Thursday, January 8, 2009

State of the Market - 1/8/09

Another day of light-volume pullback for the stock market as traders likely were hesitant to take major positions in front of tomorrow's job number. The day started with selling that lasted for about an hour, but neither the Nasdaq or S&P got low enough to test the support levels I mentioned last night. Around 10:20, buyers came in and took the market to new highs for the day, with both indices going briefly positive. This bounce lasted until around 11:00, when stocks stair-stepped their way lower in a channel through lunchtime and into the final two hours of trading. Right around 2:00, they broke to the upside out of this channel. They quickly pulled back, spiked again and actually broke to new highs for the day before pulling back once again as the final hour started. That final pullback lasted until around 3:30, when stocks rallied into the close. Volume appears to be lower and it definitely felt lower.

Technically, the last two days managed to take away much of the overbought condition that was present at the beginning of the week - most of it, but not all. In fact, in the very short-term, we are close to being oversold after today, although I think it would have been much better to not get that late bounce. Given the low volume, the past few days look so far like consolidation and a healthy pullback, even though the losses yesterday were severe. Continue to watch those levels I mentioned yesterday (around 890 and 1550) and as long as they hold, then this could be a good buying opportunity. Of course, if the market doesn't like the job number tomorrow, then this could all change.

I went into the day looking to possibly get more short than I already was, but when I observed the trading during the first half hour or so, that plan changed. I didn't see many stocks on my short watchlist breaking down and trade was once again very, very slow in general. Because of that, I didn't feel like pushing it too much on the short side. I set my stop on FAZ somewhat underneath yesterday's high, figuring that if the financials reversed off their gap down, I wouldn't want to be short them for the short-term. My stop was set at $37.96, but was filled at $37.75 giving me a 4% gain on the position. Watching it go back up later was frustrating but I stuck by my plan and can't be too upset. At that point, as I watched the market reverse off its opening lows, I also covered my MR short at $16.78 for a 9.4% gain. These two trades allowed me to get back on the plus side for the year but only barely. Overall, although the market did pullback the way I expected the past two days, it wasn't the easiest pullback to short based on individual stocks. I probably just picked the wrong ones.

Later, I tried a few longs - SOL at $5.01 and LVS at $7.27 with tight stops. Both of these were based on their daily charts where they were bouncing off some support and also their intraday charts where they appeared to be breaking out. I was stopped out of SOL at $4.87 for a 3.25% loss when it reversed its intraday breakout. I should have known better trying to play stocks in such a slow, low-volume market., but I showed a lack of discpline there.

This continued to be somewhat of a weird market. Another nice-looking leader had a rough day today (CSKI) which is not good and another one (AIPC) looks even worse to me even with its reversal, but at the same time, I still don't see the vicious breakdowns I would expect of a market that is just starting a major move lower. I guess overall I am looking more on the long side right now, but I want to see how the market handles the employment report tomorrow.

On Tuesday, I said that as long as volume was lower and support held, then this pullback could probably be bought, and so far it seems to be setting up that way. I see more longs that interest me right now than shorts. We could still breakdown and if the indices break below their moving averages, then all bets are off, but as of now, I will selectively be looking to buy here with tight stops. I think the risk/reward for going long is better now than it was at the beginning of the week.

I don't think I'll be back tonight with a post so here are the main longs I will be watching tomorrow. If we breakdown below the moving averages, I may go back to just using the inverse ETFs because the individual stocks I am watching have been difficult to play on the short side. If you're really interested though, just check out the video from last night. Here are the longs: FGXI, OPTR, FORR, ARST, WPRT, VISN, LZR, GMKT, JASO, CSKI, MEA, ACAS, SOLF, SOL, LVS.

Good luck tomorrow - the slow action of the past two days should set us up for a big move I would guess. Leaning long but not married to that outlook. See you Friday.


szaman said...

Mac- Every Inverse ETF charts looks horrible to me, They cant even make to 10 day SMA. Your Thought ?

Mac said...

I was hoping we could test support around the 50 day MAs on this pullback but as of now, it does look like the market wants to rally a little more, depending of course on the jobs number. The inverse ETFs probably reflect that, as do the individual shorts I talked about yesterday.