Tuesday, January 20, 2009

State of the Market - 1/20/09

A historical inauguration day in Washington, D.C. was met with a giant "ho, hum" today on Wall Street, as the financials continued to drag down stocks in a steady manner throughout the day. Futures were lower pre-market today and the market did start with a gap down that led to more selling in the first hour of trading. They tried to stabilize a bit for the rest of the morning and moved sideways into lunch, but around 12:30, right as President Obama wrapped up his speech, the market broke to new lows and led to more selling through the rest of the afternoon, although it was slower and not as severe as earlier in the session. Things did start to fall apart though in the final hour, as the selling picked up and stocks fell into the close with only a small attempted bounce and closed with large losses across the board. Once again, volume patterns were bizarre or at least appear to be - volume on the S&P does look higher as of now but on the Nasdaq, volume looks like it will come in lower. This may change after I get the final data.

Technically, the markets obviously look awful right now and the fact that oversold conditions last week have not led to a bounce is definitely not good news. We could get one of those famous bear-market short-covering spikes at any time where the market is up 5-7% in a day and CNBC is calling another bottom, but those are hard to time and not a given. Plus, the more intermediate-term oscillators are not yet oversold, and the VIX overtook its 50 day moving average today and could run from here, so we could be in store for more selling - a bounce is definitely not a given. Don't try to catch falling knives here.

Based on what 2009 has brought us so far, it sure looks like we could be looking at another situation like October where we just kept selling off with no end in sight. A key development today was the breakdown of the financials, which broke to new lows (all-time?) today even with the oversold conditions present before today. Next levels of support on the S&P and Nasdaq are 740 and 1295 respectively, which mark the 2008 lows. If we get that low, I would guess we break those lows and move even lower.

I once again did nothing today as I said I would - I just can't get short with the market so oversold in the short-term although I probably should have. I know as soon as I do, we probably get one of those short-killing spikes. I still plan to short any bounce or anytime the market gets near its 9 day moving averages, but I certainly missed out on this latest move. I don't know why - I think a big part of it is that my mind has not been as focused on trading with the new baby at home. I hope that doesn't sound like an excuse - I don't mean it to be. I am just being honest - there is an adjustment and the time I can put toward trading is not as much as it used to be. I went into this year really telling myself not to force things because of this - I just thought being extra careful until we adapted to having two little ones instead of one was a smart move. I am flat for the year so it's not like I am losing money - just missing out on some of these moves lower from the short side. Still can't believe I was in FAZ at $36 and let myself get stopped out of it at $38. Yikes.

Things are obviously very ugly out there right now, and with sentiment not yet near extremes it could get uglier in the short-term. It is probably a little too late in my opinion to put on swing trades in this market where you aim to hold them for a week or two, but I think you can short selectively as long as you remember to keep your time frames very short. Be aware that a short-covering rush could happen at any time. Overall, the trend is obviously down, the quick bounce I expected was very, very weak, and now it looks like the selling is going to get pretty nasty. Be careful out there -this historically awful market looks like it is about to pick up some steam. Good luck Wednesday.

8 comments:

Anonymous said...

stay honest, thts what sets you apart
enjoy your family fully.
elvee

Anonymous said...

hi there so you did get FAZ @ $36 and take profit @38 YIKES lol. But You not alone YIKES, I am not surprise if most people only take small gain shorting during bear market as market usually stay extremely oversold without meaningful bounce until closer to IT bottom...

alysomji said...

Don't worry about missing out on this latest move to the downside. I was personally hoping for an up day after the close on Friday to go short. There was good reason to anticipate that we would see a small (and possibly even bigger) move higher (above 860) in the S&P before breaking 817.

Just didn't happen. There will be other opportunities in 2009 so no worries.

Mac said...

Believe me, I'm not worried. There will be other tradeable moves and to be honest, I probably would have covered a lot of my shorts anyway last week.

MarshalN said...

Missing on the FAZ is a bit of a bummer, but hey, happens to everybody.

The baby isn't an excuse at all -- I'm sure if I have a new baby I'd be pretty unfocused on trading as well. Enjoy the time!

Anonymous said...

if you trade for a living than being flat or B.E is like having a bad week
..... you cannot make yourself feel comfortable just by not loosing....
this is the wrong attitude for a professional trader......
trade and make a living

Anonymous said...

buy,buy,buy,buy
Rates are favorable towards stocks. Treasury yields are so low it makes stocks attractive. Corporate bond prices have rebounded nicely in a sign of strength. Now, top quality corporate bond prices are outperforming 10Y Treasury prices. And high yield corporates are also starting to perform.

Mac said...

First anonymous - I don't trade for a living - I trade to just supplement my income. I can afford to sit the market out and it doesn't affect me one bit. But if you do trade for a living, and take that attitude like "I have to trade" I can imagine that would be a ticket to disaster. Forcing trades is never good in my experiences. Good luck though.

Second anonymous - you sound like one of the guys they bring on CNBC that are trying to bid up stocks so they can unload their own positions. Fundamentals are great in a bull market and I do pay attention to them, but not now.