Monday, March 7, 2011

State of the Stock Market - 3/7/11 - "Stay Away"

The title says it all.   The stock market remains a mess and today was a prime example of that, as stocks fell sharply throughout the morning hours, but took back a large portion of their losses by the end of the session and finished off of support and in the middle of their intraday range.   The 50 day moving average was broken early on the Nasdaq, but by the end of trading, that support had held...barely.   Overall it was a real mess and a day that I am not sad that I missed.
 S&P 500
Nasdaq
Charts from Telechart, Courtesy of Worden Brothers, Inc.

I went into the day with the mindset that there was no point in making trades until the close anyway so I really didn't follow the market too closely.   I checked my twitter feed occasionally and saw a lot of bearish talk early and a lot of "bounce" talk late.   I think the majority of traders are rather confused right now and I can't blame them.   There have been so many reversals recently and so little follow-through that predicting what to expect the next session has simply become a shot in the dark.

What makes this market extra difficult right now is there is still a lot of "headline" risk out there.   Earnings season is pretty much over so there is little catalyst in that regard to push stocks up or down.   Oil and the Libya situation seem to be the story and if you somehow know when that will be resolved and how it will end up, then please change your name to Nostradamus and get it over with. 

Oil has had a major run over the past week and is very extended.   You don't think that it will have a mini-crash if we wake up tomorrow and find out that Gaddafi is dead??   You don't think shorts will have their faces ripped off in the short-term if this happens??  This is what most people seem to think will happen, but the when is the hard part. This is one reason that shorting is really not that attractive to me here - it think there is more risk to it (than normal) and less possible reward (than normal).

On the other hand, what happens if the idiot over there somehow destroys a major oil field overnight?   Oil spikes even further and we get perhaps a really, REALLY bad selloff and all the dip buyers get slaughtered.   Not very fun.

I don't know - from where I sit, this just doesn't seem to be a time where making big, aggressive moves is very smart.   I told someone in an email today that there are ALWAYS opportunities in the market, but there are not always GOOD opportunities in the market.   It took me a while to learn that but I think that's where we're at right now. 

I may end up missing a big move up or down the rest of this week, but I would rather be a little late on a move than be chopped to bits by this current market, so I am fine with it.   If the Nasdaq closes below its 50 day, I may start nibbling at shorts.  If we get above 2800 there, maybe I'll start looking at longs.   In the meantime, we're going nowhere and because of that, cash in my opinion is your best friend right now, perhaps until the headline risk dissipates.   Good luck Tuesday and please be careful out there.

1 comment:

bmbull said...

Uptrend has slowed, no downtrend yet -- indices stuck in a two-week trading range. I think your cautious stance is justified. And we don't want to get our "faces ripped off" now, do we? Ouch...that sounds painful.