Tuesday, February 10, 2009

State of the Market - 2/10/09

We had a very negative day today on Wall Street, as traders did not like the lack of new ideas presented by the Treasury, and stocks sold off for most of the day. The market gapped down slightly at the open but quickly bounce back, with the Nasdaq turning positive around 9:50. From there, however, things got bad, as stocks pulled back into the 11:00 hour, and when Timothy Geithner started to speak, the "sell the news" reaction played out and stocks moved quickly lower. They consolidated briefly, but the selling lasted almost all the way into the lunch hour. Stocks then bounced slightly higher for about an hour, forming a bear flag that they broke down out of around 1:00. The rest of the day was a slow decline lower, although a late bounce allowed stocks to finish slightly off their lows, but still with massive losses. Volume was very heavy today and adds to the bearish tone set today on Wall Street.

Technically, today was obviously not a good day for a number of reasons. The Nasdaq closed just below its 50 day moving average, while the S&P has now put in a second failure at the 50 day moving average in about a month. The S&P certainly looks poised to test the 800 level once again, and that is the area I would focus on. If it is broken, then the November lows will likely await. The Nasdaq needs to hold the 1440 level or it will likely be testing its November lows at some point as well. I also still see the head and shoulders patterns that I showed in the video this weekend, and further breakdown here would vaildate that pattern. The VIX looks poised to break above its 50 day moving average and a downtrend line, and if that happens, it could signal a start of a major move lower.

I went into today with a slight bearish outlook due to the overbought conditions and hoped I would be around my computer to make some trades when the market moved. Unfortunately, my timing was not good and I completely missed the 11:00 move lower as I was doing other work. I made one trade around lunchtime - QID at $51.49 on a pullback intraday. That worked out ok, and I was set to buy some FAZ if it broke to new highs ($47) around the same time, but by the time it did, I was once again away from my computer and missed it. I could have set a limit order - maybe I should have. So alas, I was not able to profit mightily from the move lower - just a small amount. My mistake was not entering into some shorts a few days ago when I knew the market was short-term overbought. I went against what I saw and let the uncertainty with the news items take me away from this trade. It turned out to be a good one, but that's how it goes. I was tempted to enter a few shorts at the end of today, but passed as I still don't trust this market on either side, although I will continue to watch for shorts and may take some tomorrow if we move lower again. I have to see what my scans show me.

Today obviously seems like a "sell-the-news" reacton today, and even supposedly positive news on the pork/stimulus bill passing the Senate didn't cause any sort of bounce in the afternoon. We are still technically stuck in a range in the intermediate-term, but if we get more selling like we had today, I think that range will be broken soon. The short side definitely appears to be the side to play right now, although we all know this market is good at changing its mind in a hurry, so be careful. If I find anything interesting in my scans, I'll try to be back later. Take care.


Kenneth J. Gruneisen said...

I just discovered your blog and I am always glad to connect and collaborate with like-minded investors. I founded www.CANSLIM.net in 1996 to promote the proven successful investment system, and to share ideas and tactics in the methods outlined in the book "How to Make Money In Stocks" with others. Enjoyed your video.

Mac said...

Thanks - I know of your website and checked it out often, that is when we were in a bull market. Right now, CANSLIM doesn't work that well so I have had to adjust my trading strategies to much more of a short-term focus. I hope that eventually we'll get another bull market going. Good luck.