Wednesday, March 11, 2009

State of the Market - 3/11/09

The bullishness from yesterday continued early today on Wall Street, as stocks rose at the open and continued higher for the first twenty minutes of trading. From there, however, as the Nasdaq reached the 1385 resistance, stocks reversed and stairstepped their way lower for most of the rest of the session. There wasn't much panic however on the reversal, and stocks did put in a bottom around 2:25. They rose quickly into the final hour, turning positive again but not getting back near its earlier highs and closing with modest gains. Volume appears to be lighter than yesterday.

Technically, I pointed out three key numbers yesterday - 740 on the S&P, 1385 on the Nasdaq, and $7.60 on the XLF. The Nasdaq hit 1385 and reversed this morning. The XLF got a bit above $7.60 before reversing. The S&P did not get high enough to test its resistance. I did not expect the indices to overcome these resistance levels on the first try, so it wasn't a big deal. The fact that they didn't reverse hard (I know they sold off, but it wasn't powerful) is probably bullish. We are a little overbought now so what I will be watching for is some consolidation here. If we rest for a few days without giving much of yesterday's move back, then I may turn more optimistic about the prospects of us getting through those levels next week. The thing I don't want to see is just another huge move up here tomorrow or Friday. Too fast too soon has been a trend since September on all of these "rallies" and is what causes them to eventually die out. We are pretty much at that point where we will see very quickly if "this time is different" in terms of a meaningful move.

My trading day started poorly. I held onto FAS from yesterday and was happy to see it above $4 pre-market. I was not going to be able to be at my computer for about the first 30 minutes of trading so I set a trailing stop of $0.30, figuring that would give it enough room to move and still protect most of my profit. Good idea, bad execution. FAS gapped up and then immediately fell from $4.15 to $3.75 in a matter of minutes. This caused my stop to be hit at $3.78. That gave me a 7.8% gain, but I was hoping to sell above $4 with a profit of about double that. Sucks.

From there, I kind of think I was revenge-trading a bit as I decided to look for shorts as the market approached the numbers I talked about last night. I went into FAZ at $54.66 but since I didn't wait for the XLF to get to $7.60 like I showed last night, I was stopped out early at $52.92 for a 3% loss. As the XLF set up a head and shoulder pattern intraday, I went back into FAZ later at $56.38. It went sideways for most of the afternoon but eventually tried to break out and my stop was hit at $55.35 for a 2% loss. I knew that there might be a fakeout on this consolidation pattern but still didn't want to hold on if FAZ did fall out of the sideways pattern. It turned out to be smart to keep the stop tight there.

I also entered SDS at $97.28 and QID twice at an average entry of $60.12. I trailed my stops on both figuring that if the market does hold up today, I don't want to be caught holding shorts longer than I need to. Both stops were hit later in the session - SDS at $98.87 for a 1.5% gain and QID at $59.74 for a 0.8% loss. Basically, today was a road to nowhere and my account continues to go sideways.

Overall, today was positive in that the market had a chance to sell off pretty hard through most of the day and didn't. That in itself is bullish. Let's see if we can consolidate a bit in a healthy manner - if we do, then I have no problem getting more bullish. But as I said last night, we've seen this story before with the massive spikes, and I have to see some concrete evidence that this time is going to be different before getting too excited. That's just me. Good luck tomorrow.


Anonymous said...

Revenge trading is a bad idea. I sold FAS early yesterday and watched it go 25% higher. So I decided to get into FAZ near the close. Ooops. Got out of that with a small loss today.

CW said...

Two days in a row where the market did not sell oof at close...this speaks well for the market. Now is this a long term trend? Doubt it...take what this market gives you.

szaman said...

I am glad that I was on a meeting whole day otherwise I would have been chopped too. Stopped out of FAS at 4.17 with a little profit