Thursday, October 22, 2009

State of the Market - 10/22/09

The George Costanza market is back! After having an awful final hour yesterday that gave the market more distribution and convinced many traders (including me) that the market was in for more trouble, stocks did the exact opposite of what most people expected - they moved a good deal higher today. Stocks were slightly weak early on with both the S&P and Nasdaq breaking key support levels, but buyers came in around 10:00 and from there it was up, up, and away. The market stairstepped its way higher the rest of the day, closing near its highs. Volume however looks to be less than the heavy volume we saw with yesterday's selling.

Technically, who knows? It looks like those 1080 and 2150 levels were defended today but with volume coming in lower than the previous two days, it isn't that convincing. I will likely have to wait to go through my scans before having a good feel for where we go from here. Resistance is around 2190 on the Nasdaq and 1101 on the S&P. Financials were bullish today and rose on heavier volume after many put in breakdown yesterday - again, doesn't make much sense, but oh well. I guess the bottom-line is that the bears remain very weak as a group as evidenced by today.

I was trapped today for two losses - I went into SRS yesterday at $9.95 and ended up being stopped out today around $9.50. It acted well early but as soon as the market reversed, I had a feeling I would be stopped out and I was. I also entered FAZ early today at $19.93 and was later stopped out around $19.35. After that, I was done.

Perhaps I should have expected a day like today after reading through the blogs I follow last night. Every single one (many of which are well-known and respected including IBD) was bearish (as was I) and the arguments presented across the board, whether it was the many negative divergences showing up or the lack of follow-through on good earnings or the distribution days, all made complete sense. I don't know if this is the reason for the reversal today - were too many people leaning one way? I have to think that is the case, but at some point, don't all these cogent and factual points on the bearish side have to have an impact on things? Maybe not. I just don't know anymore.

We'll have to see what tomorrow brings - I'll be honest and say I don't have a good feel one way or the other after today. In the back of my mind, I know I am expecting a pullback and have been for a while, and maybe that is still affecting my decision-making. That being said, the divergences are still out there so be careful. I think we are back to a spot where anything can happen. Good luck Friday - I may be taking the day off. Take care.


positiontrader said...

Hi Mac!

Like you, I also got stopped out today....SDS in my case. I seem to be getting stepped out a lot lately, sometimes just to find the markets turn on me as soon as I get stopped out. I have reached a point where I am getting highly frustrated by this. Have though about it a lot - maybe I am picking the wrong stuff, maybe my stops are too narrow - but havent reached to any conclusions so far. And to see dumb traders who dont even keep stops minting money just because they are long makes it even worse! Maybe I am the dumb one.

Just thought I would let out my frustrations over here. Also, you seem to be getting stopped out a lot too but you seem to be taking it rather well, so I was wondering if you have any insights on the matter. Thanks!!

Mac said...

I hear you. I don't know if I am "taking it well" or not - it does bother me when I look at how poorly my account is doing this year with the market up so much while last year my account was up so much with the market down. I do confess to trying to short too much in April/May but even when I have been correctly long, like you said, I've been stopped out of good positions too early. If it makes you feel any better, I was in CVGI at $5 and was stopped out the same day on a spike down and in BEXP at $4.30 and was also stopped out right away. Look where both are now.

I wish I had the answers but I don't. All I can say is that this entire market feels "wrong". I don't know why, but typical technical analysis hasn't worked as it should, at least in my case. Maybe it's just my inexperience. But I do wonder if the market changed so much in 2008 that what worked in the past in terms of technicals is not going to work in the future, or at least needs to be tweaked mightily. that's where I have to grow - making the necessary adjustments, including setting stops.

Hang in there and remember that there is no one forcing you to trade. Take some time off, trade smaller until you get some wins, and your confidence will come back. That is, unless you are me. :-)

positiontrader said...

Hi Mac!

Thanks for the encouraging reply. And no, your losses dont make me feel any better! :)). I guess one of the reasons this is happening is that the obvious doesnt work any more. Take TA for example. Everybody plays the bounce off 50 day MA. So, the chances are it will bounce a lot before it touches 50 MA as more and more people wait for the bounce. The gap keeps on getting bigger till the play doesnt even work any more. The opposite the MMs know if you are playing the 50 day MA, the stop is set as some obvious point below it, so the chances are your stops will be taken out and then it starts to run. So, its a lose-lose situation. All this makes me believe that the future is in discretionary trading....watching the tape like the good old days. Just the price and the volume matter and one has to watch the bid and the ask all the time. The odds are in favor of the day trader than the swing trader.

All this just my opinion....

Mac said...

Well said. I agree with all that you said. Someone commented on here a few months ago that because the "layout" has changed with the big brokerage houses since 2008, they have to make money any way they can. It is much harder for them as well, which means the high frequency trading comes into play, along with some of the scenarios you described.

Of the traders I follow, it does seem like only the day traders are making money. I am being honest about not doing well, and I am primarily a swing trader.

I wish I had an answer of what to do. I do wonder if the "game" has changed for good or not.