Monday, February 8, 2010

State of the Market - 2/8/10

We saw absolutely no follow-through today on Wall Street to the supposed bottom put in on Friday's reversal, as stocks started lower, tried to bounce back, but could not do so. Highs were hit around lunchtime, but from there stocks simply fell in an orderly manner, closing at their lows for the day and with decent losses. Volume appears to be lower but that is the only consolation out there for bulls.

Technically....well, technically, I am trying not to put too much stock into the way the charts "look" right now because they are a mess. The reversal on Friday more than likely stopped out quite a few shorts (like me) because on the surface, it did look bullish, but we saw absolutely no follow-through today from the bulls. After today's session, from what I see, Friday was most likely nothing more than some short covering before the weekend. Potential reversal bars are not actually negated until they are broken to the downside, but today was not a good showing at all and I am leaning more bearish after today's action. If we somehow bounce again, I would expect 2165 and 1080 to act as resistance on the Nasdaq and S&P respectively and if we happen to get to those levels (around the 9 day moving average), I would look to short. I doubt we get there, however. I still think we see the 200 day moving averages over the next few weeks and perhaps even lower than that.

I think we are in an environment where you just kind of have to pay attention more to how the market is acting rather than just looking strictly at the appearance of the charts (perhaps that's always the way it should be). Two Fridays ago the market sold off hard on what looked like great GDP and earnings news. All three of the bounces we saw last week were on lower volume and appeared to be weak. Thursday's selloff was the largest in quite a while and on very heavy volume. Friday's reversal came on less than climactic volume and it seemed to me that many, many traders expected that to be a short-term bottom. Today we saw no follow-through and more selling. All of these observations add up for me to a market that is still very bearish and more likely to head lower than higher (regardless of how the charts look). These observations were more important in the grand scheme of things than the reversal bar we saw Friday. I just wish I saw this insight Friday and stuck by it.

As for my trading, I was stopped out of my NYX short this morning at $23.41 - my stop was run and it immediately reversed lower. I had a 2.3% loss on that one. I was not able to be at my computer for the open so I had a trailing stop set. I am still holding BCS short and it is looking fine - I am up about 4% as of now. I didn't short anything today although I wish I was still in some positions I had on Friday like FAZ and SRS - those look very nice. I will be looking hard tonight to find some nice setups on the short side because that's where my focus is after today.

Today's action makes Friday's reversal look like a blip overall, one that likely threw off a lot of traders (because that's what the market and the institutions that run it like to do to traders). I guess it's still possible we bottom somewhere around here, but I would need to see clear signs of that happening, and right now I don't see any at all. I am certainly not going to guess and try and pick a bottom - give me evidence of one and then we can talk. Until then, I have to stay bearish and look to play that side only, and I see a few out there that look pretty good. Ideally, a few quiet days would help these short setups even more, but who knows if we'll get that. Take care and good luck tomorrow.

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