Tuesday, March 31, 2009

State of the Market - 3/31/09

We saw a somewhat impressive bounce-back performance from the bulls today on Wall Street, as a slightly higher open led to higher prices after some consolidation for the first half of the day. Around 1:00, stocks broke out and really took off to the upside. It looked like stocks would close with impressive gains, especially considering the technical damage that was done yesterday. However, there was some selling that came into play during the last hour and stocks finished well off their highs. Volume was lower.

Techincally, the Nasdaq bounced right back up to test its former trendline today that was so powerfully broken yesterday, but the late swoon suggests that maybe it is ready to pullback more. The S&P still has so room to go before it tests its trendline but again, with it finishing in the middle of its range, I don't know if it will get that far.

Right now, I have to admit that I don't have a great feel for things out there and as such, I made no trades once again today. From what I can tell, the market for the past week and a half has been a big up day followed by a big down day followed by a big up day and so on and so on. That's a tough market to trade. I still lean bearish but I would rather wait for the next few days to pass with the mark-to-market thing out there before getting short. A few more days like today and then I may take some shots. Until then, I'll remain in cash. Take care, and if I find anything interesting in my scans (if I get to them) I will try and share.

Monday, March 30, 2009

State of the Market - 3/30/09

A pretty nasty day today on Wall Street, as news of a potential bankruptcy for the big three automakers caused a gap down at the open, and that gap just led the way to more selling. The markets were rather calm overall as the selling just slowly took place throughout the day and there were not many attempts at bounces. They did bounce a bit into the close, but still finished with major losses. Volume was mixed - higher on the S&P but lower on the Nasdaq.

I didn't do anything today as I don't like chasing gaps either direction in this market, but on the surface, today certainly looks meaningful. Trendlines were broken in a severe and powerful manner and it is certainly possible we see more downside over the next few days. I don't plan on shorting here however - I just have a hunch that something might happen from the government side soon that might cause a quick short-killing spike. I have read bits today about mark-to-market possibly being changed on Wednesday and Thursday, and if that happens, I would not want to be short. I don't think it will be a game-changer, but rather that something that may stop me out of any shorts I would have had. As I work my way back into the swing of things, I would rather not take chances until I am comfortable with my read on things.

From here, what I would really like to see is a little relief bounce over the next few days that would setup a bear flag. I would love to see the S&P consolidate a bit here around its 50 day moving average before falling further. That's when I would like to get short. It is possible this is just part of a pullback on the big move we had throughout March, but I still have my doubts. This bear market bounce started without fear, without a spiking VIX, and without a capitulation event. I still think we need to have one at some point for this historically bad bear market to end for good. So I would lean more to us setting up a top here on this bounce that will lead to new lows eventually and hopefully the final move lower for this bear sometime later this year.

That's about it - got a dishwasher to install and some electrical work to do, so back to work. Take care and good luck out there.

Sunday, March 29, 2009

Trying to Get Back in the Swing of Things

It's been quite the busy week for me - moved on Thursday and am still getting adjusted to the workload that accompanies the move. We still don't have our old house totally cleaned out, and I am trying to get some projects done around the new house as much as I can. I really haven't been watching the market at all this week - just didn't have the time to do so. I have gone through my scans just now for the first time in about five days and will share some random thoughts. Take these all with a grain of salt as again, I haven't been watching things too closely.

  • Although volume patterns look like they have favored the bulls recently (higher volume up days and lower volume sell days), the indices have risen to resistance points, particuarly the Nasdaq, that could prove troublesome. After Friday's action, the S&P and Nasdaq are sitting right at their month-long trendlines. A lower open on Monday will cause a break of these trendlines and possibly a test of the 50 day moving averages. Will the bulls come in if we do dip below those trendlines? It would show strength if they did.
  • In addition to the S&P and Nasdaq, I am really going to watch XLF - also sitting right at a trendline. I may focus solely on this and trade it accordingly via FAZ or FAS. If XLF starts breaking down, watch out.
  • We continue to remain overbought but Friday eliminated some of the short-term conditions. We're somewhat neutral overall - just slightly overbought.
  • In terms of individual stocks, I see some decent short setups if we do breakdown. I am watching these for breaks of their trendlines. WFC, for instance, looks like a really good short if it breaks below $15. Others I see are LHCG, CHFC, NRP, PNC, MET, ACM, BOH, HBHC, TE, XOM, SYNA, SIGM, SOHU, and CPLA. I may try one or two of these early next week if we get more selling.
  • I see a few more longs that interest me, but not as many as I would like to see, and especially not as many as I would need to see to believe this is THE bottom for this bear market. Solar stocks (YGE, SOLR) stood out in the scans so watch those carefully to see if they consolidate bullishly. Others that are strong (but may need rest as well) include LZR, PEGA, AU, STEC, STSI, RGR, OCN, DRI, and CSKI. I don't feel very interested in buying here - maybe if we rest a bit more.
I don't know if this will help anyone out there, but I hope to get back into the swing of things as the week progresses. I am returning to work so I will be able to write a bit on my breaks there and watch things a bit more closely. But there is still a lot of housework to do, so if posts remain rather sparse, you will know why. Good luck to all and have a great trading week!

Monday, March 23, 2009

Why I Hate Baseball

I in general hate baseball. One main reason is I live in Pittsburgh, which means for the last 16 years, I have had to endure losing season after losing season. I have had to endure continued rebuilding projects while good players are traded away to the Red Sox or Yankees as soon as they get good. It doesn't bother me anymore - I just don't care about Major League Baseball. I hope the Pirates lose all 162 games this year - it would at least be interesting. But it is that time of the year around Pittsburgh - the time where people start talking about the Bucs and how maybe this will be the year that they manage to finish with a winning record. Maybe this is the year where all the players will play up to their potential. Maybe all the pieces will come together to make a great puzzle and all the longsuffering fans out there will finally have their day in the sun. Of course, this is the same thing I have heard for the past five to seven years ad naseum. After you hear the same thing over and over but see the exact same result, you tend to expect the worst and not even hope for the best.

There is supposed to be analogy in that little ramble to today's market. I'll let you try to figure out what it is. Hopefully it's not too cryptic, but it encompasses exactly how I feel about today's market move. I closed my SDS and QID positions pre-market and wasn't hurt by either. QID was a breakeven and SDS was around a 2% gain I think. I sat out the rest of the day.

Oh yeah, volume today was the lowest of the past four days. That seems a bit odd for a 6-7% gain, doesn't it?

Ok, back to packing boxes. Good luck out there and be careful at this point on the long side.

Sunday, March 22, 2009

Moving Is Not Fun

No video this weekend - I just haven't had time. We are planning on closing on our new house Wednesday and moving Thursday, and other than watching some basketball, I have done nothing this weekend but get rid of old junk and pack stuff away for the move. Most of the next week will involved boxes and garbage - fun stuff, but it will be good once everything is over in a few weeks and we are settled. Just so you know, posts will be very light this week because of this - I don't plan on trading much at all because I won't have the time to put into it. Hopefully we will be settled enough by the weekend that I can get in a bit of a routine again. Good luck to everyone - with more government intervention happening via this toxic assets plan, I'm sure it will be fun. Take care.

Friday, March 20, 2009

State of the Market - 3/20/09

Sorry for the late post - finally got through watching my Pitt Panthers almost throw up in the first round of the NCAA tournament. I used to coach basketball and I can't tell you how frustrating it is for me to watch a team play stupid and undisciplined, but that's what they did. At least they won, I guess, but that was certainly scary for me.

Back to Wall Street. Kind of a boring day today on Wall Street, especially given quadruple witching, but "boring" is not a bad thing from my perspective. Maybe traders were too busy watching basketball. Both the S&P and Nasdaq opened slightly higher today, but that open was slowly and methodically sold off for the rest of the morning. The selling picked up after lunch and stocks did close near their lows for the day. Volume was mixed - higher on the S&P and lower on the Nasdaq.

Although I am short and my viewpoint may be skewed a bit, I don't see anything wrong with the past two days at all. On the video Wednesday night, I said that if the market pulls back calmly and works off the overbought condition it built up, then I would start to get bullish. Basically, I think that is what has happened the past few days. I have not sensed at any time any heavy selling, and for as overbought as we were, it would have been very easy for the market to tank. A 2% down day on the S&P might seem like a big deal, but when you consider we rallied 20% in less than two weeks, I think this pullback has been completely reasonable. As long as the 750 area on the S&P and the 1410 area on the Nasdaq hold, then I think this is nothing more than a bullish consolidation. Now if we don't hold those levels, then maybe we have a different story, but for now, I see the action of the past two days as perfectly healthy.

I made no trades today - still just sitting with my QID and SDS positions from yesterday and both are doing well so far. I'll be back at some point this weekend with a video after I do my scans. I am hoping for a few more days like today - it will allow the market to refuel itself for hopefully a much bigger move higher. If it doesn't and we head much lower, that's OK for me too. Take care.

Thursday, March 19, 2009

State of the Market - 3/19/09

A consolidation day today on Wall Street (finally!) as stocks gapped up to start the day, but the heavy resistance they ran into as well as the extreme overbought conditions facing this market caused them to reverse lower. They sold off until lunchtime, when they tried to bounce a bit, but by 2:00, the selling continued and stocks moved lower into the final hour. They basically chopped their way sideways for that closing hour but did close at their lows for the day, finishing with moderate losses on lower volume.

Technically, I don't see any problems with a day like today. If we see a few more exactly like it, I would start to get bullish. I didn't sense the selling was heavy, and as long as the support I mentioned on the video last night (around 750 for the S&P and 1410 for the Nasdaq), this pullback will be great and allow the market to move higher maybe next week in a more powerful way. We'll have to see if we can continue to pullback tomorrow. We are still overbought so one day does not increase my desire to go long.

I made two trades early in the session - SDS at $80.25 and QID at $51.01. They weren't really big positions, but I felt I had to take a shot when the market gapped up like it did. As long as the selling stays controlled, I will likely look to exit these rather quickly.

Tomorrow is options expiration so anything can happen. I am hoping for another day like today, not only because I am short, but because it would be perfectly healthy action for a market that has moved so far so fast. Hopefully, that happens. Good luck Friday.

Wednesday, March 18, 2009

Video - Overbought Conditions Warrant Caution

Here's a short video looking at the very overbought conditions we are facing now and why I think caution is warranted, especially as we move into heavy resistance. To be completely fair, however, I have been saying this for the entire week, so maybe it doesn't matter. In my heart of hearts, I still don't believe this is THE bottom, but I have to respect the action we saw at the end of the day today. That being said, this market is getting ahead of itself and really has to pullback at some point soon. If it does in a calm manner, then I will definitely have no problem playing the long side. I just don't think that's a good idea right now. The video goes over some indicators showing how stretched we are and also some stocks to focus on over the next few days (watch how they act and if they hold up on a pullback).

Overbought Conditions - 3/18/09

Good luck tomorrow - the days after Fed decisions are notoriously volatile and unpredictable, so be careful out there. If we happen to gap up tomorrow, I may have to try a few small short positions, trying to catch a pullback. Friday is options expiration as well - things should be crazy the next two days.

To download directly, right click the above link and "save link as".

State of the Market - 3/18/09

What a day. Fed days are always crazy, and today didn't disappoint in that regard, as stocks bounced all the way off their morning lows and spiked hard when the announcement was made that the Fed is going to add $1 trillion more to their balance sheet. As always, the best way to get out of debt is to add more debt, right? The market took this news well at first, breaking to new highs for the day and extending their recent run. They pulled quickly back when the S&P hit 802, but then bounced back up into the close. The XLF broke through some key resistance around $8.80 today as well. Volume was heavier today.

The markets are now even more stretched to the upside and my outlook remains the same - buying here is playing with fire. What I think we are seeing is some panic buying that could go on longer than I and most people think. That doesn't mean I want to play it, because when it stops, things will likely be very ugly. We have not had one rally initiated on government intervention that has worked yet, so I have my doubts that this will be any different. Volume continues to be unhealthy as I have stated here many times. This is probably a great shorting opportunity, but determining exactly when this thing will turn down or at least pullback will be difficult to say the least.

For that reason, I will likely continue to sit things out here. I was stopped out of my MASI short at $27.25 for a small loss of under 1% and am totally in cash. I would love to get short but I know this panic move can move higher from here and I don't want to lose anymore on that side of the market. That being said, the indicators I watch are just as stretched as they were back in January, which marked our last major top. We'll see if this turns out to be any different. Maybe the market can just move higher forever. Maybe this particular market can overcome these extremely overbought levels. I am not putting my money on that outcome, however, because I don't think it is a good bet.

Remember we have options expiration Friday, so things will likely continue to be difficult for the next few days. If I have time, I will show you some of the things I see that show how overbought we are. For instance, the McClellan is back over 300 after today. That's just one example. Good luck.

Tuesday, March 17, 2009

State of the Market - 3/17/09

The bulls stepped up to the plate today and delievered an impressive performance after a negative reversal yesterday, but lower volume cast another shadow on the gains. Pre-market, the indices were basically flat and the market opened that way. There was a quick pullback to start the day, and it looked like the bears might be able to build on yesterday's reversal. That didn't happen, however, as stocks found a bottom right around 10:00 and slowly stairstepped their way higher in choppy fashion for the rest of the session, closing at their highs for the day. After underperforming drastically yesterday, the Nasdaq led the show today. The only negative is that volume was lower. A higher volume reversal yesterday (distribution) followed by a lower volume bounce is not what healthy markets do.

Technically, I really did think we were overbought enough midday Monday to have a significant pullback. I thought Monday afternoon might be a start of that, but it turns out it wasn't, at least for now. We are still way overbought and volume patterns continue to be poor for this rally, so I still think at some point we still need to consolidate or pullback. I've been saying that now for a few days however and it hasn't happened, so who knows? If we continue to melt up, resistance to watch is around 1470 on the Nasdaq and 800 on the S&P, which coincide with their 50 day moving averages. That should be pretty heavy resistance.

Today was a crappy day for my trading as you may expect. I had three positions going into the session from yesterday - SDS, short MICC, and short MASI. I entered QID this morning as well at $57.13. I was stopped out of both the QID position ($56.41 for a 1.4% loss) and my entire SDS position including the IRA(between $88.81 and $88.41 for a 2.3% loss) by lunchtime. I gave my short in MICC a little more room to move and that also didn't work - just gave me a bigger loss ($43.10 for a 5% loss). My stop in MASI will likely be hit tomorrow and put me back to 100% cash.

So after being basically back to break even last week, my account has now drifted back down to about -8% for the year. I just can't seem to get anything going although my overall market reads have been pretty good I think(maybe not right now however). I continue to set stops too tight or enter trades too soon. I continue to pass on some trades that look good. A lesson that I think I may be learning here is that when you have many other things going on in life, sometimes it is better to step away from the market for longer periods of time until you have adjusted to the life changes.

In addition to the new baby, my family and I are scheduled to move into a new house next week and therefore I have been pretty busy with other things. I know, why on earth are you buying a house? Well, when you have additional members added to the family and you need more room, sometimes you don't have a choice. It was a short sale so that helped a bit in terms of trying to get a good deal and not overpaying. All of this change has perhaps affected the way I have handled trades and perhaps I would have been better off just sitting out until we all adjusted. Anyway, if the posts become less frequent for the next few weeks, particularly next week, you will know why.

As it is, I still can't buy anything right here. There is no leadership that I really see emerging and buying a way overbought market that has gotten that way on average to below average volume is not a recipe that typically works well. Here's a little clip from IBD..

"Since Thursday's follow-through day, big gains have mostly come from beaten-up financials and other market laggards.

Meantime, top stocks have struggled. On Monday, Strayer Education (STRA) plunged 12% on a report that data checks suggest a decline in school enrollment.

Other career-school stocks fell. The industry group had been leading the market until those stocks started crumbling last month."


At the same time, I am now a little hesistant to short here after little success the past two days because I know that although we should pullback, we don't have to do so. Short squeezes (and I really do believe that's all this is) can last longer than you think. I have been too early with my timing and therefore a little frustrated. With the Fed meeting and options expiration this week, maybe it is best for me to sit out a few days and gather my thoughts. Good luck Wednesday.

Monday, March 16, 2009

State of the Market - 3/16/09

We finally got some selling today on Wall Street, as another weak-volume rally took stocks up for most of the session and to even more overbought levels from which they reversed. The indices acted well for most of the day - stairstepping their way higher up with mild pullbacks until around 1:45, when an attempted break to new highs did not hold and stocks slowly started selling off. The selling picked up as the session ended, and stocks closed basically flat (except for the Nasdaq) but way off their morning highs. Volume was lower for most of the day and will likely end lower, but I don't have the final totals yet.

Technically, the reversal today was not unexpected, but I expected it a little earlier in the session so timing it was hard. The financials reversed right around the loads of resistance they faced at $8.70. The Nasdaq could not get above resistance around 1435. The S&P did not get up to the 800 level but I think fell on the weight of the financials reversing. Right now, the indices are above their short-term moving averages so we'll have to see if they act as support now on further pullback from here. Watch between 735-745 on the S&P and 1385-1395 on the Nasdaq as possible support levels. If those break, then I think this becomes a much more serious pullback. Watch between $7.60-$7.70 on the XLF.

Today was frustrating for me in that I couldn't be beside my computer all day and I ended up mistiming the trades I attempted. It seems like if I don't have bad luck, I don't have any luck at all right now. At the beginning of the day, I went into WFC short ($14.45) and bought a small position in FAZ as well ($37.70). I also went into MASI short at $27.11. MASI worked well but I was stopped out of WFC at $14.82 for a 2.8% loss and FAZ at $36.55 for a 3.0% loss. Later on, I tried going back into FAZ at $36.1499 (a bigger position this time) but was stopped out quickly at $34.87 for a 3.7% loss. It made a low of $34.80 and then moved higher without me. That's the one that really sucked because I lost out on a very large gain here - around 20% by my calculations. Trading with a full-time job is difficult for a number of reasons, and this is one example. I was trying to enter orders on the fly and set my stop too tight for this position.

When the market did start breaking down, I was away from my desk and by the time I got back, things had gone too far too fast from where I sat. Frustrating, no doubt. At the end of the session, I did enter a few other positions - SDS between $90.50 and $90.70 (actually bought some for the IRA) and shorted MICC at $41.00. If we happen to bounce a bit tomorrow, I will likely look to add. If this pullback gets more serious, then adding shorts tomorrow will not be that risky. Stocks look like they may just be starting to breakdown.

Hopefully you had a little bit better luck than I did today and was able to profit from the ideas I presented in the video this weekend. Most of the shorts I showed look good after today. Pinpointing the timing of this reversal was a little difficult, but when we get as overbought as we were today, it is only a matter of time before the market starts pulling back, especially when the gains were on light volume. From here, I think tomorrow will tell us quickly if this is just a pullback or if it will amount to something much worse. Watch those support levels mentioned earlier and go from there. If they don't hold, then this is probably the start of something bigger. Good luck.

Saturday, March 14, 2009

Video - Weekend Market Summary - 3/14/09

Here's the video for the upcoming week. Basic thesis is the same - we are overbought and these recent gains have come on volume barely above average. If this was a real bear market bottom or even the start of an intermediate-term rally, we would have much higher volume off the bottom. In addition, I have an extreme lack of good setups on the long side, while at the same time, I have many decent short setups. So overall, I just see the risk/reward as being very poor going long right now. Wait for a pullback and see how the market acts when it does pullback. Maybe in a week I will turn bullish. Right now, however, I am short-term bullish and longer-term neutral to slightly bearish. Good luck and enjoy the rest of the weekend.


To download directly, right click the above link and "save link as".

Friday, March 13, 2009

State of the Market - 3/13/09

Another up day today on Wall Street - that makes four in a row - as traders shook off a mid-morning selloff and sent stocks modestly back into the plus column as the afternoon progressed. They closed with those modest gains, and they came on lower volume. I still don't see heavy enough volume over the past four days for me to really think this is an important bottom. We'll see I guess, but I still think that's a big deal.

Not much to say here other than what I said last night. We are overbought short-term and a pullback or consolidation period is needed in order for this to be more than a bear-market spike. Pulling back calmly after nice moves higher is what healthy markets do. Healthy markets typically don't just continue higher and higher without rest - that's what bear market spikes do. I can't chase any longs here unless we get that consolidation. Meanwhile, as we get more and more overbought (and let me be clear - we have a little room in this respect but are at levels where a pullback is very likely), the more and more I will look at putting a few shorts on with tight stops.

I plan on getting a video done this weekend at some point, showing some of the charts I am watching. Unfortunately, there still continues to be a lack of great leadership out there, but maybe I'll be able to find some in my scans. I also have some short setups that are looking decent in terms of risk/reward. Until then, good luck and enjoy the weekend.

Thursday, March 12, 2009

State of the Market - 3/12/09

Another great day today on Wall Street....well, sort of a great day. I'll talk about that in a second. Futures were lower to start the day and did open lower, selling off for about fifteen minutes. However, they got support near the lows of yesterday, and from there climbed steadily for about an hour. They consolidated a bit into lunch, began to climb slowly again from there, and took off to the upside around 2:00. At this point, the S&P broke through the important 740 level and stocks accelerated to the upside into the final hour, finishing with large gains for the second time in three days. Volume declined on the S&P and may be slightly higher on the Nasdaq, but was still just average.

So why would I say this is only "sort of" a great day? Well, there was one big problem with today's gains - they came on lower volume, and it's not like we had massive volume yesterday to compare it to. For as big a percentage gain we saw today, we should have seen much higher volume than we did. Today could have qualified as a follow-through day(and IBD may still do that on the Nasdaq), but without volume, what it tells me is that most likely the big boys still aren't very involved with this move. I stated yesterday that Wednesday's action was bullish as it signaled the market may just want to rest for a few days, kind of allowing it to build up steam for a more meaningful move higher. That's how healthy markets act - they are accumulated on heavier volume, rest for a few days on lower volume, and then rise more on heavier volume as they are accumulated further.

Based on what we saw today, I certainly don't think this is a healthy market. Today in the long run could cause another reversal lower just like it did October 14, November 11, January 28, and February 9. Right now, I think the market is getting ahead of itself and that has led to problems in the past. A market getting overbought on massive upside volume is not a big deal in my eyes - that shows strength. A market getting overbought on diminishing volume is a big deal - shows weakness. Maybe it won't matter this time - maybe this time is different. I know I've said that before many times, however, and it has never turned out to be "different". I was really hoping for some rest today but we of course got none of that. Maybe I emphasizing this volume too much, but if we were really seeing the start of a very significant upside move, I would think volume would be just huge.

Technically, the indices broke above some important resistance levels today - 740 on the S&P was taken out and 1385 was easily taken out on the Nasdaq. Next levels to watch for these indices are 802 and 1435 respectively. If we get up that high without some consolidation or pullback, it would probably be the shorting opportunity of a lifetime. The financials (XLF) broke above $7.60 and rose much higher than that, breaking through overhead resistance around $8.07. If it closes over $8.56, it will have put in a higher high which is obviously bullish. The 50 day moving average looms around $9.00, so that is about as far as I can see this going without some sort of rest or pullback. Short-term, we are up in that very overbought area that has led to at least decent sized pullbacks everytime since October. Again, maybe this time will be different. I don't think it will however.

I made no trades today and the only thing I will even think of doing at this point is shorting. There is no way I am chasing this move. I said last night that I was more than willing to go long if we rested a bit, but chasing weak volume moves has been a recipe for disaster. I don't know when I want to get short - those resistance levels of 740 and 1385 are now history so targeting a specific area is harder now. Perhaps it was those levels were too obvious, because I heard everyone discussing them. Maybe we need to get just a bit higher to get rid of weak shorts before heading lower. Based on overbought levels, I will be watching tomorrow for any sign of weakness. In terms of going long, I would still be interested if we pulled back calmly and digested this recent move. So overall, longer-term I am open to anything but short-term, I am certainly more bearish than bullish.

Good luck tomorrow. I also wanted to point out to everyone that Worden Brother's new product, StockFinder, is now available for a free thirty-day trial (no credit card required). I downloaded it a few nights ago and although the learning curve is rather steep, I am finding it interesting and potentially very useful. You can make all sorts of custom indicators that depending on how creative you are could come in very handy. Already I have come up with a few custom indicators that I am anxious to see about in terms of whether they will be effective or not. If they are, I will make sure to share them soon. If you are interested, click on the link below. Take care.


Wednesday, March 11, 2009

State of the Market - 3/11/09

The bullishness from yesterday continued early today on Wall Street, as stocks rose at the open and continued higher for the first twenty minutes of trading. From there, however, as the Nasdaq reached the 1385 resistance, stocks reversed and stairstepped their way lower for most of the rest of the session. There wasn't much panic however on the reversal, and stocks did put in a bottom around 2:25. They rose quickly into the final hour, turning positive again but not getting back near its earlier highs and closing with modest gains. Volume appears to be lighter than yesterday.

Technically, I pointed out three key numbers yesterday - 740 on the S&P, 1385 on the Nasdaq, and $7.60 on the XLF. The Nasdaq hit 1385 and reversed this morning. The XLF got a bit above $7.60 before reversing. The S&P did not get high enough to test its resistance. I did not expect the indices to overcome these resistance levels on the first try, so it wasn't a big deal. The fact that they didn't reverse hard (I know they sold off, but it wasn't powerful) is probably bullish. We are a little overbought now so what I will be watching for is some consolidation here. If we rest for a few days without giving much of yesterday's move back, then I may turn more optimistic about the prospects of us getting through those levels next week. The thing I don't want to see is just another huge move up here tomorrow or Friday. Too fast too soon has been a trend since September on all of these "rallies" and is what causes them to eventually die out. We are pretty much at that point where we will see very quickly if "this time is different" in terms of a meaningful move.

My trading day started poorly. I held onto FAS from yesterday and was happy to see it above $4 pre-market. I was not going to be able to be at my computer for about the first 30 minutes of trading so I set a trailing stop of $0.30, figuring that would give it enough room to move and still protect most of my profit. Good idea, bad execution. FAS gapped up and then immediately fell from $4.15 to $3.75 in a matter of minutes. This caused my stop to be hit at $3.78. That gave me a 7.8% gain, but I was hoping to sell above $4 with a profit of about double that. Sucks.

From there, I kind of think I was revenge-trading a bit as I decided to look for shorts as the market approached the numbers I talked about last night. I went into FAZ at $54.66 but since I didn't wait for the XLF to get to $7.60 like I showed last night, I was stopped out early at $52.92 for a 3% loss. As the XLF set up a head and shoulder pattern intraday, I went back into FAZ later at $56.38. It went sideways for most of the afternoon but eventually tried to break out and my stop was hit at $55.35 for a 2% loss. I knew that there might be a fakeout on this consolidation pattern but still didn't want to hold on if FAZ did fall out of the sideways pattern. It turned out to be smart to keep the stop tight there.

I also entered SDS at $97.28 and QID twice at an average entry of $60.12. I trailed my stops on both figuring that if the market does hold up today, I don't want to be caught holding shorts longer than I need to. Both stops were hit later in the session - SDS at $98.87 for a 1.5% gain and QID at $59.74 for a 0.8% loss. Basically, today was a road to nowhere and my account continues to go sideways.

Overall, today was positive in that the market had a chance to sell off pretty hard through most of the day and didn't. That in itself is bullish. Let's see if we can consolidate a bit in a healthy manner - if we do, then I have no problem getting more bullish. But as I said last night, we've seen this story before with the massive spikes, and I have to see some concrete evidence that this time is going to be different before getting too excited. That's just me. Good luck tomorrow.

Tuesday, March 10, 2009

Large Number of Breakouts Today, But We've Seen This Story Before

Today was a very strong day in terms of 4% or higher moves - we had 1873 of them on heavier volume, which is the highest number I have had since December 16, 2008. That is a good sign for the bulls, but going back to 2008, we saw similar numbers on individual days but they didn't amount to much. We had big days on November 13 (selling reappeared the following day), October 28 (led to a five-day rally), and September 18 (led to one more day of buying before a big fall). We'll have to see if this time is different - maybe it is, but history suggests differently. As I've said many times, if we had more leadership emerging then a meaningful rally might make sense. As it is, we may get some more short covering, but I don't see any reason yet to expect more than that. Hopefully I am wrong - I would love to be able to go long for a few months.

Why Aren't There More Charts Like This?

Here are a few charts to look at showing the resistance levels I will be watching. For now, I decided to hold my FAS position since it is small and I have a gain, but I know that could be wrong. I plan on getting rid of it tomorrow, especially if the XLF can get up near the $7.60 area shown on the chart below. Good luck tomorrow.

S&P 500
Financials
All Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

State of the Market - 3/10/09

After so much steady selling, we finally got an up day on Wall Street today, as stocks were buoyed early on by a positive report from Citigroup and that led to a gap open. From that gap, stocks did nothing but add to their gains for the first 45 minutes of the trading session. They had a healthy consolidation around 10:15 before breaking out again right before lunch to new highs. They consolidated again from there for most of the rest of the session before trying to break out once again into the close. Stocks did finish at their highs for the day and volume appears to be higher, although not overwhelming. All in all, a very strong day for the market but we will have to see if it is going to lead us anywhere.

Technically, the S&P rose right to the top of the descending channel has been in for about the past month. It got slightly higher than this channel but not in a powerful way. The 740 area should be heavy resistance as it coincides with the most recent area of consolidation as well as the important November lows. The 20 day moving average is right around there as well, so I will be watching that area closely as a possible reversal or at least a pullback area. The Nasdaq did break above its descending channel and outperformed the S&P today. I will be watching the 1385 area which coincides with the most recent consolidation area as well as the 20 day moving average for a possible reversal or pullback. The VIX does seem to have broken down out of its coil pattern today - we'll have to see if that means anything because the VIX has just been plain weird recently.

I made one small trade around lunchtime in FAS ($3.47) as it broke to new highs but that was it. I didn't feel comfortable chasing early on but it turns out that was the correct play. I don't feel too bad - if this is the start of something meaningful, there will be plenty of time to jump on the train. As I stated above, however, there is a lot of overhead resistance that needs to be dealt with so I believe caution is important here. I do still have my FAS position but may get rid of it after-hours. If we open higher tomorrow, I will probably let it go then.

Although today was impressive, I still don't like this setup in a number of ways in terms of this being a possible important bottom. Significant market bottoms coming off extremely oversold conditions typically do not have the high levels of complacency that this one had. We still have had no fear recently. It looks like if this turns into something, my "option #2" from the weekend post will play out, where we just one day turn slowly and then move higher. There was no real sign that today would be the day, at least from where I sit (maybe I just missed it) and that made it tough to play. If you were heavily long going into today, congrats, but I would guess today allowed you to just make up some of the losses you have from previous sessions.

I still have great doubts as to whether this will amount to anything or if it will just be one of those bear market spikes caused by short covering. We haven't seen one in a while, but remember, you almost always see the biggest one-day percentage gains during the middle of bear markets, and today certainly was a large percentage move. Right now, my gut tells me it's just a spike because we never saw that panic I've been talking. I really wanted to see that. However, I will respect this move. Maybe we do just move up from here. I doubt it, but anything is possible with as crazy a market as we have seen this year. I think I will have a much better idea after going through my scans - if I start seeing some stocks emerge as potential leaders, then I would be more optimistic. Before today, my long watchlists continued to be extremely thin and that does not give me much hope for further continuance of this rally. We'll see I guess.

My game plan as of now is to tread lightly here. We could be up big again tomorrow, but I don't know how smart it is to chase a huge move like we had today. Throughout this bear market, these huge spikes have always amounted to a whole lot of nothing (except good shorting opportunities). If I see some leadership emerge and we move up in a healthy manner without these huge one-day spikes, then I will look to get more long. As it is, if we bounce up to that 740 number of the S&P, it will be mighty tempting to look at putting some shorts on. I'll try to be back later with some more thoughts after doing my scans. Take care.

Monday, March 9, 2009

State of the Market - 3/9/09


Drip....drip....drip....drip.....

There really isn't anymore I can say that I didn't say yesterday. Right now we know the faucet is broken and the pipes are in bad shape too. The only question is whether the plumber will come to fix the drip first(option #2 from yesterday's post), or will the pipes just burst and the drip will turn to a waterfall(capitulation - option #1 from yesterday's post). I wish I knew the answer, but I just don't.

I barely watched things today and am still 100% in cash. I will be ready if something happens, but the more this type of action happens, the more likely option #2 I wrote about yesterday comes to fruition where we just continue lower and eventually turn higher but not in a meaningful way and not in a noticeable way. VIX barely moved today. No fear anywhere - just complacency and almost acceptance. Market numbers still aren't extreme enough. I wish I could say something different, but I can't. Good luck tomorrow if you're trading this.

Sunday, March 8, 2009

Weekend Market Summary - 3/8/09

I was planning on doing a video this weekend like I normally do summarizing the market and showing some possible plays for the upcoming week, but the more I looked at my scans and the more I thought about it, the more I realized I had nothing to do a video on. I could have done a video with me just talking, but I can write my thoughts just as easily so that is what I am going to do. If you were waiting for a video, I apologize.

Here are the S&P, Nasdaq, and financials. I am still on the lookout for that heavy-volume severe selloff where we are down 5-7% from which we get a possible rally going.

S&P 500
Nasdaq
XLF

We obviously remain oversold but the VIX has done absolutely nothing during this decline. I have no explanation for this.

VIX

The McClellan oscillator has risen slightly off its lows from a week or so ago while the market has fallen - perhaps this is a positive divergence.

McClellan Oscillator
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Still watching to see if my numbers get extreme as they did in November, the last meaningful "bottom" we've put in. Not there yet unfortunately.


I am doing my best to stay in tuned to this market, but it is getting quite difficult. I am just becoming uninterested to be honest. I do feel we are getting closer to a big move to the upside, but that word "closer" is a broad term. It could happen this week or it could happen next month. I basically am looking for two possible outcomes for this market over the next week or two.

#1) We get a traditional capitulation, washout-type move to the downside with very heavy volume, a spike in the VIX and put/call ratio. At this point, institutions come back into the market and we rally for a few months, perhaps in a meaningful way. I would be interested in playing this setup and much prefer it. The problem with it is that I believe a lot of people are looking for this to happen as well and won't commit funds on the long side until it happens. Rarely in the market does something everyone expects to happen actually does happen. I keep thinking that this is one of the reasons we continue to just grind lower - too many people are waiting for that big washout and instead we just get a slow drip just to frustrate the most people.

#2) We continue lower for another few weeks in the same manner we have the past two or three weeks - steady selling with one-day bounces mixed in that eliminate oversold conditions just enough to allow more selling to occur. At some point, things get low enough (every bear market does have moves higher, just like bull markets have pullbacks) where some buyers start to slowly come back into the market and we start moving higher for a while - not in a big noticeable way, but just a slow, steady way, much like this move lower has been but in reverse. I don't think this type of setup will lead to a large move on the indices, and I think it will be decidingly more difficult to play. Because not many people are looking for this, I fear that is what we will get.

Overall, I am just getting a little tired trying to make money on the short side and while I completely realize there may be a lot more money out there to make on this side of the market, I am probably done trying. Things can always change, but that's how I feel now. I am not saying this bear market is about to end, but I think even the worst bear markets have countertrend rallies.

I would rather keep what I have now and have it ready to go in case we do get a really nice countertrend rally going. There also still remains a lot of news-related risk in this market on both sides of the market and that is another reason I don't feel like doing much right now. What if GM files Chapter 11? What if mark-to-market is suspended? News events could cause massive moves in the market and start a rally or higher or a washout lower, but are totally unpredictable. So what I plan on doing is sitting out for the most part but being ready to go in case things start moving higher, hopefully with a capitulation reversal.

Unfortunately, I don't see many stocks that look worthwhile on the long side at all so if we get option #2 of more grind lower, it could be a long, long grind. Here are a few I will watch that have held up fairly well admist the selling. If we would get a capitulation move, I would likely just play the ultra ETFs.

ARST, AIPC, BWLD, MYRG
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I don't know if this will help anyone out there, but I just don't have a good feel right now one way or the other. I continue to be so surprised at how steady and smooth and controlled the selling has been over the past few weeks. 2008 was definitely a tough year, but 2009 hasn't been any easier. Good luck this week, and be careful because risk remains high long or short.

Friday, March 6, 2009

State of the Market - 3/6/09

It's the weekend so I will keep this relatively short and just be back later on with the summary video. More of the same today - more selling. More new lows (including a break of the November lows for the Nasdaq). No fear. No panic. Total complacency. The VIX still hasn't broken to higher highs. The put/call ratio was under 1 all day. No sudden spike or "whoosh" downward. No washout. Yeah, we bounced into the close, but from where I sit, that is bad in that it will just stretch this misery out longer. I wasn't watching it but it doesn't look all that impressive. We just continue to grind lower and lower and lower and I continue to be amazed at what I see going on. This market just seems to go beyond description. An article going around talks about "slow-motion capitulation" and maybe that is an apt description for what we are witnessing.

I made a very small trade today in FAS near the open - entered at $2.88. I kind of expected another one-day bounce today, so I took a chance with a tight stop. I was stopped out a little later at $2.81 with a loss but the position was so small it didn't bother me. The fact that we once again sold off a rally attempt did bother me. And the fact that it still didn't lead to a selling crescendo is disappointing. Perhaps we won't ever get that washout. Perhaps just too many people are expecting it, waiting for it. Perhaps this painful grind lower is exactly what Mr. Market has in store for us. I hope not, but I don't know what to think anymore.

I have never traded a bear market before. I hear stories about how bear markets end when "all hope is lost" and people finally just give up and throw in the towel. I hear stories that at bottoms, no one wants to hear the mention of the stock market because of all the psychological pain it brings up. These are just stories and since I have no personal experience with a true bear market bottom and sentiment, I don't know how much I can draw from them. I do think however, from what I read and what I see, that this country, investors or non-investors included, is getting to that point where "all hope is lost". I don't know if this means we are close to a bottom. I hope that's what it means. Shorting is fun and everything when you're making money, and I did make some the past year and a half on the short side, but after a while, it just wears you down. I worry sometimes, however, that maybe this situation is just so bad that in reality, all hope IS lost. I hate to think that way, but based on what we are seeing, both from Washington and Wall Street, I think it is human nature to do so. As the Today show put it this morning, when you can buy a share of supposed American icons such as Citigroup or GM for less than what you pay for a gallon of gas, things are pretty bad.

It'll be interesting to see if the government tries to prop this up even more by pulling some more intervention stunts over the weekend, but I am 100% in cash so I really don't care - it won't affect me. I will be back with a video this weekend looking at all the measurements, indicators, and oscillators I have been showing this week in an attempt (perhaps in vain) to try and find out from where we might bounce and how soon that may occur. Enjoy the weekend - looking forward to the big game for my Pitt Panthers tomorrow against UConn. Go Pitt!

Thursday, March 5, 2009

State of the Market - 3/5/09

I am not going to write a big summary for the market today - let's just things were bad. They continue to be bad. I would basically be writing the same thing I have written for the past week - until we get some panic selling and a possible capitulation move, this market will continue to move lower. We still didn't have that today.

What I wanted to focus on in this post is a quick review of what I will be looking for in terms of maybe us getting extreme enough to the downside that a meaningful counter-trend rally can develop, because right now, that is really the only play I see setting up on the horizon. Some of these conditions are close to occuring, some are farther away, but unfortunately none are occurring at this very moment. That means we could still trade lower from here.

#1) Some fear and panic via the VIX and put/call ratios
Not there yet - not really close. VIX still hasn't even put in higher highs for the year. I am not saying the VIX has to get up in the 70's or 80's again like in 2008, but a spike into the 60's might work. The put/call ratio was barely above 1 today and actually lessened as the day progressed. All of these tell me there is very little fear out there and a lot of complacency. That is not good.

#2) Extreme oversold conditions via the oscillators I use (the McClellan and the T2108 to mention a few)
We are pretty close but not yet at levels where a major countertrend rally should occur. One difference is that when they have happened before, it was a straight drop down to the oversold levels and they were so stretched that a bounce occurred. I've been writing this week that these one-day bounces are bad because they relieve the oversold conditions just enough for us to get more selling. If this continues to occur, the oversold measurements won't matter anymore. What we're seeing right now is that we are just moving sideways in an oversold range. We may have to push even lower than the November levels to get the reversal. This is where a big spike down comes into play.

#3) Numbers in my scans similar to November
Not there yet and again, these one-day bounces mess this process up. I will continue to monitor them but we still have some room to move lower on these ratios. We are getting closer though. Another few really bad days and we will probably be at those November levels in terms of selling pressure, individual oversold stocks, stocks down 50% in a month, etc.

#4) A really large percentage move lower.
These 3-4% moves lower we have seen recently certainly do a lot of damage, but it seems to me these type of days have just been systematic selling days, where the selling is steady and non-stop. It's not panicky selling. Back in October and November, we saw some days where we were down 5-7%. I think we need a day like that to get the fear up - a 5-10% move lower. I don't know if it will happen anytime soon. The news continues to be bad and it doesn't seem to matter. Perhaps traders are immune to the bad news now in terms of fear.

The bottom line when I look at these is that it is very possible in the near future that we move much lower than we closed today, as hard as that may be to believe. Just because we're already down a bunch doesn't mean we can't go down a bunch more. This is a historical bear market and as such, we will likely see historical moves lower. I wish I could say something different, but I just can't. We may still get some one-day bounces like we saw yesterday and last Tuesday, but I really believe until we get a washout, that's all we'll get, and they won't amount to anything. I think a lot of people are thinking this way, so maybe it won't happen, but it is also possible that people are waiting to buy until we get it.

I did nothing again today as I don't feel comfortable shorting a market that is down so much, but until the conditions I described above are met, there is also no reason to try and catch a falling knife. There remains more risk than reward on both sides right now in my opinion unless you're day-trading. I still think we are getting closer to a possible trading bottom, but I have no way of knowing when it will occur. We need a washout and until it happens, there isn't much to do. Trade accordingly, or better yet don't trade until risk/reward setups present themselves. Best of luck tomorrow.

Quick Look at the Indices - Yesterday Could Be Another One-Day Bounce

Just wanted to show a quick look at the indices. I found it interesting that the bounce got rejected right at the bottom of the channel it broke below on Tuesday. This occured on both the Nasdaq and S&P. I put some other levels to watch if we somehow keep bouncing, but futures are down right now so this may be another one-day wonder.

S&P 500
NasdaqCharts from Telechart2007, Courtesy of Worden Brothers, Inc.

Once again, what we want to look for in a tradeable, sound bounce is a big move lower with some sense of panic followed by tremendous buying off that big move lower. Yesterday's bounce was weak in a number of ways, but the main one is when you compare it to the losses of the previous days. It just wasn't very impressive. I've been saying that these one-day bounces are really negative and that holds true now. We worked off a little of the oversold conditions yesterday and now have more room to move lower. Great. Bottom line is be careful here and don't try to "catch" this bottom because you could get into trouble. I don't know if I will be doing anything today, but if I do, it will be from the short side. Good luck and look out for that jobs number tomorrow.

Wednesday, March 4, 2009

State of the Market - 3/4/09

After being beaten down for a long stretch, Wall Street finally put in a bit of a bounce today, as stocks started higher, fought off more selling, and closed with large gains. The first ten minutes of the session was strong, but stocks sold off the nice open quickly and things looked bad around 10:00. Stocks held though and did move higher throughout the rest of the morning. They pulled back starting around lunchtime, but held their opening highs and then moved higher as the final hour approached, breaking to new highs a little before 3:00. That didn't last, however, and stocks fell into the close, ending with large gains but well off their highs for the day. Volume was a good bit lower than the past three sessions.

I didn't do anything today as I still haven't seen the setup of a big panic-type move lower from which I would want to take a shot at putting some longs. Going long here this morning was simply guessing, and if you guessed right, congratulations. As I said last night, I thought the setup going into today was not good for shorts or longs, so I would rather just sit out rather than gambling. As it is, we'll have to see if this bounce amounts to anything. So far, I think it looks a lot like the bounce from last Tuesday. That was quickly sold off and if we see the same thing here, then this market is in a world of hurt. That close certainly wasn't impressive.

Yesterday, I posted 740 and 1385 as levels to watch in terms of resistance on any bounce, and I plan on following those levels closely. IF we get that high, it might set up a very good shorting setup. I don't know mean to be a party pooper, but there is a lot wrong with today's bounce. Financials were lower for much of the session and severely lagged the market. That is not good. No one can tell me that we've seen panic selling either - look at the VIX. That is not good. We never did hit extremes on the numbers I follow as well. That is not good. Volume was lower today. That is not good. That close was very bearish. We could still move higher from here due to being oversold, but in terms of this being the start of something meaningful, I just don't see it. I've explained for the past week or so that a one or two-day bounce is about the worst thing that can happen to this market because it is just prolonging the inevitable. That's my opinion at least.

That's about it from my perspective - there is nothing I see that makes me think today is meaningful at all and if we bounce a little more, I will look to reload on the short side. Jobs report is coming up Friday so be careful here. Good luck.

Tuesday, March 3, 2009

State of the Market - 3/3/09

Whew, that was tiring. A crazy day on Wall Street today, as an early bounce quickly faded, but there was still no panic when selling came into the market, and stocks finished for the day. Futures were higher pre-market and stocks did open higher, but they simply faded that opening gap and moved lower throughout the morning, hitting a low around lunch. They bounced, pulled back slightly, and then around 2:00, a sharp rally ensued with stocks breaking their morning highs on the Nasdaq but not on the S&P. They started falling again as the final hour started and did test their intraday lows, but those lows held and stocks bounce back into the close, finishing basically flat. So all in all, a very boring end to a crazy day.

Technically, your guess is as good as mine right now. We are no doubt still very oversold but as I said last night, what we really need is some panic and some major selling to wash people out and perhaps start a meaningful move higher. Today we saw none of that. The VIX still hasn't broken to higher highs for pete's sake. I'll check the numbers I showed last night later, but at first glance, there wasn't much change from yesterday. As for support and resistance, I have no clue on support as I just don't see much other than on the Nasdaq at 1295. Maybe if the Nasdaq breaks its November lows, we get some heavier selling from which we could reverse. If we happen to bounce, I will watch 740 and 1385 as levels to watch for reversals.

I did make some trades today with more mixed results. I was stopped out of all my positions from yesterday during the afternoon spike. QID was hit at $65.87 for a 3.5% gain. SDS was hit at $107.97 for a 5.2% gain. DLR was hit at $27.70 for a 3% gain. I gave them some room early on but when the market sold the open off, I really expected a bad day so I basically just moved my stops up. I was hoping for more out of all of these however.

One skill I need to develop is the ability to know what days are just days to stay away from in terms of trading. I think today qualifies as one of those days, but unfortunately I didn't stay away. I went into SRS in the afternoon at $94.99 but that couldn't move any higher and I was stopped out at $92.61 for a 2.6% loss. Later, I expected a rally so I went into FAS at $4.05, although it was a small position. That also reversed and I was stopped out at $3.88 for a 4% loss. There was so much up and down movement today that things were just difficult. With the conditions we have right now, I really expected either a big selloff or a big rally. I didn't expect more chop.

I kind of think a day like today is bad in a number of ways. First, the fact that we still can't get a rally going in the face of severly oversold conditions is not good at all. I mean, what exactly is it going to take for this market to put in a little bounce? Conditions are pretty stretched but it doesn't seem to matter. The other way today is bad is that by not moving lower in a hurry, we are just stretching out the pain for a longer period of time. Let's say we sold off the open today and immediately fell something like 3-4% the rest of the morning. I think we would have seen some fear in a situation like that and that could have set up a meaningful reversal. Instead, we just kind of dripped lower without much of any type of selloff. If we do this chop stuff for a few more days, then the oversold conditions lessen and that allows the market to fall even further without much problem.

I think this is one of the reasons I have closed out positions so quickly recently. Even going back to last Monday, we have faced conditions that have been so stretched that you just kind of assume (at least I did) that we would get a big move one way or the other. I thought the move would be lower at first and then higher, but I realized it didn't have to be that way - we could very easily just take off. I definitely didn't want to be caught on the wrong side of that big move I expected. Because of the stretched conditions, the last thing I thought we would do is just drip our way lower and lower - it just didn't make sense. However, it seems like that is exactly what we are doing or what we are going to do. I guess the old adage holds true - Mr. Market is great at frustrating the most number of people possible. I know I am frustrated as I am sure others are.

As it is, since I am back to 100% cash, I probably will not be doing much for the next few days. In hindsight, I could have given my shorts more wiggle-room today, but I think I explained why I didn't want to do that in the previous paragraph. The conditions are such that we remain too oversold to get short here, but there seems to be no reason for the market to move higher either. The risk/reward on either side is just not good right now. It really seems to be a guessing game out there. Now if for some reason we actually do get some panic selling, then the story changes and I may start looking at some swing longs, but only after some heavier selling. Days like today definitely do not qualify.

Probably won't be back later because there isn't much to show you in terms of charts. Good luck and be careful out there - this remains a very difficult market, even if you are short.

Monday, March 2, 2009

We Are Oversold, But Again, Does It Matter?

Here are some charts of importance tonight. Both of the indices are obviously very stretched here and are at levels where they have bounced before. Of course, we could have said the same thing last week and look where that got us.

S&P 500
Nasdaq

Here are the oscillators and indicators I use. Most are pretty stretched but can still move lower from here - they have a little room. The VIX continues to confound me - I have no clue how we aren't higher on this.
VIX
T2108T2106
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Here are the numbers I was talking about in my earlier post. I am trying to compare today to the readings I got the day before the November lows. As you can see, we are just not there yet in terms of selling pressure, beaten down stocks, etc. Another day or so like today, however, and we will be there - I am pretty sure of that.


I would not be surprised if we get a small relief bounce tomorrow but I think that would be the absolutely worst possible outcome for everyone involved. A relief bounce, even if it is a day with big gains like last Tuesday, will only postpone this inevitable decline and hopeful washout. I am obviously biased because I am holding shorts overnight, but I think the best thing that could happen is another gap open to the downside tomorrow with continued selling. We need to get some fear. We need to get some panic. If that happens, although it may be painful, it will get ever closer to those ultra-extreme levels from which we may be able to get a meaningful bounce out of. If we get to those levels, I would probably look at putting on some swing longs. As it is, I think you stay in cash if you are not already short here, and I may even start covering my shorts tomorrow. It's too risky to do much of anything new right now. We'll see how it goes. Be careful out there because we are getting to one of those weird points where anything could happen. I am taking the day off work tomorrow so I'll try to post some thoughts on Twitter intraday. Best of luck.

State of the Market - 3/2/09

More bad news brought more heavy selling today on Wall Street, as futures were down pre-market and stocks opened sharply lower on news of the largest quarterly loss in history from AIG (great investment, government!). The market tried to bounce quickly after the open, but couldn't, and from 10:00 - 2:00, they did nothing but fall steadily. Another attempt at a bounce was put in around 2:00, but that didn't last either, and the selling resumed into the close, with stocks closing at their lows for the day and with heavy losses. Volume was lighter than Friday but above average nonetheless.

Technically, not much to say other than "yuck". We clearly broke down out of the descending channels I showed in the video this weekend and that should lead to lower prices. The November lows are a distant memory for the S&P, and the Nasdaq has only about 30 points before it tests those levels itself around 1295. About the only good thing I can say is that we are getting closer to extreme levels in terms of overbought, both in my numbers and on my oscillators. However, we are not there yet. That means we could still see more downside over the next few days. Heck, the VIX hasn't even made higher highs yet for the year. We could always bounce, but I am getting the sense that people are starting to realize that there is nothing the government can do to save the day. That's why I think we could continue to fall here much like October 2008 even though we are oversold. Eventually, we will get to a point where buyers come in, but I don't know if we will get one of those government-induced spikes anytime soon. (Probably jinxed it, right?)

About the only positive coming from this steady selling is it is likely getting us closer to a true bottom from which we could put in a strong intermediate rally. I am not saying it is right around the corner, but I get the sense that finally, people are starting to throw in the towel. I hear a lot of people talking about a crash and virtually no one talking about a bounce. I have read that bear markets end when EVERYONE has given up and stocks are the very last thing that anyone wants to talk about. I think we might be getting close to that point. We still have yet to have a true capitulation event in my opinion throughout this bear market - government induced spikes don't count from my perspective - and maybe that's what we need. I've said this before several times in the past year or so, but I get the feeling that type of event may be setting up here. Hopefully this time will be a TRUE capitulation without outside interference. We shall see.

I did make some trades today based on the ideas I showed in the video. The first one was not good - I covered my ITRI short at $42.90. I say "not good" because there was absolutely no reason to do so - I just wanted to protect a profit. I ended up with a gain of over 8% on the short, but I still should have held on longer - I showed a great lack of patience here. I guess I expected a bigger selloff at the open and when it didn't happen, I feared another bounce. I should know better. After that, I redeemed myself a bit by entering SDS at $102.50 and QID at $63.52. These were both large positions. I also entered a short in DLR at $28.60 - also rather large. So far, these look good.

Although today was good, I still feel overall that I am not trading as well as I should be or can be. I can't place my finger on exactly why, but something just isn't right. I should be up way more than I am right now as my reads on the overall market have been pretty good. Psychology plays such an important role in trading. When I was writing about having our second child back in December and how it may affect the blog and my trading, another blogger who I respect and is a very good trader gave me a tip that he suffered a big drawdown after having his second child due to time demands and such. I don't know if this subconsciously affected me, but I keep thinking about that. Even today, I passed on a number of trades (SYNA short stands out) that worked out perfectly. Hopefully, over time, I will get my groove back. Maybe today is the start of that happening. Anyway, back to the market.

I will try to post some charts and numbers tonight to show you where we may be at in terms of this selloff. Just like in October, this thing could stretch longer than most think. I would not be thinking of trying to catch a bounce yet here, although taking partial profits on some shorts may soon be wise. I think the best thing that can happen tomorrow is for another awful day to occur. That will get us closer to that capitulation event. If we bounce tomorrow, then we are just extending the pain for a longer period of time. We'll see what happens. Good luck.