Thursday, January 15, 2009

State of the Market - 1/15/09

Sorry for the late post - picked up a new dryer today and it took longer than I thought to get it in the house and hooked up. It's good to go now though.

Bad news from the financial sector and Apple Computers caused more rough times today for Wall Street, at least early on. Stocks started flat but sold off hard quickly, pausing only briefly around 9:45 for a quick bounce that was also sold off. They hit lows around 10:30 and bounced from there, but that bounce ended up looking like a bear flag, and stocks fell back to their lows starting around 11:30. They broke through them during the lunch hour, but reversed higher and rose very nicely into the afternoon, rising all the way up to challenge and in some cases break through yesterday afternoon's highs. They pulled back to start the final hour, but then bounced once again to finish positive at the close although a bit off their lows. Volume was a good bit higher.

Technically, the bounce has likely caused many bullish reversals on individual charts as they did on the indices. If we finished stronger than we did, I think I would be a little more bullish but as of now, this is basically just fitting in with what I have been looking for the past week or so. At some point, the oversold conditions had to manifest themselves and today looks like it was that day. Now the question is whether this reversal will lead to further upside. It may, but I am still looking at August 2008 as the comparison (check out the graph I showed yesterday) and the first reversal there lasted a total of two days before it hit resistance around the 50 day moving average and then fell further. I am looking at the 880 area as strong resistance for the S&P 500 - the 9, 20, and 50 day moving averages have all converged in this area - and the 1550 area as strong resistance for the Nasdaq - the 9 and 20 day moving averages are a bit above their 50 day so it may get over that a bit. That's where we reversed back in August so I would expect it could happen again. If we get that far, I would likely look to get short.

It was quite the frustrating day for me today, as I bought two ultra ETFs in the morning anticipating a bounce but got stopped out before the bounce happened. I entered SSO at $21.96 and DIG at $25.07 this morning around 10:40 or so. Things seemed to be slowing down in terms of selling, the VIX was wedging its way higher intraday, and I just had a feeling that I needed to try to catch a swing there. The play worked well for about an hour, as the market moved off its lows. I moved my stops up a little to where I would be out if the market moved to new lows for the day. Well, it did around 12:40, and I was stopped out of SSO at $21.66 (a 1.5% loss) and DIG at $24.73 (a 1.4% loss). The losses were very small so it's not a big deal, but it is frustrating to see them move higher after I got stopped out. As I said last night, timing a bounce is difficult and I was just a little off in my timing and paid for it. My read itself turned out to be correct however.

Maybe things will change after going through my scans, but today's bounce doesn't change my longer-term thinking - I am still looking to get short at some point soon. I was expecting a day like today and hopefully you were listening and took some profits on your shorts today. Since I was stopped out of my ultra ETFs today I don't know if I will try to play anything else on the long side, especially ahead of the long weekend. That was my shot and I probably blew it, so I will likely just wait to get short again. It should be an interesting few days with earnings and the inauguration coming up to start next week. I am off work tomorrow so if I do anything I will post the moves on Twitter. I may have some more thoughts up as well before the open. Take care, and good luck Friday.


Charlie G. said...

Nice call on the bounce too bad you got stopped out. I read way too many blogs, but I'm keeping you in google reader as your macro analysis is great.

Anthony said...

CST, what is your twitter address? I had a similar day -- very frustrating. went long SPY right after the first test of the low and sold .20 higher. i was expecting SPY to roll over at the end of the day but picked the wrong time, as there was still some juice left and i got stopped out only to see it work about an hour later.

Gio said...

Volume up big today on the big 3. 29% on the SPX i think. Just noticed IBD has "market in correction." How long have they had that posted?

I think we go lower eventually, but I don't want to be heavy short before Obama takes over, or more fittingly, when Bush is removed. "Change" is tricky... either people are given hope, or stress.

How's the newborn?


Mac said...

Thanks Charlie.

Anthony - ChartSwingTrade
Today is even going to hurt more for both of us I guess as it looks like we're going to rally a bit more.

Gio - the baby is doing well - thanks for asking. I wish he didn't enjoy getting up two to three times a night but oh well.

IBD went into "correction" mode last Wednesday but they were in "under pressure" for about a week i think. Volume was impressive today. I still think we sell off soon after this quick spike and perhaps a "sell the inauguration" situation could occur. This whole month so far is just looking too much like August 2008 - I don't know if it will play out the same way but they look identical.

Anonymous said...

Mac, perhaps you should try small caps index etf next time to play for a bounce.