Thursday, May 6, 2010

State of the Market - 5/6/10

I ended yesterday's short summary with the following statement...

"Good luck Thursday - the volatility right now is crazy and will likely continue.   Be careful."

Well....WOW!   I don't know what else to say about today.  My idea of crazy was not what happened on Wall Street today.  I was in cash and didn't plan on making any trades, so I really didn't watch the market too much this morning.   I checked Yahoo Finance at work a few times before and at lunch as I normally do, and then didn't do anything else the rest of the afternoon.   Around 3:00, as my workday started to die down, I clicked on Yahoo Finance and saw the headline "Dow Paring Losses After Plunging Almost 1,000 Points; Wall Street Hammered Amid European Debt Worries".   All I could say was, "what?"

I can't comment too much on the intraday action today as I wasn't watching it closely.   Anytime the Dow falls over 600 points in 10 minutes, you are obviously looking at something historical.   I don't know why it happened and happened so fast - computer trading probably played a part and I'm sure you'll hear a lot of explanations.  It was obviously crazy and I am sure a ton of traders got hammered.  I am sure a ton of stops were run hard today.  To be honest, I am fine with being in cash here.   I do wish I would have just shorted the break of 1180 and ran with it, but I really thought it would be a false breakdown at first and wanted to wait for a bounce.   Overthinking got me in trouble.

So where do we go from here?   Well, if you had any doubts about things being "different" this time in terms of a correction, I would say you need to reconsider.   A lot of damage was done to charts today and even if we don't move much lower than where we were today (which is a distinct possibility), time will be needed to make charts look better again.   There is little doubt we are in correction mode, and given the fact that I don't think this debt issue is going to go away anytime soon (on the contrary, it will probably only get worse), I think there is a good chance that this "bull market" from March 2009 has seen its highs for the forseeable future. 

If you want to try and be a hero here, that's your prerogative - you can try to catch a bottom soon, maybe even today.  I just think with all the headline news still out there, you may see more drops like you saw today at 2:35, so it's not worth the risk.  For me, as someone who can't watch the market each and every minute of the day(which after today seems to be an absolute necessity), trading right now just doesn't make much sense.  Bottom line - the market is too tricky right now.  Sometimes you need to know when to walk away and take a break.   This might be one of those times.   I will look to short any bounces we get because that looks to be the only real play out there, but my trading activity will likely be decreasing for a while if this type of crazy volatility continues. 

I hope this summary reads OK - I really don't know what to say on a day like today.   At least I won't have to do my scans tonight - no real need.  I guess I'll wrap it up the same way I did last night - good luck Friday.  The volatility is crazy and will likely continue.   Be careful. Be very, VERY careful. 

** Oh yeah, if any of you readers where the trader that got into MSPD at $3.00 today, let me know how you pulled that one off.   Lucky dog.

1 comment:

Jeff said...

Heck, even the motor mouth CNBC doesn't know what really happened. There is talk of canceling trades between 2:20 and 3:00.

At least for us option traders, some volatility has returned.