Wednesday, May 13, 2009

A Few Quick Thoughts

Well, volume was higher on the S&P, giving it another distribution day, but lower on the Nasdaq. Either way, IBD did put this rally under pressure and I would have to agree with that assessment. It isn't dead yet, but it is in the ICU unit and needs help quickly to recover. That being said, I am seeing quite a few confusing things right now.

Going through my scans, I don't really see a lot of short setups that I like. I see a lot of stocks that have broken above strong resistance levels and are now pulling back quite sharply. I prefer to short into resistance and then get out if it breaks above the resistance. If this is in fact the top, I think we are going to have quite a few "V" tops (upside-down v's, that is) just like we had so many "V" bottoms in March on individual stocks. For my personality, those are hard to trade because I don't like to chase stocks up or down. We'll have to see if it plays out that way or not. One possibility is that a lot of "heads" are being formed right now on possible head and shoulders patterns with these sharp rises upward followed by immediate moves back down. That would require however a little back and forth action and a little bounce for probably another two or three weeks in order for the right shoulders to be formed.

The one thing that I am still a bit confused about (and this is what is holding back my bearishness) is that volume is still very low on some of these pullbacks, which should be bullish. Using BAC as an example (and there are others like it), there was absolutely no volume on the selling the past three days. It makes me a bit suspicious, but maybe it is so obvious that it actually is bearish. Who knows right now?

My gut tells me that the bulls or the government may have something up their sleeves over the next few days, especially with option expiration Friday, so I wouldn't be surprised of a bounce soon. If we do bounce, I don't know if I will play it on the short side - I really just don't know right now. Last week, I said I was looking for a pullback and would assess from there. The problem for me is that this pullback has not been quite scary enough with volume to convince me this is for sure the top, but it has also been a little sharper and quicker than I was looking for, casting doubt in my mind if it is buyable. To be honest, I am not sure what I am going to do or which way I am leaning. I am pretty neutral right now I guess.

I'm probably rambling a bit here and don't know if this will help anyone out there, but I just wanted to get some thoughts out. If we break more tomorrow, you can probably pile on some shorts but I would be quick to take profits as I think we'll bounce soon after that, at least for a little bit. On the long side, these pullbacks may work but I would certainly keep my stops tight as another day or two like today is certainly not out of the question. Basically, I think things are still up in the air. At least my Pens won a great game 7. Good luck Thursday.


Anonymous said...

With all the confusion, concentrate on hockey, very simple sollution.....Go Pens Go!!!!


Anonymous One said...

Looking at the volume and assuming it's either inconclusive or NOT heavy (but not necessarily "light") what would you consider a strong resistant point to buy in and ride back up on the S&P?

I'm thinking around 870.

I know you're not willing to pull the trigger, but I'd like to make some calls before I give up on the technicals in this market. This would just be a swing trade based on a closing number. I'm not calling a top, just a bounce back up, using your analysis of volume.

Anonymous said...

Mac volume is tricky at best some say not to high volume selling is bearish, while big volume mean exhaustion, just look at BAC since October 08 it's been selling on low volume persistently until 90% of its value is gone

seeer said...

When I see a peak in volume at the top of an uptrend make me think that was the real distribution (BAC is a good example), smart money has left the train, while dumb money... you know. If this happened then the lower volume on the pullback means nothing just impartiality.

Mac said...

Anonymous One - I would say right around here is the technical point where we should bounce. If we don't, then it marks a lot of trouble for the bulls and their ability to bounce back. This is the spot that dip buyers should come back into play.

Anonymous and Seeer - points well taken about possible exhaustion to the upside with BAC but even when stocks have that buying exhaustion, there is still typically heavy volume when it reverses. Volume the past three days was so light it just makes me suspicious, that's all.

seeer said...

"there is still typically heavy volume when it reverses."

I don't think so. The volume became heavy close to the bottom when dumb money capitulates.

Anonymous said...

I have been reading your market thoughts for a few weeks now. To tell you the truth I can't tell if you are a day trader, swing trader or something else or that you have a systematic approach to trading the markets. You seem to be caught up trying to predict what the next short term move in the market will be in stead of looking for quality set ups generated by a system and trading them without FEAR. Not only do you seem uncertain about your time frame. You do not seem confident in the tools you use to determine PROBABLE market direction. Neither does it appear that you have system for filtering down your trade ideas to the best two or three. I think you need to revisit your trading plan/system if you have one at all! Does it fit you? Do you firmly believe in its underlying principle? I hope this helps you.

Mac said...

Anonymous - I wanted to thank you for taking time to point out all of the flaws you see in me as a trader. It takes a lot of guts to do that to someone anonymously. First of all, I am a discretionary trader, not a system trader. If system trading works for you, great. I prefer my style, which I have been successful with in the past. I don't force my style on anyone else and don't criticize those who have different styles that they believe in. There are many styles that can be successful.

Second, I have never claimed or will never claim to be the best trader in the world. I believe I am a good trader, but I have my faults and will struggle like any other trader. I am still learning. I work hard to get better and as I progress, I believe I will continue to improve. If you have read my blog for more than a few weeks(doesn't sound like you have), you will know that I am completely honest when I struggle with trades - I don't sugarcoat it. I also don't make outrageous claims that I am perfect or always right. Frankly, there are too many traders out there that write as if they never make mistakes. I have not traded very well this year for a number of reasons, and I have admitted that and discussed those reasons many times.

Third, this is a free site. I am just sharing my thoughts on the market and if it helps people out, that is great. No one is paying me to do this - I do it because I enjoy it and also want to pay back a little to the blogging communtiy from which I've learned a lot. To be honest, I think I usually have a pretty good read on the market, although I am not perfect. I think I put a pretty good product out normally. I guess you disagree. Perhaps in time I will be as good a trader as I am sure you are. After all, you certainly sound like the expert.