Tuesday, March 17, 2009

State of the Market - 3/17/09

The bulls stepped up to the plate today and delievered an impressive performance after a negative reversal yesterday, but lower volume cast another shadow on the gains. Pre-market, the indices were basically flat and the market opened that way. There was a quick pullback to start the day, and it looked like the bears might be able to build on yesterday's reversal. That didn't happen, however, as stocks found a bottom right around 10:00 and slowly stairstepped their way higher in choppy fashion for the rest of the session, closing at their highs for the day. After underperforming drastically yesterday, the Nasdaq led the show today. The only negative is that volume was lower. A higher volume reversal yesterday (distribution) followed by a lower volume bounce is not what healthy markets do.

Technically, I really did think we were overbought enough midday Monday to have a significant pullback. I thought Monday afternoon might be a start of that, but it turns out it wasn't, at least for now. We are still way overbought and volume patterns continue to be poor for this rally, so I still think at some point we still need to consolidate or pullback. I've been saying that now for a few days however and it hasn't happened, so who knows? If we continue to melt up, resistance to watch is around 1470 on the Nasdaq and 800 on the S&P, which coincide with their 50 day moving averages. That should be pretty heavy resistance.

Today was a crappy day for my trading as you may expect. I had three positions going into the session from yesterday - SDS, short MICC, and short MASI. I entered QID this morning as well at $57.13. I was stopped out of both the QID position ($56.41 for a 1.4% loss) and my entire SDS position including the IRA(between $88.81 and $88.41 for a 2.3% loss) by lunchtime. I gave my short in MICC a little more room to move and that also didn't work - just gave me a bigger loss ($43.10 for a 5% loss). My stop in MASI will likely be hit tomorrow and put me back to 100% cash.

So after being basically back to break even last week, my account has now drifted back down to about -8% for the year. I just can't seem to get anything going although my overall market reads have been pretty good I think(maybe not right now however). I continue to set stops too tight or enter trades too soon. I continue to pass on some trades that look good. A lesson that I think I may be learning here is that when you have many other things going on in life, sometimes it is better to step away from the market for longer periods of time until you have adjusted to the life changes.

In addition to the new baby, my family and I are scheduled to move into a new house next week and therefore I have been pretty busy with other things. I know, why on earth are you buying a house? Well, when you have additional members added to the family and you need more room, sometimes you don't have a choice. It was a short sale so that helped a bit in terms of trying to get a good deal and not overpaying. All of this change has perhaps affected the way I have handled trades and perhaps I would have been better off just sitting out until we all adjusted. Anyway, if the posts become less frequent for the next few weeks, particularly next week, you will know why.

As it is, I still can't buy anything right here. There is no leadership that I really see emerging and buying a way overbought market that has gotten that way on average to below average volume is not a recipe that typically works well. Here's a little clip from IBD..

"Since Thursday's follow-through day, big gains have mostly come from beaten-up financials and other market laggards.

Meantime, top stocks have struggled. On Monday, Strayer Education (STRA) plunged 12% on a report that data checks suggest a decline in school enrollment.

Other career-school stocks fell. The industry group had been leading the market until those stocks started crumbling last month."

At the same time, I am now a little hesistant to short here after little success the past two days because I know that although we should pullback, we don't have to do so. Short squeezes (and I really do believe that's all this is) can last longer than you think. I have been too early with my timing and therefore a little frustrated. With the Fed meeting and options expiration this week, maybe it is best for me to sit out a few days and gather my thoughts. Good luck Wednesday.


Anonymous said...

Hi Mac: Congratulations on your new house! Many people are just happy to have a job and keep a house. It is great that you can afford a bigger new house. Thank you for your superb analysis! I did not listen to you in January and lost a lot of money. I listen to you this time, and I am about to get my money back (would have already if I had sold my FAZ sooner today). Sorry you are not having that much luck! I know you are very busy, could you tell me the Oscillator is 200 or 300? Thanks a lot!

Anonymous said...

Hi Mac:

Fully ubderstand what you are going through, with the baby, the new house and full time job.

I had a similar situation late last year, (I am self employed, so I can make the time to trade when I need to). However late last year, I got a few more jobs than I expected, and with the market going down ALL HELL BROKE LOOSE. All I will say is it was not pretty. Looking back, I wish I was smart enough to say leave thre market alone until I had the proper time to put into it, as you are saying now. So good for you that you are smart enough to see this.

I enjoy your take on the market, we seem to look at things in a simialr light, so just hang in there and things will change.


Mac said...

Thanks guys. McClellan is at 217 tonight, so definitely overbought. Not quite at the highs of January 6 but if we get that high, I again think it will be a great shorting opportunity.