Wednesday, February 11, 2009

State of the Market - 2/11/09

Another day, more chop on Wall Street today, as after a very bearish day yesterday, the bears couldn't push things to the downside and stocks put in a small relief bounce. Stocks opened slightly higher today, but after about a half hour reversed lower and things looked bad given yesterday's action. However, around 10:30, stocks found a bottom and rose all the way back to the morning highs, but after a false breakout, they then fell again throughout lunchtime and into the afternoon. Around 1:40, stocks broke their morning lows and once again, it looked like maybe we would break open, but yesterday's lows acted as support and stocks bounced once again into the final hour. Of course, that bounce amounted to nothing, as they could once again not break to new highs and stocks moved lower into the close, finishing with small gains. Volume was quite light today. All in all, it was a day with a lot of movement but none that was productive, as neither bulls nor bears could take control of things.

Technically, the Nasdaq tried to retake its 50 day moving average, but couldn't do so in a decisive manner, while the S&P seems to have gotten rejected at its short-term moving averages. Both are still obviously holding their trendlines that I showed last night but just barely. Short-term, we are now a little oversold on the indices based on the RSI(2) but most other indicators remain pretty neutral. I think the overall picture remains the same - a breakdown below that trendline (and after that the 800 level on the S&P) would be significant. The VIX could not break above the resistance I pointed out last night but I will continue to watch it.

Not a particularly great day for me today trading, as the whipsaw action continued in individual stocks. As I said last night, I was looking for a breakdown and when we reversed off the morning highs I thought we were finally going to get it. I went short two names early in the session with small positions - FAF at $25.38 and LEAP at $26.32. Both appeared to be ready to break support levels and with the market looking bad as well, I felt it was worth taking these. I waited a bit on both however, which was a mistake. LEAP spiked hard upward a little while later and stopped me out eventually at $27.01 for a 2.9% loss, although my stop was tighter and I got another bad fill. FAF broke down a little from my short point but then also slowly reversed higher throughout the morning, putting in a tail on the daily chart. I was stopped out there at $26.06 for a 2.85% loss.

I was also stopped out of my QID position from yesterday at $52.60 for a 2% gain. I gave it a little leeway early on and when the Nasdaq reversed, I thought things looked good for a further breakdown in tech, but that didn't happen. I moved my stop up on the first pullback, and when that was broken soon after, I was out. Perhaps I should have given it more room, but it was a large position. I am the first to admit this market has me spooked in terms of letting positions run. I just can't give them much room right now because I never know where the market is going next.

The losses on the shorts basically cancelled out any gains I had in QID, so I keep running in place right now, not going much of anywhere. Another stock I watched closely, ELS, also reversed off its lows so I am glad I went a bit cautious today with the shorts, only taking two. There were also several times I almost tried FAZ but would have gotten stopped out anyway. If I went heavily short, I would be even more upset right now, so I am glad I showed a little caution.

At risk of stating the obvious, this continues to be a frustrating market. These are the type of days that kill you as a swing trader. Daytraders probably love it though. I just wish we could get a move already, either way, that would last for more than a day or two and that you could put some trust in. I haven't been trading very big or very frequently - most of the time I have had more than 50% cash this year - but it still is tough to deal with. I continue to spot these short setups teetering on the edge of support which do break but then reverse back up above support. Persistence I guess is a key now as I still think at some point these breakdowns stick, but it is certainly tough.

We have a market full of both weak bulls and weak bears, and until one of them gets some guts and takes control of things, we will continue to have very difficult conditions in which to trade. They are both choking right now when their opportunity to shine comes up. Today was the perfect chance for the bears to take this thing down, and they just couldn't do it. Yesterday was a great chance for the bulls to take this thing higher, and they threw up. I have to assume at some point, one of these two do take charge, but it really sucks while we wait for it to happen.

Overall, I am still expecting a breakdown at some point, but I've said that for a while now, haven't I? Like I said last night on the video, with this market, you really just never know. From a bullish perspective, I guess it is good that the market bounced back a bit today, but from a bearish perspective, was that really the best they could do after being down 4% the previous session? Who knows? My guess is we could bounce a bit more but that is simply a guess and that bounce would be shortable. I don't expect any new setups tonight. Good luck Thursday.


Boomer Angst said...

What I'm about to say might be incredibly obvious to you (you have more experience than I do at trading), but... have you considered day trading certain stocks that are in channels right now? I've day-traded big financials like BAC and made some coin. TM is another one that's good for the 62-69/70 range. Even the SPY works in a range right now (80-86). I also use other ETFs for the same purpose-I have more winners and fewer losers than with individual stock names right now.

As always, thank you for your insight. I really look forward to reading your posts.



Mac said...

If that's working for you, great job. There are a lot of stocks that will work if they're in channels. Day-trading is hard for me because I can't be at my computer ALL day, and it seems with this market, that's what you have to do. Ideally, though, I would like to be able to hold positions for a few days or a few weeks, but that isn't happening right now. Oh well. Good luck with the trades - hope you keep making some coin. It's certainly hard to do right now.

rol lew said...

hi mac, like your posts, never miss them but make few comments, hope you keep up the good work.
i do not know if you receive thies few comments or not....

have you ever considered selling iron condors...out of the money.... these are usually slow trades, where you do not have to monitor every minute of the day.... low return and known risk... i just think that losing 2% or 2.5% of the trade over and over is a real killer....

Mac said...

thanks. I assume the iron condor deals with options, which isn't something I have ever used. Maybe over time I will look at them, but for now I am fine with just stocks. Taking a lot of small losses doesn't bother me too much - it is much better than taking some big losses and when I in a better market, I am usually making 10-20% on the winning trades, which more than makes up for the losing ones, even if there are more of them. So far this year, we haven't had a market good for swing trading.