Monday, April 6, 2009

State of the Market - 4/6/09

A down day today on Wall Street, but with lower volume and a lack of heavy selling, it probably means nothing. The market opened with a gap down and although choppy, it continued moving lower and lower throughout the morning until a little after lunch. From there, it chopped its way higher much like the morning, just in reverse. A late spike allowed the indices to close well off their lows for the day, which made today another overall good showing by the bulls. Volume as I said appears lower.

I made two trades today off of what I saw as bear flags this morning but neither worked out. I entered FAZ at $16.90 and short MET at $24.75, but was stopped out later (FAZ at $16.58 for a 2.1% loss and MET at $25.11 for a 1.6% loss). Although the market declined throughout the morning, these stocks actually rose so I am not upset about getting stopped out. It happens (to me this year, it happens a lot.) I am not quite sure why the financials bounced off their gap down while the market continued to sell off off of its gap down, but that's what happened.

I continue to let my conscience affect my trading here and although I hope at some point soon I will be right, it is tough right now. I can't seem to get anything going and my timing has been off trying to short this market. However, I really do believe that the smoke and mirrors being used by those in power to push this market higher will eventually backfire and that the truth will come out. When that happens and traders realize that the news isn't better and is in some cases worse, I do want to be short because I think we could be looking at the final leg down of this epic bear market. That's why I stubbornly keep trying. Perhaps I am thinking too far out but that's the thought that I keep coming back too - one final swoop down where everyone really does give up hope and then we can gradually move higher longer-term. I still just can't buy in my heart of hearts that we've see THE bottom. Maybe I'm just being stubborn. Either way, my timing continues to be off.

Today took a little of the overbought conditions away via the McClellan oscillator but we are still much more overbought than anything else. We need to pullback and as long as we do it like today, then it has to be considered completely healthy and I may have to change my bearish outlook, as difficult as that would be for me. If you're looking for individual plays, most of the setups I showed on either side of the market in the video last night are still valid. Except for CSKI, none of the shorts look like they broke down yet, but neither did they breakout. On the long side, I still need to see some rest from the solars but if they do I would be willing to jump on them. OCN, RGR, and WSBC are the only other ones that look interesting to me here. If I find anything else tonight, I'll try to post some more ideas. Take care, and good luck tomorrow.

5 comments:

swingtrader said...

Been there my friend. I would step back and look at the market again. There are many sectors that have completed bullish reversal patterns on the weekly charts, and many others are still forming patterns. Unfortunately, the XLF is not one of those that is reversing.

I think you are correct in keeping a big picture view of skepticism and that the news really isn't good in spite of the rally. However, you should have a clear understanding of the trading time frame and the time frame of your market view. A long-term bearish view won't make money in an intermediate term rally like this.

My old instructor always told us to do what the market is DOING, not what you think it should do.

Anonymous said...

I trade almost exactly like you Mac ... for better or for worse.

Everyone has their own style and their is really no right or wrong ... the only thing I do differently is make my stops bigger than you ... and sometimes it works, sometimes not!

I think, before we see that final wash out, we need to build enough optomism that we are out of the woods ... that is, before the market can make people throw up their hands in disgust, it must lure them into a feeling of complacent, optomism that they've "made it through" and all's clear ... a lot like what you hear from Cramer who preaches that "Depression II is off the table." The more we hear this, the better ... so to speak.

gmt

Cocameister said...

Ryan,

I've been a big fan and I've followed you for months now. I especially appreciate your commentary because I seem to have the same rationalization for my trades as you.

I think when overbought conditions that were immediately sold off as they were in the previous 18 months of the bear are not being sold off, it is telling you that the character of the market has changed. You are correct that the market has not seen it's lows. The only problem is that we are now in major wave B (up) in this bear market. Wave A has more than likely completed. Dips are now being bought. In addition, there are strong positive divergences on the weekly MACD, and those usually result in a rally to the 50 period moving average, which is currently at around 1000 on the S&P. The 20 day EMA has bullishly crossed above the 50 day EMA, and there are massive inverse head and shoulders patterns developing on the daily charts. Every bear market usually rallies at least once to the 200 day MA, which has yet to occur in this bear. The weekly positive divergences may be the fuel that results in this touch.

You will eventually be vindicated in your view of new lows, but that we occur after wave B up completes, in a devastating wave C down to lows that are unthinkable. Do you follow Elliot Wave at all? I think the smaller waves are bunk and can to lead to bad trades, but it is great for big picture and can be used as a complement to traditional technical analysis. Before you start shorting aggressively again, wait for a negative divergence to form on the daily MACD or the touch of the 50 week MA, or else you are fighting the intermediate trend, which for now, is up. The trend is your friend.

Mac said...

Thanks guys - good comments for all.

Swingtrader - I agree with a lot of your points of view, especially your last sentence.

Anonymous - you are probably right about the optimism - I get the feeling it is being built but maybe it is not there yet.

Cocameister - I don't follow EW (just not enough time to really study and learn it) but you make some very good points as well.

I think for me, it comes down to three things. One, this is my first bear market so I am going through and experiencing everything for the first time so I don't have the experience to know what to expect from a true bear market rally. I think we saw a few of those so far but maybe not as strong as this one could turn out to be.

Second, with a new baby and a new house now, I think my head has been in so many other places that I just haven't had the right frame of mind this year. I don't want that to sound like an excuse - it just is what it is. I don't think I am doing a whole lot different in terms of my strategy from last year.

Thirdly, I still feel a moral dilemma almost going long in this market as I watch the American dream and what this country was founded upon being destroyed before our very eyes. I am not talking about Wall Street - I'm talking about Washington. It really bothers me what I have seen go on the past year - I know I am not the only one. Maybe I just need to get over it, but I do know that it has held me back from going long or being optimistic about anything this market throws at us. I am dealing with it but it is not something that I think I will just accept.

Good luck guys - good comments.

Anonymous said...

Mac bear in mind this is Easter week, many institutional traders have gone on holiday, volume will be light. I don't think its possible for market to crash on light volume however its very possible to rally on small volume (think thanksgiving and X'mas) its the work of PPT (plunge protection team).