Monday, March 16, 2009

State of the Market - 3/16/09

We finally got some selling today on Wall Street, as another weak-volume rally took stocks up for most of the session and to even more overbought levels from which they reversed. The indices acted well for most of the day - stairstepping their way higher up with mild pullbacks until around 1:45, when an attempted break to new highs did not hold and stocks slowly started selling off. The selling picked up as the session ended, and stocks closed basically flat (except for the Nasdaq) but way off their morning highs. Volume was lower for most of the day and will likely end lower, but I don't have the final totals yet.

Technically, the reversal today was not unexpected, but I expected it a little earlier in the session so timing it was hard. The financials reversed right around the loads of resistance they faced at $8.70. The Nasdaq could not get above resistance around 1435. The S&P did not get up to the 800 level but I think fell on the weight of the financials reversing. Right now, the indices are above their short-term moving averages so we'll have to see if they act as support now on further pullback from here. Watch between 735-745 on the S&P and 1385-1395 on the Nasdaq as possible support levels. If those break, then I think this becomes a much more serious pullback. Watch between $7.60-$7.70 on the XLF.

Today was frustrating for me in that I couldn't be beside my computer all day and I ended up mistiming the trades I attempted. It seems like if I don't have bad luck, I don't have any luck at all right now. At the beginning of the day, I went into WFC short ($14.45) and bought a small position in FAZ as well ($37.70). I also went into MASI short at $27.11. MASI worked well but I was stopped out of WFC at $14.82 for a 2.8% loss and FAZ at $36.55 for a 3.0% loss. Later on, I tried going back into FAZ at $36.1499 (a bigger position this time) but was stopped out quickly at $34.87 for a 3.7% loss. It made a low of $34.80 and then moved higher without me. That's the one that really sucked because I lost out on a very large gain here - around 20% by my calculations. Trading with a full-time job is difficult for a number of reasons, and this is one example. I was trying to enter orders on the fly and set my stop too tight for this position.

When the market did start breaking down, I was away from my desk and by the time I got back, things had gone too far too fast from where I sat. Frustrating, no doubt. At the end of the session, I did enter a few other positions - SDS between $90.50 and $90.70 (actually bought some for the IRA) and shorted MICC at $41.00. If we happen to bounce a bit tomorrow, I will likely look to add. If this pullback gets more serious, then adding shorts tomorrow will not be that risky. Stocks look like they may just be starting to breakdown.

Hopefully you had a little bit better luck than I did today and was able to profit from the ideas I presented in the video this weekend. Most of the shorts I showed look good after today. Pinpointing the timing of this reversal was a little difficult, but when we get as overbought as we were today, it is only a matter of time before the market starts pulling back, especially when the gains were on light volume. From here, I think tomorrow will tell us quickly if this is just a pullback or if it will amount to something much worse. Watch those support levels mentioned earlier and go from there. If they don't hold, then this is probably the start of something bigger. Good luck.


Anonymous said...


Have been following your posts for a while...Maybe you should reduce your position size and lengthen your time horizon. Those leverage ETFs are extremely volatile.

Anonymous said...

I saw that BAC was outperforming the rest of the XLF index today and seeing how overbought and close to resistance everything was today, I put equal amounts of money in BAC and FAZ just before 11am, not knowing whether a reversal would would come today. So far so good.
I'm not sure I agree with the way you're using stops but your analysis is usually spot on. I read your blog every day and I can say I've learned a lot. Thank you.

Mac said...

Yeah, I agree that my actual trading hasn't been up to snuff this year - my overall analysis has been very good but my timing has been off, my discipline has sometimes been off, and my stops have been likely too tight. Some of this probably has to do with the new baby, less time to study, etc. Hopefully I'll get adjusted to it but it takes time I guess.