Tuesday, August 9, 2011

No Playbook, No Game Plan For A Market Like This One

At 12:35 today, the Nasdaq hit a high of 2445, some 88 points (3.7%) higher than the close on Monday.   Over the next two hours and ten minutes, the Nasdaq went down 112 points (4.5%).   At 2:45, the Nasdaq hit a low for the session at 2331.   Over the final hour and fifteen minutes of trading, it gained 151 points (6.5%) and closed just a bit below Monday's highs.   This was on the Nasdaq, not the Dow. 

I have only been trading for six or so years so my experience may be limited, but I cannot honestly remember a day that was as volatile and unpredictable as the one we just saw.   I can remember days where the market went down a ton (don't have to think too far back actually for that one...) and I can remember days where the market went up a ton (lots of those big bounce days in the bear market of 2008).   I cannot remember a day with as many violent swings back and forth as what we experienced today.   We saw moves that over the past two to three years would have taken weeks being completed in minutes.   Absolutely crazy. 

I'll be honest - I haven't a clue as to how to play this market right now, and that is why I am still in cash.   The scans I normally use to find long candidates are not even applicable right now.   Scanning for oversold stocks is pointless because we reached such extreme levels these past few days that finding meaningful differences between all of these beaten down stocks is almost impossible - everything is "oversold".   Charts are as ugly as I have ever seen them and there are no such things as "patterns" right now.   I have noted the stocks that have help up "better" this past week in my TC2000 software but finding a reasonable trigger point for these is also almost impossible. 

We just experienced a historic and (based on many breadth indicators) unprecedented selloff and because of that, it is going to take quite a while for the market to get back to a relatively normal state.   It is fun to think about catching bottoms perfectly and I'll admit that I thought about that a lot going into Monday's session.  I was hoping for a big panicky washout from which to enter some ETFs for a short trade.   The setup I was looking for never materialized.   Instead, we got today.  I don't know that anyone was looking for what we got today.

Around 2:45, I honestly though the market was going to crash.   To see a market as historically oversold as this one give EVERYTHING back from its early bounce (and more) so suddenly was mindblowing (at least to me).   Then to see it move right back up so quickly was just as mindblowing.  As I watched a flag form intraday on the indices from 3:15 to around 3:40, I did consider entering an ultra ETF or two like TNA, but I still didn't feel I had an edge so I passed.   I also knew that there was no way I would feel comfortable holding anything overnight in this environment.   That may have been the wrong decision, but I am OK with it - the good thing about the market is that there will ALWAYS be opportunities in the future. 

We'll have to see what tomorrow brings - I really don't have a gut feeling one way or the other right now.   I wouldn't be surprised if the market squeezes its way higher tomorrow for another 3-5% gain, but I would also not be surprised to see a major reversal that puts us down another 2-3% as caught longs look for any opportunity to get out of losing positions.   The days after Fed days tend to be confusing trend-wise so we have that to deal with as well.  I still don't think there is an edge here - not for the bears and not for the bulls either. 

Longer-term, I will be looking to short any move we may see up toward the 9 day EMA for the indices, although a squeeze may push us a little higher than that.   A move into the necklines of the recently confirmed head and shoulder patterns would likely be a gift for us traders, as I highly doubt the damage done over the past two weeks can be fixed with a major v-shaped rally.  

As the title states, there is really no game plan for a market like this other than sitting it out.   I guess that's a game plan in and of itself actually.  Based on today's craziness, anyone but scalpers would have better luck at Vegas than they would on Wall Street right now.   Conditions will improve trading-wise in time, but for now, not much to do but watch.   At least it's interesting I guess.  

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