Tuesday, March 15, 2011

State of the Stock Market - 3/15/11 - "Perhaps a Short-Term Bottom, But It's Not A Given"

We saw a crazy, news-driven session today on Wall Street, as stocks were hammered at the open due to the Japanese (and other foreign) markets getting pummeled overnight.   The opening gap did prove to be the low for the session, as from there stocks rallied steadily throughout the rest of the session, taking back a large chunk of the early losses.   Volume was heavier as expected and it is possible a short-term bottom was put in today as a lot of complacency was driven out of the market with the gap down.   However, a bottom is certainly not a given, and I would tread lightly on both sides of this market for the time being.

Technically, there were lots of reversal bars printed today on both the indices and individual charts.   However, we are in a very news-driven environment right now and in this type of market, technicals and charts don't always matter that much.   If further bad news comes out tomorrow, the market could give back the bounce it had off of today's lows in a few hours.   You just don't know.   Since we are in at least a short-term downtrend, caution remains warranted on the long side.   Although the market may bounce further, until resistance is cleared via the short-term moving averages, I would be hesitant to get aggressively long at this point.   Keep things small and short.

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

As I posted on Twitter this morning, I closed both of my short positions this morning (QID at $56.31 for a 4.7% gain and SDS at $23.10 for a 5.3% gain) as it seemed like a good time to cover.   The gains were not that large, but they were both large positions so I will take the gains and am happy.   Perhaps I should have held for larger gains, but when shorting, it is better to take gains when you have them and move on.   Big gap downs are almost always great times to cover your shorts.  You rarely see gains of 20-30% when shorting - they are typically more like 5-10%.   I also felt that with all of the news affecting this market, cash was the best place to be overall.

For the rest of this week, I will continue to keep my options open overall.  I do see a few long plays that continue to hold up well (BOOM, SFLY, CVV, CPWM, RAX) and perhaps I may try one or two of those over the next day or so, but only in smaller positions.  One thing I know I won't be doing this week is shorting (unless the market bounces further and then fails at resistance).   It's too late to short at this point.

FCX - Perhaps a Good Sign??

Overall, caution is still key here.   We are (and I can't emphasize this enough) in a VERY heavy news-driven market and although the market is always unpredictable, these type of markets are even more unpredictable.   As an end-of-the-day trader, it is hard to be aggressive with positions with so much uncertainty and instability in the world right now, so I am fine with cash right now.   If I make any trades, they will be small.

Let's all hope that the issues Japan is facing now improve quickly, not for the market's sake, but for their sake.   If things do settle down, however, I wouldn't be surprised to see this market bounce back.   Rather than guess when it will happen, I'll just wait for it, that's all.  Good luck Wednesday.


Anonymous said...

hi mac
the 1st 30~45mins after the big gap downs are good to observe bottom divs and bet for intraday bounce too, if not greedy and with discipline, it always works.

thx for warning a ST bottom. for my TA, if dow moves below 11665 then it will enter oversold zone on daily chart.


Jake Perius said...

The market is in such a tuff spot. It wanted to go down on its own, which is a perfectly healthy retracement, but with all of this news on the crisis in Japan and civil unrest in he middle-east, technical analysis is almost useless as we investors and traders are at the mercy of the media. At this point, it is almost best to stay at cash until the market is free from media control.