Tuesday, June 22, 2010

State of the Stock Market - 6/22/10

Another nasty day on Wall Street - stocks chopped around doing nothing for most of the morning and through lunch, but then around 2:00, the bears took control and sold stock off hard once again, closing the market much lower and below some key areas of support.

In terms of where the market goes from here, your guess is as good as mine.   The action was very poor today and could certainly lead to more selling as the bulls put up little fight around the support levels of 1105 on the S&P but support around 2265 held up slightly better on the Nasdaq although the short-term moving averages were still broken.  Some leaders have been hit the past couple days as well - take a look at NFLX, CROX, UAUA - some breakdowns out there.  A lot of my breadth numbers are back to being bearish. 

At the same time, the market is also getting into oversold territory in the short-term so chasing on the short side might be tough to do here.   Late last week, I was hoping for a quiet consolidation.   The last two days have been anything but quiet, but it is possible this is the pullback that was bound to come - it just turned out to be a very volatile one.  Although the past few days have been very ugly, I am not ready to dismiss the bulls yet.  However, if we get more selling like today over the rest of this week, then maybe the bulls are dead and everyone really starts talking about that head and shoulder pattern.   The next few days should be key.   

This post will be a little off-task because to be honest, I am frustrated.   I came out of my "hibernation" trading-wise late last week because I thought the risk/reward was good for some shorts - I took BEXP, CRZO, and FCX.   I highlighted a bunch of other names here as well.   Turns out that I was about two days too early on those shorts and I was stopped out of all my positions with small losses.   Take a look at some of those names I highlighted now - XCO, COG, CRZO, SII - all rolling over here now.

Since the shorts weren't timed right and the market kept going up, moving my indicators toward bullish signals, I went long two stocks yesterday in CVGI and YGE - stocks that had consolidated slightly and were not as extended as many others.   I was stopped out of both today for 5% losses (thanks in part to a horrible fill in CVGI).   I was about two or three days too late with my longs.

I wrote about a month or so ago about the market overall and how I really think it had changed and I am still feeling that way.  Maybe my trading outcomes this week is having an influence on me right now, but as of now, I will be going back to the sidelines as I still am not executing well enough to be successful.   You have to constantly adapt to any market in order to be successful as a trader and I am secure enough to admit that I have yet to adapt well enough to this "new" market.  That's the bottom line for me - I haven't adapted.  Since I have obviously not done so yet, I need more time to figure it out and that's why I am back in cash.

I thought an article from Doug Kass this morning put the current state of the market well when he stated....

"The disproportionate influence of high-frequency trading strategies has resulted in an increasingly volatile, trendless and often random market over the past several months -- difficult for most investors (especially a buy-and-hold kind) to navigate."

He goes on to discuss some adjustments he has made to his trading over the past few months in the rest of the article

Another article worth checking out on how to adapt to the "new" market was written by Brandon Rowley over at T3live.com.   It is to be honest a little depressing because it states that things are going to be much harder for traders in this new computer age, but offers some suggestions on how to deal with it successfully as a trader.  I will continue to share as I find articles that are worthwhile.  Take care and be careful - it remains a very tough market out there.


Phil said...

I think all swing traders are suffering right now. Even top guys like Mark Minervini went long in the past days and must have been stopped out today. I'm not sure if computers are to blame here; I think it's just that no one really knows where the economy is heading right now. Best thing to do is to trade small size and be patient but I hope it helps to know that you're not the only guy being stopped out all the time!

Mac said...

Thanks Phil - I know I am not the only one that is going through this but no one seems to talk about it. This is one tough market and has been for more than a few months. Everything that traditionally worked for so long is not working as it normally has so again you have to adjust.

positiontrader said...

Hi Mac,

I was just curious about what are the indicators that are telling you that the markets are approaching oversold territory as I am just not seeing the same. Thanks!

BTW, for what it counts, I think you need to go back to the post you wrote at the beginning of the year about the changes you will make this year. Take care.

Steve said...

Phil: I truly appreciate your candidness. This is how we learn from one another. For me (alone), I suck at shorter term trades and since I have a day job, have been better equipped to pick up on somewhat longer timeframes. Currently - rightly or wrongly - I am predisposed to short just because of values and what's going on around us. Time will tell. Thanks again for your outstanding work.

Mac said...

PT - I use RSI(2) as a short-term overbought/oversold indicator. It's not perfect (no indicator is) but it works fairly well - gives me an idea of how risky taking a position is.