the Market - 11/14/08

Following up on yesterday's huge reversal, futures were lower this morning as retail sales numbers disappointed. The market gapped down, but it didn't look that bad early because stocks didn't move much lower originally and actually rallied off the gap down. However, around 10:00, that bounce petered out and stocks fell quite hard the rest of the morning. They reached a temporary bottom during lunch, bounced, came close to retesting those lows in the afternoon, and then put a nice recovery bounce into the close, getting positive for the day around 3:00. Or at least it looked like a nice recovery. In the last hour, stocks lost all of the ground they made up in the afternoon and finished very close to their lows for the day. All in all, a crazy day and one that is pretty bearish in my view given what happened yesterday.

In terms of my trading, I guess I can say "the market giveth, the market taketh away." I wasn't too worried about the gap down - I didn't like it, but I thought it was reasonable given yesterday's gains. I really wanted to see how the market responded though before just buying the dip right off the bat. When the market rallied up off the gap low, I did enter small positions in SSO in my IRA's for a hopeful swing trade ($27.57 and $27.51) and also entered CF in the regular account at $59.175. In hindsight, the CF entry wasn't a good one, and I was stopped out at $56.37 for a 5% loss, which is bigger than I would have liked to take. When the market bounced, I expected this to continue its impressive rally from yesterday and I still saw that inverse H+S pattern which drew me in I guess. I was also stopped out of the SSO in the IRAs - $26.71 - which gave me a loss of 3.2% on those positions.

I entered into ALK near the end of the day with a small position at $25.65 - it seemed to be breaking out above some intraday resistance and held up well during the selling previously. I got stopped out of that on the late swoon at $24.69, which gives me a 3.8% loss. I did look for some other longs but nothing impressed me that much and I also don't want to get too aggressive yet - let's see if this market can keep the recent momentum going for longer than a few days. The fact that I got stopped out of both longs I tried today probably proves that waiting a little here is smart.

Last night, I said in the video that "we have seen this story before" in terms of the great day yesterday and follow-through would be the key. To be completely honest, I didn't expect to see anywhere near the selling we saw today. I though we might pullback a little bit, but today's selling was definitely not a good response to yesterday's bullish reversal. I am disappointed and frustrated but should I have expected anything less from this stupid market? Probably not. I am even more disappointed with how we closed. It was absolutely awful. When I saw the market rally and turn positive, I was utterly impressed and felt even better about the chances of a nice bear-market bounce here (which is why I entered ALK at that point). The close makes absolutely no sense and puts a hugely bearish spin on today's action for me. I am even questioning the relevance of yesterday's reversal and if it means absolutely anything in the grand scheme of things.

I now have no clue as to what to expect next week. All I know is that I had gains of 13% or so in my SSO and QLD positions yesterday at the close and as of now, those gains are down to 3%. That just sucks. I told myself that I needed to give the market a chance here and that is why I sat through the morning and afternoon pullback. When I saw the market recover, I thought it was worth it. Now, with that awful close, I just don't know. Right now I am debating whether to even hold these over the weekend. I don't want to wake up to a huge gap down Monday that gives me losses on these positions. I just don't know right now.

As usual, I am glad it's the weekend. This market is doing a tremendous job of frustrating the heck out of traders (I'm not the only one, right?) and perhaps that is part of a big bottoming process. Today's late fall makes absolutely no sense given the afternoon recovery, but then again, few things do right now. Maybe after some time away this weekend I will have some answers. Right now, I can honestly say I have none. I have absolutely no clue what is going on. If anyone else does, please let me know. Enjoy the weekend.

**** I did get out of these ETFs because I don't know that I would sleep well over the weekend holding them after that close. Maybe I am overreacting, but I can always get back in on Monday. This being said, I now completely expect the market to gap up 500 points because I sold these today.

Thursday, November 13, 2008

Video - Chart Summary - 11/13/08

Here's a video going over the "leaders" for the market right now and where we might head tomorrow. This market has been very hard to predict from day to day, so I don't have a great feeling as to if we move higher tomorrow or pullback. A little pullback with some backing and filling probably wouldn't be a bad idea. I just hope the market doesn't blast off again for another 5% gain, because that will likely cause another reversal. If you are long, you don't want the market getting too far ahead of itself or blowing its top too soon. Check out the video and good luck Friday!




**** Here's a link that should work better for IE users if the first link doesn't work.

State of the Market - 11/13/08

A crazy day on Wall Street today, as bulls and bears fought for control much of the day as the indices rested right near the very important lows of October. The session started out with a move higher, but that was quickly sold off for the first half hour of trading. Stocks bounced back and forth from there, tried to breakout but couldn't, and then pulled back to the lows around 10:00. Those lows were broken to the downside right around 12:15, and although the selling was somewhat slow at first, it quickly picked up around 12:45 and stocks broke hard to the downside. A temporary bottom was put in at 1:00, and stocks did bounce back right back up to where they broke down from in impressive fashion. They paused briefly right around the October lows, but that turned into just a consolidation that stocks blasted higher out of around 2:20. Stocks pulled back around 2:50, but held there and then blasted off to new highs. The last hour was super strong and stocks finished with major gains going away. Volume was higher which is also a big plus.

Technically, today has the potential to be very important as the recent lows were clearly broken and things looked pretty bad mid-afternoon before rallying in very impressive fashion. Volume was also quite high today. "Potential" however is the key word. One day doesn't change all the tricks this market has pulled on both short and longs the past few months, and it is entirely possible we trade down tomorrow. We closed a little under the 9 day moving average today, and that will be the first level of resistance I will watch closely. If we have another big day tomorrow, then we may clear those short-term moving averages perhaps easily and that would be very bullish. On the downside, I would look at the recent lows (around 840 on the S&P and a little under 1500 on the Nasdaq). As long as those areas hold, I think this potentially could be a significant day.

I didn't plan on doing much today, but when I saw the reversal in the afternoon, I thought I had to take a shot at playing it. I watched the S&P and Nasdaq both move over their morning lows, and when they pulled back to those same morning lows (the consolidation phase I mentioned earlier) I decided to go into SSO ($24.67) and QLD ($25.77) with medium-sized positions. I didn't really expect much - I actually expected to get stopped out again - but I though I had to take the chance. As the market moved higher, I moved my stops up a bit closer to break-even and just let it be. I am glad I did and I finally feel happy after a day of trading. It has been frustrating taking so many small losses in a row, especially when those positions then turn around and move the way you expected in the first place, but no one ever said trading was easy. It is important to keep your discipline at all times. I was able to keep my losses small and hopefully now I can benefit by catching a nice move upward. We'll see if that happens.

The question now for me becomes how soon do I take profits on these positions. I really don't know yet. I will have to see how stocks look after my scans. Early impressions are good - stocks like LHCG, APSG, and CRI bounced back strongly off their lows and look pretty nice right now. I may take some off the table tomorrow for the two ETFs if we have another huge up day tomorrow, but probably not all of it. If today was significant, then we could certainly run much higher than where we are right now and I would like to be able to take part in that move.

I will likely be back tonight with some charts if I see any after today's reversal. I hate to get my hopes up too much right now because this market is excellent at crushing the hopes of virtually all of its participants, but it is possible we put in an important short-to-medium-term bottom today. It all depends on follow-through. We'll see if we get that tomorrow. Good luck.

Wednesday, November 12, 2008

Things Look Very Bad, But Too Late to Short

I have a thousand thoughts spinning in my head right now so I will attempt to get them down as best I can tonight. Let's start with the obvious. Things look downright awful right now. We are just about to break through some very important lows to the downside, which could happen with another gap down tomorrow (a good possibility based on the Intel news). Normally, I would expect a bounce and that still might happen, but I see many reasons to be quite bearish here even though we are oversold.

Number one is the chart below. The VIX has barely budged the past few days given the size of our declines. Maybe that can be interpreted different ways and perhaps I am missing the correct interpretation, but I see this as a bearish sign that there is way too much complacency out there right now. The fact that the VIX is nowhere near its former highs just as the market is poised to plunge to new lows in not good news. Perhaps the lack of volume on the selling this week - it's been heavier but still not huge - is showing a lack of buyers rather than a plentiful amount of eager sellers. Perhaps this is why the VIX hasn't moved much. Whatever the reason, I think that is an area of concern.

S&P 500 vs. VIX

Another reason for concern is that I am just starting to see many stocks that I have been watching as possible shorts just now start to breakdown in earnest. Up to this point, I have been waiting for a sign but most of the action in these stocks have been slow drips lower with a few pops up to frustrate me and other possible shorts. Today, many of these stocks broke some uptrend lines and technically looked poised to fall much further. The fact that these breakdowns are happening just as the market is about to break to new lows is disconcerting to say the least.

HK, EAC, CRK, HGT
KFC, ABX, DMLP, SQM
ALNY, ANSS, CLHB, CHE
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

So what are the bullish arguments? Well, there really aren't any, and that may be the only bullish argument in and of itself. It seems a little too obvious to me for us to just break right through the lows without someone playing games and killing the shorts that get too agressive in the short-term.

So what do we do right now? Unfortunately, there isn't much to do. If you are already short, congratulations, although I may start to look at taking a little of my profit off the table soon. If you are like me and got stopped out of any shorts last week, then you are pretty much out of luck. Shorting here is just too dangerous. It is certainly tempting, but for me, it is one of those situations that I know as soon as I do it, I will pay for giving in to those temptations and the market will whipsaw right back against me. I like the way the Worden Report worded it tonight:

"I hate to remind you that even if the market does drop through the October lows tomorrow, it may be just one of those shams the market often pulls at important bottoms to shake you out...........Whatever this crossroads will bring, rabid bearishness has become virtually unanimous. Putting out new shorts at a juncture like this is like drawing two cards in the hope of filling an inside straight in five-card draw poker."

So just sit on your hands and wait. It is hard to do sometimes and I know I am ticked off right now for not profiting at all from this latest move lower. However, I do sense a ton of bearishness out there (probably for good reason) and this market could turn on a dime in the short-term. That doesn't mean I will try to bottom-fish here - everytime I have attempted too I have paid with some small, quick losses and whereas a few weeks ago I was hesistantly bullish going into the year-end, I no longer feel that way. Perhaps shorting the bounces will be a good idea - we have to see what transpires and how (if?) we bounce.

Hope my thoughts got out relatively clearly tonight. This market is making my head spin. I hope I am not the only one. Luckily I have been in cash for most of it. Good luck Thursday.

State of the Market - 11/12/08

Another day, another gap down for the stock market today - this one down. Futures bounced around most of the morning but after Best Buy cut its outlook and gave grim news about the retail environment, futures headed south. The market gapped down, tried to bounce briefly, but then rolled over around 10:00. It went mostly sideways into the lunch hour and into the early afternoon until 2:00, when the sideways consolidation was broken to the downside. They tried to bounce but got rejected at the lows of that consolidation, and just went lower throughout the rest of the session, giving the market large losses for the fifth time out of the last six days. Volume was higher but still not very heavy which has been the trend recently.

I've been complaining now about the lack of a trend, but I have noticed that the only trend really out there is the intraday one. Stocks trade either sharply higher or lower in the first half hour of the day, drift the same direction for another hour, and then move sideways for the lunch hour and early afternoon. Two o'clock has been when the big move comes - either the trend for the day reverses hard, or the trend for the day accelerates. As such, I do my best to not trade at all until that 2:00 hour comes. It can still prove to be misleading, as yesterday's pop shows, but it is at least something to think about. I don't know if it's an edge - I don't know if they exist in a market like this - but it may help you in terms of decision making.

Technically, we did get some follow-through today and now the obvious numbers to look at are the lows of October. We are pretty much right there now, and although we are now oversold, it doesn't mean we can't move lower. Last night I said I didn't want to get short because I was sort of expecting a bounce after four out of five down days. I was obviously wrong. There is nothing good about today - many of the "leaders" I showed last night broke down today and no longer look like potential longs to me. I was trying to be optimistic this week about the chance for a rally but I don't think there is much reason to think that way now. I say this mainly because of the individual charts, not just because of the overall indices. As long as they were holding up, I kept thinking that perhaps we can get going to the upside. They are no longer holding up after today.

Basically, if we are going to bounce, I think we have to do it tomorrow. I have no clue or no gut feeling anymore as to if that will happen. It will not surprise me if we break the lows tomorrow and then reverse higher. That's what I still am very hesitant to get short. There is a good chance you are too late to get heavily short right now. However, some other things I see, like a VIX that is not nearly as high as it was when the market made the lows in mid-October which in my minds shows a lot of complacency, make me think we are just at the beginning of another huge move lower. I don't know which of the two outcomes it will be.

This market is frustrating. Right now, I keep thinking back to last week when I had some positions in SDS and SMN but were stopped out of them. Obviously I missed huge gains in both. Right now, my normal trading style is just not working and I need to adjust a bit. My main philosophy is that if a trade doesn't work immediately then it probably isn't worth holding onto. Due to the opening gaps and volatility, a lot of my attempted trades in fact haven't worked immediately, reversing quickly after I enter, only to work later on. I haven't traded much all in all, but my tight stops just haven't worked in this environment. Because of this, I probably will continue to be on the sidelines tomorrow and into next week. I know that if I do trade, I will continue to keep tight stops because that is what I am comfortable with, but if that strategy hasn't worked so far, why keep trying them? Saying that, I think this is a juncture that if you do decide to trade, honoring your stops will be very important, because we could move big in either direction. Sounds weird, but I think it makes sense.

I see a lot of charts that broke trendlines today, and I may post some tonight. It is certainly possible that we head much lower from here, but shorting a market that has fallen almost 15% in a matter of six days is playing with fire. It may work, but it is very risky. If you do go short, please make sure to honor stops in case we do reverse and bounce because it could very powerful. Remember that with this market, absolutely anything is possible. I have a feeling we are on the verge of a major move - a total crash or a very nice bounce. I wish I knew for sure which one it was going to be. Good luck Thursday.

Tuesday, November 11, 2008

Even with the Selling, Leaders Have Held Up Well

After I thought about today's action and also the fact that we've been down four out of the last five days, the more I thought I don't want to short right here. It is certainly possible we follow-through tomorrow to the downside, but this market hasn't exactly been one that's good at following-through on any action for a meaningful period of time. Although we could fall further, we are getting oversold and any more selling tomorrow would put us at oversold levels. So if the trend is not having a trend, it makes sense that we should bounce back up at some point in the next few days.

I'm not saying I am bullish - just saying that I don't plan on getting short and I think doing so here could cause problems. I did check out the current market "leaders" during my scans and there is good and bad news. The good news is that the charts I've highlighted over the past week or so have held up remarkably well for the amount of selling we've seen the past four days. Most of these stocks below have held support and their pullbacks have come on lower volume - very important.

LHCG, CRI, GB, VASC
APSG, QCOR, ESI, DV
ALK, LCC, UAUA, DAL
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

The bad news is that these continue to be the only charts I see. I am still not getting new candidates pop up in my main bullish scans. If we are to have anything more than a few days bounce amidst this chop, we need more leaders to show up, preferably from groups other than medical, education, and airlines. I still continue to see many potential inverse head and shoulders pattern as I showed this weekend, but the problem with most of these is that volume is not coming in right now. Some of those candidates broke down today, but many held up fairly well. In order for these patterns to be valid, however, they need to bounce now and with heavy volume to form their right shoulders. Volume continues to very low on both up and down days for the overall market, which is probably a reason the intraday action has been so
volatile.

My game plan right now is to stay away from chasing shorts here (although I realize we could fall apart - I just don't expect it) and continue to focus on the leaders to see if we can get anything going to the upside. I am not that optimistic, but continue to be willing to give the market a chance to prove itself. More than likely, I will do what I did today - nothing. Good luck Wednesday.

A special "thank-you" also goes out to any veterans out there that read the blog or just veterans in general on this day of remembrance for our country. We appreciate your service and sacrifice to our country - although our country has its problems like all others, there is no doubt it is still the best place to live in the world, in large part to those veterans who serve. Thank you.

State of the Market - 11/11/08

After reversing hard yesterday to the downside, the stock market seemed to want to sell off some more today, as futures were lower and after gapping lower to start the session, stocks sold off hard for the first half hour or so of the session, getting below the recent lows it made around 900 on the S&P and 1600 on the Nasdaq. They moved sideways for a brief period around 10:00, but then drifted slowly lower throughout the rest of the morning, the lunch hour, and the beginning of the afternoon. This midday action was mainly sideways, however, and around 2:00, we got another reversal, this time upward in which the market rose sharply and almost got positive for the day. From there, they fell almost 200 points on the Dow in about 25 minutes, tried to bounce again as the final hour started, but that lasted only about 20 minutes. They broke down further from there, almost touching the lows for the day. Things looked bad once again, but the market bounced here up into the close and finished in the middle of its range. Volume appears to be higher.

The spike around 2:00 seems to have been caused by news that the government had another program/idea to try and give help to the housing market. The idea will "will target loans where borrowers are at least 90 days delinquent and have high loan-to-income ratios. The program's goal is to reduce monthly payments - including taxes and association fees - to 38% of homeowners' gross income" via Yahoo Finance. As a homeowner that bought a house he could afford and am still waiting to find one that I can still afford that fits my budget for a growing family, I am super excited about this idea.....not. Why not reward everyone who made bad decisions and lived outside their means while at the same time basically punishing those people that did the right thing, lived the right way, and are now paying drastically for the mistakes of others? What a super idea!!!!!!

Do the politicians have any clue as to the future problems they are creating by promoting this "bailout society" that we seem to have right now? Or do they just not care because all they care about is getting reelected in two years so they want to try and do what looks good, rather than what is good for the long-term future of this nation. All of these bailouts, both on Wall Street and now on Main Street, have created a downward spiral of moral hazard that I don't know will ever be able to be reversed once it has started (and make no mistake it has started.) Maybe that is the idea for these politicians - the more people they bailout, the more people will come to depend on the government for their everyday needs, the more powerful our government becomes. Then the freedoms and liberties that this country was founded upon continue to get whittled away while Washington becomes the be-all/end-all of our nation. I really do think that fifty years from now, the last few months will be looked upon as among the saddest in our country's great history for what is happening with these bailouts.

Ok, that was my rant for the day - back to this crappy market. If you read what I wrote this morning, you may be able to guess that I feel I made the right decision going to Chuck E Cheese's instead of trying to trade this market (not that C.E.C. is ever a bad choice - my son definitely had fun). I watched the first half hour or so of trading and almost went short a few stocks, but chasing the gap lower would have ended up just giving me some losses, which I what I expected and wrote about earlier. The last two hours were crazy and virtually untradeable. I am once again glad I did nothing - just like yesterday.

This market is so choppy and volatile that traditional strategies of buying breakouts and shorting breakdowns is not going to be successful - at least it hasn't been successful recently. About the only thing you can do is short at resistance and buy at support levels, but those resistance and support levels are so short-term and often unclear that that strategy is also difficult. In addition, this market likes to break those support and resistance levels just enough to draw people in thinking we may get a trend going and then reverse, stabbing a knife in the heart of all those traders entering on a break of those support or resistance levels. Today was a prime example of that - we were a good amount lower than the lows of last week and held there most of the day. It sure looked like it was indeed a breakdown that may lead to more selling, until of course it wasn't and the market rallied right back up at 2:00. So we are going to rally, right? Of course not - we give up that entire rally in the course of thirty or so minutes and end up finishing in the middle of our range. This chop makes it virtually impossible to make a lot of money for most traders - at least it makes it difficult for me.

If you are trading heavily right now, good luck. Based on today, I would look to get more short than long, but after two straight bearish days, I don't think I want to do that because it hasn't been smart to chase. To be honest, I have no clue where we close tomorrow. As I said earlier today, the market is basically a gambler's game right now - take a guess how we gap tomorrow and hope you're right. That's not a game I want to play, and luckily, I don't have to play. Neither do you. Remember that.

If I see anything interesting, I will be back later with some charts. Good luck Wednesday.