Tuesday, July 28, 2009

State of the Market - 7/28/09

A choppy day today on Wall Street, as stocks followed a similar pattern to the previous two days until the final hour of trading. The morning started with some selling, and it got heavier than the previous two days, lasting until lunchtime. However, that's when the bulls made another stand, pushing stocks up most of the afternoon into the final hour, with a few indices turning positive for the day. There was a late pullback as the final hour started, but the bulls beat that back as well, closing with another late bounce which allowed the indices to finish mixed but once again, well off their lows. Volume looks like it will be higher on the S&P but lower on the Nasdaq.

Technically, the market continues to hold up very well overall and any attempts by the bears to get a pullback going continue to be quickly shot down by the bulls. The nine day moving average is coming up quickly for both the S&P and Nasdaq and should offer support - it normally does during strong momentum phases. The Nasdaq in particular continues to form a very bullish flag pattern and could be setting up a breakout to new highs sometime this week. That may be hard to believe, but the chart doesn't lie right now. Even the BOP for the Nasdaq is turning green, which I have rarely seen happen on an index chart.

After having a pretty good day yesterday with CPSL and BEXP, I had a very frustrating follow-up today. I was tempted to take my 10%+ intraday gains in both of those names yesterday several times, but I decided to hold on for a little pullback to see if they had more gains in them. I basically moved my stops up to breakeven on both but to be honest, did not expect them to be hit with the momentum they showed yesterday. Well, both were hit this morning - CPSL at $2.95 for a 0.47% loss and BEXP at $4.44 for a 1.38% gain. I knew a market pullback was a possibility at any time, but given the strength these showed yesterday morning when the market was selling off, I did not expect them to be down so much.

I was also stopped out of LCRD at $5.96 midday, giving me a 2.58% loss there. It acted OK early on, but after reaching a high of $6.50 (I bought after-hours yesterday at $6.10) it did nothing but drift lower and I moved my stop up to lows of the day around $6.00. I didn't want to give it much room because it was a thinly traded stock and I knew it could have big swings minute to minute. Most really good earnings plays develop strength right away and don't slow down - this one didn't do that, so I was stopped out early. Unfortunately for me and my psyche, it went up for the rest of the day after I was stopped out, basically doing what I thought it would do originally. I missed a significant move there - 15% or so.

Given the later bounce in all of these stocks(especially LCRD), it was an extremely frustrating day, not unlike my experiences earlier this year. In hindsight, I knew CPSL broke out above $2.92 and BEXP broke out above $4.30 and I could have (probably should have) given them a bit more room to move. My problem is that after being up over 10% in both names, I didn't want a decent gain to turn into a loss, so I went with breakeven instead. In terms of LCRD, as I said earlier, I knew it could fall quickly and thought it would when the lows were broken, and I didn't want to take that chance.

Psychologically, I still don't know if I am back to where I need to be as these trades may show. I am still too worried about taking losses and that is affecting the way I play stocks after I enter them. The psychological side of trading is always the toughest side in my opinion. Right now, picking the stocks isn't a problem for me - it's managing the swings in the stocks after I pick them that's the problem. Those issues only become magnified when you see the stock go the way you want to after being stopped out. I may be setting a record in that respect - getting stopped out only to have the stock go back up on you. It sure seems like it. By taking smaller positions (which I am doing) and not jumping full blast back in (which I think I am doing), I hope to gradually defeat these issues and get back to my winning ways of last year. Right now, it's tough, however, as the market seems to have it out for me.

At the end of the session, I entered ANR on the pullback at $32.31. It bounced off its 9 day moving average today and the last two days of selling have come on very low volume. It looked like a good setup so I took although I was hesistant with my earlier trades today. It is not a very large position.

OK, enough about my sorrows. For the rest of this week, I think the outlook remains the same. A continued pullback would be healthy for the market, but that doesn't mean we are going to get it. If you see stocks setting up in nice patterns, then I still believe it is worth taking a shot at them in this environment - just be aware that if we do pullback, you're likely to get stopped out of them. Although LCRD didn't work out for me personally as an earnings trade, I will continue to look for those as well - I am up about 16% in ISRG and JDAS showed a bit of life today, so they usually do work overall. Nothing is perfect in the market however. Take care and good luck Wednesday.


Anonymous said...

Hi Mac!

Its the same anonymous (read IRA). Exactly the same stuff happened to me today in the sense that I got stopped out at break even after ~ 9% profits yesterday and then saw it climb up at the end of the day. I dont have to tell you that it sucks!!

But here's where it gets worse. All my trading experience has been in this bear market. So, early on I had learnt to be quick in taking my profits or else they would quicly disappear. This worked great as long as we were going down. But the last few weeks, with the markets going up, I saw myself taking profits too quickly. With this stock, i made the conscious decision to have patience and let it run and this si what happens!! lol

With all my experience coming from the bear markets, I have become scared of losing money in spite of making money i.e. stops too tight and taking profits too early. I have seen too many stocks go down never to recover and that's affecting me in the markets right now.

Sorry for the rant but I am just so pissed at myself. I traded like a damn amateur today.

Mac said...

The psychological side of trading is definitely the more challenging side. It is where I still need to develop before I can really become a "master" trader. It is tough when you don't have much experience - this is my first bear market as well and as we possibly turn to a bull market, I don't have any experience to fall back on. I wasn't trading in 2003 so I don't know how stocks act at this possible point, how loose to leave stops, etc.

By the way, I am not saying that we are in a new bull market, but the market is definitely looking much better.

Anonymous said...

I know we are gonna go down bad sometime in the near future....just having this thought at the back of my mind makes it hard to sometimes play with the cards dealt with....Oh well, tomorrow is another day....Good Luck tomorrow!!

positiontrader said...

This is my new name btw :)