Tuesday, March 3, 2009

State of the Market - 3/3/09

Whew, that was tiring. A crazy day on Wall Street today, as an early bounce quickly faded, but there was still no panic when selling came into the market, and stocks finished for the day. Futures were higher pre-market and stocks did open higher, but they simply faded that opening gap and moved lower throughout the morning, hitting a low around lunch. They bounced, pulled back slightly, and then around 2:00, a sharp rally ensued with stocks breaking their morning highs on the Nasdaq but not on the S&P. They started falling again as the final hour started and did test their intraday lows, but those lows held and stocks bounce back into the close, finishing basically flat. So all in all, a very boring end to a crazy day.

Technically, your guess is as good as mine right now. We are no doubt still very oversold but as I said last night, what we really need is some panic and some major selling to wash people out and perhaps start a meaningful move higher. Today we saw none of that. The VIX still hasn't broken to higher highs for pete's sake. I'll check the numbers I showed last night later, but at first glance, there wasn't much change from yesterday. As for support and resistance, I have no clue on support as I just don't see much other than on the Nasdaq at 1295. Maybe if the Nasdaq breaks its November lows, we get some heavier selling from which we could reverse. If we happen to bounce, I will watch 740 and 1385 as levels to watch for reversals.

I did make some trades today with more mixed results. I was stopped out of all my positions from yesterday during the afternoon spike. QID was hit at $65.87 for a 3.5% gain. SDS was hit at $107.97 for a 5.2% gain. DLR was hit at $27.70 for a 3% gain. I gave them some room early on but when the market sold the open off, I really expected a bad day so I basically just moved my stops up. I was hoping for more out of all of these however.

One skill I need to develop is the ability to know what days are just days to stay away from in terms of trading. I think today qualifies as one of those days, but unfortunately I didn't stay away. I went into SRS in the afternoon at $94.99 but that couldn't move any higher and I was stopped out at $92.61 for a 2.6% loss. Later, I expected a rally so I went into FAS at $4.05, although it was a small position. That also reversed and I was stopped out at $3.88 for a 4% loss. There was so much up and down movement today that things were just difficult. With the conditions we have right now, I really expected either a big selloff or a big rally. I didn't expect more chop.

I kind of think a day like today is bad in a number of ways. First, the fact that we still can't get a rally going in the face of severly oversold conditions is not good at all. I mean, what exactly is it going to take for this market to put in a little bounce? Conditions are pretty stretched but it doesn't seem to matter. The other way today is bad is that by not moving lower in a hurry, we are just stretching out the pain for a longer period of time. Let's say we sold off the open today and immediately fell something like 3-4% the rest of the morning. I think we would have seen some fear in a situation like that and that could have set up a meaningful reversal. Instead, we just kind of dripped lower without much of any type of selloff. If we do this chop stuff for a few more days, then the oversold conditions lessen and that allows the market to fall even further without much problem.

I think this is one of the reasons I have closed out positions so quickly recently. Even going back to last Monday, we have faced conditions that have been so stretched that you just kind of assume (at least I did) that we would get a big move one way or the other. I thought the move would be lower at first and then higher, but I realized it didn't have to be that way - we could very easily just take off. I definitely didn't want to be caught on the wrong side of that big move I expected. Because of the stretched conditions, the last thing I thought we would do is just drip our way lower and lower - it just didn't make sense. However, it seems like that is exactly what we are doing or what we are going to do. I guess the old adage holds true - Mr. Market is great at frustrating the most number of people possible. I know I am frustrated as I am sure others are.

As it is, since I am back to 100% cash, I probably will not be doing much for the next few days. In hindsight, I could have given my shorts more wiggle-room today, but I think I explained why I didn't want to do that in the previous paragraph. The conditions are such that we remain too oversold to get short here, but there seems to be no reason for the market to move higher either. The risk/reward on either side is just not good right now. It really seems to be a guessing game out there. Now if for some reason we actually do get some panic selling, then the story changes and I may start looking at some swing longs, but only after some heavier selling. Days like today definitely do not qualify.

Probably won't be back later because there isn't much to show you in terms of charts. Good luck and be careful out there - this remains a very difficult market, even if you are short.


Charlie G. said...

I did the exact same trade with FAS today with the break of $4. We had a higher high and market momo, but that would of been a great short entry instead into close.

szaman said...

Mac- Do you think tomorrow could be the day to go long with market falling after hours.I am expecting a huge gap down ? I know we are going down more but there has to be a bounce somewhere.

Mac said...

I keep looking for that setup but we don't get it. Maybe too many people are looking for it. Futures are slightly higher right now by the way.

szaman said...

Thanks Mac,Is it good or bad? I was hoping for a wash out to 666/650 to go long.

MarshalN said...

As far as I can tell futures, especially overnight futures from Asia, mean basically nothing. So far the only futures that seem to mean much of anything are the post 8:30 news futures...

Mac said...

Szaman - 666 would be kind of freaky if we reversed there.

Marshall - agreed, I think people manipulate them pretty hard. That being said, I guess we're opening higher this morning.