Wednesday, March 16, 2011

State of the Stock Market - 3/15/11 - "Worse Than I Expected"

We saw a nasty session today on Wall Street, as stocks started the day with the feeblest of bounce attempts and soon rolled over.   A little before 11:00, the Nasdaq fell almost 40 points in about 15 minutes on some bad news from Japan, and that shock move kind of set the stage for the rest of the day.   Stocks quickly rolled over again, bounced weakly through lunch, and then fell hard once again in the early afternoon, breaking yesterday's morning lows.   There was a bounce back but that rolled over somewhat as well during the final hour of trading, and stocks closed with large losses once again.   Volume was very heavy as well.  It was quite the negative session given the reversal shown yesterday.

Coming into today's session, I have to admit that I expected a little bounce off of yesterday's action.   I didn't know if it would amount to anything, but I thought the market might be up for a few days before weakening as it approached resistance.   The swiftness of today's selling and how Tuesday's bounce was given completely back and more is a very, very bad omen for this market going forward.   For a while, I expected any pullback we saw to be relatively minor (maybe 8-10%) and that stocks would eventually right themselves.   After today, I am changing those expectations. 

Based on today's action, we seem to be looking at a correction that could last a while.  My signals have been on a sell since 3/10 (actually it was 3/7 but I didn't act on it until 3/10) and it's time to completely respect those signals and not try to guess something different. We are very stretched to the downside and any good news that might come out of Japan will likely cause a big short-squeeze, but I would now look at any bounces we get as shorting opportunities rather than buying opportunities for the forseeable future.   The overhead resistance continues to build and it is going to take a lot of work for this market to get on stable enough footing that I can trust going long in any sort of aggressive manner. 
Charts from Telechart, Courtesy of Worden Brothers, Inc.

When the market is ready to end this correction and start rallying again, it will give us plenty of signals.  We'll see some strong sessions with lots of positive breakouts.   We'll see volume come in on the upside rather than just on the downside.   We'll see the moving averages flatten or reverse back up.  Until those things happen however, defense remains the name of the game.  

Although I almost put some QID back on mid-day, I made no moves today and remain totally in cash.   That's still probably the best place to be as a swing trader right now and I am perfectly content.    It's too late to short (wait for a bounce) but trying to catch these falling knives is very dangerous - just ask those dip buyers from yesterday.  

My last long position was closed on February 28.   I hope you've heeded the warning signs this market has flashed for the past month or so and have not been damaged by the selling of the past few sessions.   My main motto as a trader is "Do No Harm" and there was certainly a lot of opportunity to do harm the past week or so.   Right now, sit back, let the Japan situation resolve itself a bit, and come back in when the market is presenting good opportunities.   There are very few at this point for swing traders.   Good luck Thursday.


DrVanNostrand said...

Mac the breakdown of AAPL is one more reason to be bearish (in addition to all the reasons you have stated) CANSLIMers know that the leaders are a primary indicator and one buy one every leader has cracked the only one still standing is PCLN

My short term oscilators are stretched bigtime to the downside (to the point where histrorically there is a very high probability of a bounce) so I am looking at buying into a gap down open but that would just be for a day maybe 2 day trade.

Mac said...

Yes, it took awhile but it does seem like the leaders are breaking down. AAPL had so much downside volume for so long compared to upside but kept grinding higher. No more I guess.

I wouldn't be surprised of any bounce over the next few days because as you said, things are very stretched, but keeping trades short is definitely a good idea.

SStrader said...

I totally agree about the market being too crazy and tricky to trade in right now. I want to wait until a nice trend starts again, whether up or down.

Are you looking for trades in smaller time frames right now Mac?