Thursday, February 4, 2010

State of the Market - 2/4/10

Well, I've been looking for a clear sign as to where we go from here, and we certainly got that today, as stocks started weak and stayed weak, falling sharply up until lunchtime where they flattened out a bit. They moved sideways for most of the rest of the afternoon until the closing hour. They fell further at that point and closed at their lows for the day with very large losses. Volume was heavier than yesterday but does not appear to be as heavy as last week.

Technically, the recent lows were broken with ease today and it certainly looks like we are going to test the 200 day moving averages on both the Nasdaq and S&P around 1017 and 2018. There are two levels of support at those levels so I would expect a bounce, but it could be a sharp fall down to those levels over the next few days. The Nasdaq also sliced through a six month ascending channel and that should be meaningful as well.

Chart from Telechart, Courtesy of Worden Brothers, Inc.

In hindsight, I guess the weak volume did matter on Monday and Tuesday, and to take back what I said Tuesday, maybe we are in a different market. I had serious doubts after Tuesday thanks to all my bad memories from 2009, but now that the bears have taken full control of things, I have to go back to my previous thesis. This is not a healthy market and we are in full-fledged correction mode.

Sector-wise, there was a ton of damage across the board as well. Financials broke key support around $14 and although they do have some support close by, it looks like these have officially broken. Leading names in the group like JPM look like death as well. Oil and gold were both destroyed, and look like they will go much lower, with gold slicing through extremely key support with amazing ease. Retail, real estate, semis - you name it, it was blasted today.

As for my trading, I went back into two short positions this morning via FAZ (@ $19.65) and SRS (@$8.13) as I saw the market tanking. I know in my year-end review I said that I was going to try and stay away from the inverse funds - some of you have pointed this out - but these positions are for the IRAs and there is no other way to go short in them. I am trying to avoid them in my personal account. I have my short in COH and that does look like it wants to go lower. I added two more shorts at the end of the day - REV @ $15.06 and NYX @$22.95. I want to see some immediate downside follow-through however so I won't hold these long if they reverse higher.

Today stunk in a way because I would have been sitting very pretty if I didn't mistime my short trades from earlier in the week. I had the right idea in terms of shorting but just simply did it too early (boy, it would have been nice having those FAZ and SRS positions today from my original levels on Tuesday). I guess I could have held the losses a bit longer to see if they reversed back down like they did today, but that's usually a recipe for disaster. I believe getting stopped out of those positions affected me and made me a little gunshy to get short again, which obviously was a mistake. Not much to do however now however except hopefully learn from it and move on - that's basically the life of a trader, because even if most don't admit, you are always going to make mistakes in this game.

Tomorrow should be interesting - I believe the jobs number should be out and although we could always bounce on a surprise number, I think there is just as good a chance any number gets sold off hard (remember last Friday's GDP number???). Playing defense and shorting when possible is the name of the game for now until we get down to those 200 day moving averages. If and when that happens, I might change that outlook, but we're not there yet, so it doesn't matter. Good luck and be careful out there.

1 comment:

Anonymous said...

I enjoy your posts and read daily. I follow a large number of economic blogs and find yours to be refreshing in its honesty. I relate to your comments about the psychological aspects of trading as well as your market observations. I've resolved to trade the market we have not the one I want.