Monday, June 6, 2011

Extremely Bearish Action But Also Extremely Oversold

Well, this weekend I discussed the 2700 number on the Nasdaq and how we are getting to levels where an oversold bounce could certainly occur.   After today's bearish action, we are certainly there.   The chart below shows the indicator I use to track the overbought/oversold levels and since it has worked well recently, I am watching it closely here.   I am tempted to take a position here in QLD or SSO but may wait until tomorrow.


My Oversold Indicator
Chart from Telechart, Courtesy of Worden Brothers, Inc.

We are as oversold as we've been since March 16, when the market had a big selloff and then bounced back to put in a decent two to three week rally.   I don't think the same thing will happen here in terms of length, but we could definitely see a relief bounce that lasts several days.   I don't think it will amount to much more than that.  Longer-term, the market is obviously in correction mode and there is no reason to be trading the long side for anything other than a one or two day trade.

Personally, I am quite frustrated because I have not traded well this week.   Scratch that - I guess I should say I haven't managed positions well this week.   At various points over the past five days, I've been short BEXP, ARUN, DECK, AG, and APKT - all good short setups.   If you look at the charts of these five today, you would expect me to be quite happy.  For various reasons however, I was stopped out of them prematurely and didn't get any of the benefits of today's drop.   One (DECK) was completely my fault when I placed a market order instead of a stop as I was rushing.  Dumb unintentional mistake but one that cost me perhaps a 10% move.  

Getting stopped on the other shorts just kind of happened.  I use the 9 day moving average as stop level for most shorts (just like I do for longs) as it usually works well, but for the other four shorts, that level was broken and I was stopped out.   Not much I can do about it - not being able to follow positions minute by minute makes using stop orders important, but sometimes you get unlucky so to speak. 

Hopefully you have had some better luck this week but it's been a tough market, no doubt.  I ended my video yesterday saying my outlook was short-term bullish, but longer-term bearish and I think that remains true today, although I would add the words "very cautiously" to the bullish part.   We should see a relief bounce soon but maybe only after another intraday selloff.   I would be looking to cover some shorts if we happen to get a morning selloff tomorrow.  Good luck Tuesday.

1 comment:

Anonymous said...

Re market order, it happens to us all - yesterday I mistakenly bought instead of shorting....following smugly as the stock dropped and just couldn't work out why I was losing money....