Wednesday, January 28, 2009

State of the Market - 1/28/09

We got another taxpayer-sponsored rally today on Wall Street, as news of another bailout via the formation of a "bad bank" caused a spike in the financials and led to short-covering in most other sectors as well. Futures were up big pre-market and did open higher. They pulled back for about the first hour and slowly moved higher through the session into the 2 o'clock hour, when the Fed released their latest notes. This release caused a quick spike to new highs, but as usual, the rest of the session was volatile as the news was absorbed. Stocks pulled back, spiked around 3:00, pulled back again, and then rallied back into the close, giving stocks large gains. Volume doesn't look overwhelming as of now but was definitely higher than than Monday and Tuesday.

Technically, the Nasdaq and S&P both closed above some important resistance today (although just barely for the S&P) which is good for the bulls. It would be nice however for the market to be able to hold a rally/breakout like this just once without the government (or should I say taxpayers) getting involved and sponsoring it. That's one reason I still doubt this move and don't plan on playing it. We are also definitely overbought now on some short-term indicators and the others I watch like the McClellan are getting there very quickly as well. Maybe this time will be different - maybe this will be the rally that sticks. But everytime we have had one of these rallies where we get overbought with very little leadership, they have quickly failed, and that's still what I expect to happen here.

I stayed out of the market for most of the day today until the end when I tried FAZ at $42.79. I should have known better and just stayed out of this market on this particular day, but I didn't. I was stopped out a little while later at $41.01, giving me a 4.2% loss, although my stop was set at $41.49 and I got an absolutely horrible fill. I mean, 40 cents off the stop?? C'mon Scottrade. You can do better than that, right? That puts me down a little over 4% for the year. I got to get something going here soon - haven't been timing these trades as well as I need to do.

My outlook remains the same - I see nothing that interests me on the long side and until there is leadership and some nice charts popping up, I don't see a need to chase this move, especially with us facing overbought conditions once again, a situation that has led to a signficant pullback every time it occured for the last year or so. I know overbought markets can stay overbought and we do have a little more room on the oscillators to the upside, but that usually applies to strong markets, and anyone that says this is a strong market is crazy in my opinion. We may keep rallying into the weekend as the institutions try and paint the tape a bit for the month-end numbers, but at some point soon, I am still expecting a pullback. I will look to play it from the short side and hopefully I can time it better than I did today. As always, if the pullback is calm, support holds, and I see nice charts showing up, then I have no problem changing my outlook and turning bullish. But chasing here just seems unsound to me, so I won't do it. I can't do it. If you do, best of luck. If I see anything interesting in my scans, I'll try to post it tonight. Got to go shovel some snow and ice now - good luck tomorrow.


Yin said...

Do you think your stop loss is too tight for FAZ? I mean the damn thing can move 20-30% intraday.

Mac said...

My philosophy is that if a trade is going to work, it should work right away, and if it doesn't, there is no reason to hold onto it. I use intraday charts to look for support and if that support is broken (like it was today), then again, why hold onto it? I can always get back in. If I didn't get out, I would be looking at more of an 8-9% loss.

If it works right away, I am willing to give it room to move - not at the start though. I want it to work or I am out.

roth87 said...

If you are trading FAZ you are just getting bored of waiting. Like Yin said, it is extremely volatile and should not be held for more than half hour probably.