Tuesday, February 17, 2009

State of the Market - 2/17/09

A big down day today on Wall Street, as futures were lower from the get-go, continued lower during the pre-market, and stocks responded accordingly when the opening bell was rang. The first twenty minutes of trading was nothing but more selling, which took the S&P well below the 800 level that has acted as support several times now this year. However, stocks found a bottom around 9:50, bounced for about an hour, and then slid slowly lower to test those morning lows around both 12:30 and 1:30. The lows did hold both times, and a slight bounce higher took place for the next hour. Stocks started pulling back from there, and once again drifted lower to test the morning lows around 3:30. Those lows held again, and a super-sharp spike occured for five minutes, which I am sure stopped many out of short positions. That spike went nowhere, however, and stocks fell back toward their lows at the close, finishing at their lows for the day. Volume looks to be pretty heavy for the session.

Technically, today looks to be an important technical breakdown, as both the Nasdaq and S&P gapped lower out of the coil patterns I showed this weekend and the S&P also broke key support at 800. So common sense says this should be the start of a major move lower, probably one that breaks the November lows (around 740 on the S&P). We shall see - one thing this market is good at is not making any sense, so I am not discounting anything. We are starting to get oversold on a number of measures so it wouldn't surprise me to see a reversal if we get more selling tomorrow. It is probably risky to short here at this moment as you stand a good chance of getting whipsawed. If you want to get short, I think waiting for a bounce up to the 802 area (and even up to 820) would be much safer and possibly more profitable. See if some individual stocks set up bear flags and go from there. That final half hour shows how this market is still being played with and manipulated so you always have to be mindful of that.

I tried three positions today from the short side, but in hindsight, the big money today was obviously made if you had positions already established entering the session and the sideways action for most of the day made making money off new positions difficult. For some reason, I tried anyway, probably because I was anticipating a final, meaningful breakdown below 800 and didn't want to miss it. I started with a trade is SDS at $85.43. That wasn't a bad entry but it didn't move much higher and I was stopped out later in the afternoon at $85.34 for a 0.2% loss. I also entered SRS at $76.59 around the same time while the market looked really bad, but I think I chased a bit. That didn't move higher at all and I was stopped out at $74.41, for a 3% loss. Finally, later in the morning, I went into QID on the pullback around $55.73. It did move higher but not by much, and I was stopped out later at $55.72 for a 0.7% loss.

I am not too upset overall with these trades, especially considering I know I would have been stopped out around 3:30 with that curious mystery spike for bigger losses if I let my positions go a bit, but at the same time I continue to just not trade well. I am hesitating on entries. I am not giving positions any room to do anything in fear of taking another loss. I get greedy when I have a profit and don't take it quickly enough. I continue to trade this market that is very choppy and difficult unless you are a day-trader. I am just in a losing streak basically. I have gone through these stretches before - I think every trader does - but they are frustrating. Confidence is a big factor in trading because so much of trading is psychological, and right now my confidence is for whatever reason just not there. I will get out of this little funk at some point - I always have before - but it is tough to deal with. I hope most of it is this market and not me. For the year, I am down 6.8%, which I can easily come back from, but I don't like losing.

I may be back later with a look at the indices and some of the indicators I am using to take a look at the oversold conditions - they aren't severe yet but are getting there, so just be careful. This weekend, I really tried to keep my mind open about a possible rally due to the decent charts I was seeing, but I knew it wasn't a given. Today certainly seems to say that the trend is now definitely down and that any bounce can be shorted again. That's my game plan I guess - wait for a bounce and try and short it. Hopefully I'll get something going soon. Good luck tomorrow.


Boomer Angst said...

I stayed out of the short ETFs as it seemed, like you said, the money was mostly made when the market opened. I acually went long on four stocks, thinking we would see a bounce in them (TM, NTRS, EXM, and the SPY), but I've got very tight stops. Economic news scares me to death, esp. banking situation in eastern Europe. Good luck tomorrow to you, and to everyone.

Anonymous said...

No luck needed...why trade this thing.

Anonymous said...

I hope most of it is this market and not me.

It's the market. It's really hard to commit to positions right now. The VIX is much lower than in November but because there is an expectation that we are closer to the bottom than the top and there is the possibility that we could rally, it's much harder to be right. In November, the market was heading south confidently. My strategy is simply to commit fewer dollars to positions. I'm making less money on the winners, but my loses are tolerable. Although things seem to be pointing south, I can't shake the sneaky suspicion that shorting now might be a mistake. Who knows.

I really appreciate you sharing your trading experiences.

Mac said...

"Although things seem to be pointing south, I can't shake the sneaky suspicion that shorting now might be a mistake."

I wouldn't disagree with this statement - we are truly in uncharted waters here and the news items are still out there - now with the autos asking for more money (big surprise there, huh?) Although I think we could be down big again tomorrow, I would rather wait for a retest of the 800 level and then try to short there when we aren't as oversold as we are here (although we aren't severely oversold - just moderately oversold).