Wednesday, April 22, 2009

State of the Market - 4/22/09

A choppy day today on Wall Street, as poor earnings started the day off on a bad note, but just like yesterday, stocks rallied quickly after gapping down and moved sharply higher for about an hour. They paused, rallied again briefly, but then paused again during lunch before falling back into the morning consolidation. At this point, the intraday charts looked very much like head and shoulders patterns, but stocks rallied again around 2:00 and voided those patterns a bit by breaking to new highs for the day. Those highs however were quickly reversed, and the last hour and a half turned into a major chopfest, with stocks bouncing up and down randomly minute to minute. Around 3:35, however, stocks fell off a cliff and got sold hard into the close. A late bounce took them slightly off their lows but overall it was a very negative session for the bulls and takes some shine off the recovery from yesterday.

Technically, the Nasdaq came close to their April highs around 1682 but could not break through and reversed hard, as did the S&P. Looking at sixty minute charts, it looks like some bearish head and shoulders patterns are being set up, and the S&P in particular looks weak on these charts. It touched the trendline today that it broke through on Monday but the late swoon also has it breaking through a bearish wedge. The XLF also looks similar with it breaking down through a wedge pattern. For support, I would look again at the 830 and 1600 levels that were tested yesterday. The 20 day moving average is still there and if it breaks to the downside, then I think this will turn into more than just a little pullback.

S&P 500
XLF
I was stopped out of my AIPC short at $31.83 for a 1.8% loss as it climbed over the 50 day and briefly over the 9 day moving average. This is still on my radar however. Because I am a glutton for punishment I guess I went back into SDS in the afternoon at $66.40 with a very tight stop. What I saw was a head and shoulders top possibly forming on the 60-minute chart of the S&P as I mentioned earlier. On this same chart, the S&P was running into its former trendline and was also showing declining momentum on each of its moves higher. (See chart above). I thought it was worth another shot and figured with a tight stop, it wouldn't be a big deal if it went higher. My stop was hit however at $66.81 giving me a 1.0% loss. Probably should have let it go a bit, but thought it was ready to move lower and didn't want to be caught on the other side.

I did not enter into SDS again although I probably should have. Right now, my continued lack of confidence continues to affect my trading. I can spot the patterns just fine but I either wait to long to get into them or get out way too early. This is a real battle I am fighting here - just a few winners will make things better, but I got to get those winners first, and that's where I am struggling. I'll get through it and hopefully learn from it, but thinking back over the past month or so, I really am seeing where I made a lot of mistakes that I shouldn't have made. Even last night, I saw RCRC up in the after-hours at around $7.20 on earnings news and I just sat there and hesitated to play it. I ended up passing totally and missed out on a huge gain. That's just how it's been for me lately.

With this market, you can't take anything for granted, but today certainly looks bearish and if we break those levels mentioned above, then I think we can be more certain a top is put in. I am watching some shorts right now that look poised to break down (AIPC, SLH, MON, MS, MASI among others) and will be ready to play them. If we continue to chop around here like we have the past three days, I will try my best to just stay out of the chop. We'll see what tomorrow brings. Good luck.

5 comments:

Anonymous said...

Mac,

if you are playing with SDS or any leverage ETFs, you really need a wider stop loss and much smaller pos. It seems like your "hold" time is a bit too short. Have you try a much much smaller pos and holding a bit longer say a day or 2 ?? Just a suggestion...

Boomer Angst said...

I can identify! I've been having a hard time pulling the trigger on trades myself. It is a struggle to work through it all. I sure hope you win the battle.

Best regards,

Sharona

Mac said...

Thanks guys - right now, looking back, I know that I've just gotten away a bit from what I was doing last year. With the losses, taking very small losses worked very well last year, but now I am just getting a bunch of very small losses which add up, take away confidence, and lead to somewhat gun-shy trading, which is not what you want. I just need to trade smaller positions for a while and get back to doing what I did last year.

Anonymous said...

same here mac, I have a hard time me self too! future seem to be gapping 1% each day both way.

Guru said...

Mac, the problem isn't you or your trading technique, it's the market. Trendless markets (going neither up or down) are the toughest.

This market has been essentially trendless since Oct/Nov last year - with the exception of the swoon to 676 in March and recovery over the past two months back to the Oct/Nov lows.

You're going to continue getting whipsawed and have trading issues until a clear direction begins either above 925-950 or below 700-725.