Friday, January 23, 2009

State of the Market - 1/23/09

Following up on yesterday's chop session, things looked quite bearish early on for the stock market today. Futures were significantly lower pre-market and stocks did gap down at the open. The markets did however bounce quickly off the gap, but looked to be forming bear flags when they bounced as they rose right up into some overhead resistance from yesterday. Around 10:30, it looked like the market was starting to break down from these bear flags and did move lower for about fifteen minutes, but then popped back up out of nowhere and broke to new highs around 11:00. Stocks immediately pulled back, but held their breakout points and moved slowly higher throughout the rest of the afternoon, although in a very choppy and slow manner. They hit a temporary high around 2:00 and started pulling back again. Stocks pulled all the way back to the breakout point once again and bounced slightly into the close. All in all, stocks once again basically went nowhere. Volume looks to be lower today.

Technically, we have basically gone nowhere this week. Oscillators and indicators continue to be neutral. It looks like we are forming a very short consolidation here with 800-840 being the range for the S&P and 1435-1510 on the Nasdaq. A break of those levels could signal a tradeable move either way, but there is still upside resistance with the moving averages, so I continue to lean to the bearish side and am expecting a breakdown soon. I know we don't have to get it, but it still looks to be setting up that way. Perhaps this chop, although frustrating, is beneficial because it will allow a bigger, longer move to the downside if that indeed is the direction we are headed.

As I said last night, I went into today with a short bias but I never like to play an opening gap immediately - I prefer to wait ten to fifteen minutes to see what the market wants to do. That's what I did today. After about fifteen minutes, I saw a lot of stocks that looked to be forming bear flags intraday, so I did enter SOHU short at $38.12. I put a stop a little bit above yesterday's lows around $38.70 figuring if it got above that overhead resistance, it wasn't worth holding as a short. It did, and I was stopped out at $38.77, giving me a 1.7% loss. It continues to be frustrating getting these small losses, but give me small losses over big ones anytime. It is all part of the game.

A little later, after looking at these bear flags continue to form intraday, I felt I had to take a shot with FAZ and I entered at $68.20 on the pullback. My stop loss was around $66.80 - I didn't want to stick around if it broke to new lows, which I knew was a possibility even with the bearish flags I saw forming. I also shorted GS at $70.24 based on its intraday pattern and put my stop above the high for the day around $71.60. These ended up both being mistakes, as the market reversed back upward and stopped me out of both (FAZ at $66.76 for a 2.3% loss and GS at $71.61 for a 2.1% loss). After that, I figured three losses were enough, admitted defeat to this psycho market, and just shut it down for the day. It's frustrating but after seeing how they closed, I know I made the right move getting out quickly.

I really continue to have very little feel for where we go day to day and hour to hour in this market. I would be impressed if anyone does. Those bear flags that formed in the first hour looked almost technically perfect - wedging pattern on lighter volume right up to overhead resistance. I should have known they wouldn't work - when things look that perfect, this market has to screw it up. Since I don't have a good feel, I should have probably stayed out, but I couldn't when I saw those patterns and probably would do the same thing again. There were quite a few bearish looking setups last night so I had to go with what I saw.

Eventually, I hope the market will become a little less spastic and allow some tradeable moves that last for more than an hour or so. I don't know when that will be however - perhaps not until after earnings season, and if that's the case, it might pay to just sit things out for a while. It's just too tough right now. The intraday swings are not only making holding positions hard, but they are also causing a lot of individual charts to look patternless, which is probably a reason I had so few setups until last night.

I'll be back some time this weekend with some thoughts and some charts. Most of the bearish setups I showed last night are still valid, so I am still leaning bearish here. Take care and enjoy the weekend.


Anonymous said...


what happen with GE friday?? she goes down faster the a cheap whore. Word on the street, they might be on serious financial trouble, another bailout perhaps? do you heard anything...

Anonymous said...

Mac, with GE seems to big to fail may be this market trying to shake off short before finally dive down...

arnaud said...

first, TY 4 your daily comments. I really like these technical views from a trader. It gives a more human approach.
As 4 the market, I do think it still can go a litle lower, but would be surprised to see big bearish momentum. I like to think we will end soon the down leg from the highs. That could explain the difficult actual pattern, and the lack of clean action. Selling pressure, if still here, is slowly loosing its grip.
I don't want to sell too much into this weakness.

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Bad Crediter said...

I'm actually pretty surprised with GE. THe main business for GE at the current moment is simply as a finance investment company. I suspect within the next few months to a year that it will start going into the red too.