Thursday, February 19, 2009

State of the Market - 2/19/09

Another down day today on Wall Street, as an early attempt at a rally failed quickly, and stocks stairstepped their way lower throughout the rest of the day, ignoring short-term oversold conditions. The final hour was volatile but stocks still finished near their lows for the days. However, volume was once again lower and looks to be below average overall.

Technically, we are even more oversold after the selling today, with both the McClellan Oscillator and the T2108 indicator now in oversold territory in addition to the indices. There are a lot of weird things going on right now that frankly are confusing. I already mentioned the volume, which has fallen three days in a row. In addition, the VIX has been lower each of the past two days, although it seems to have gotten support once again at its 50 day moving average. I expected more volume and more volatility when the S&P broke a key level (800) along with the Dow testing 6 or 7 year lows, but we just haven't had it. Weird.

My guess is that we are either setting up here for a big crash, much like we saw in late September/early October, where oversold readings don't matter and we slowly drift lower before falling over the waterfall, or a healthy, short-covering bounce that will take us up to former resistance levels before reversing. My guess is still the latter of those two, and that's really the only option I can play at this point - I still don't feel comfortable shorting a market that is oversold such as this one. It may work, but the odds are you will just get whipsawed. So for me, I have to stay on the sidelines and wait to short and (maybe) try to play a bounce in the indices. I would like to see a little panic spike down before trying to go long, and we haven't had that yet. Nothing has been easy in this market and trying to catch a bounce here will probably be tough too.

I did enter one position early today (GRS at $7.31) as it looked to be breaking above resistance, but as usual, that quickly reversed and I was stopped out at $7.08 for a small loss. Once again, I got a bad fill on this, as my stop was around $7.15. I continue to have pretty poor luck or pretty poor skill in terms of trading - I am hoping its more the luck than the skill. I didn't do anything after that morning trade - my quote screen was off for the rest of the day.

I'll have to see if anything comes up in my scans tonight, as none of the stocks I was watching from last night did much of anything today. Timing a possible short-term reversal is always difficult, but the possibility certainly exists right now from where I sit. I'll try to post a few index charts here in a little bit showing the oversold conditions. Again, I would be very cautious shorting here because it carries a lot of risk when conditions are as they are right now. Tomorrow is options expiration, so maybe the volatility will pick up tomorrow. Good luck.


bmbull said...

Swimming against the tide a bit trying to go long in this market...

Mac said...

Just think we're due for a bounce, that's all. Certainly it's not a given though.