Wednesday, September 21, 2011

Mid-Week Outlook - "Big Breakdown - Will It Continue?" - 9/21/11

Although it was very volatile, today was a nasty session on Wall Street.   The Fed decision came and went and by the time the market closed, the Nasdaq was down sixty points, most of which came after the decision was announced around 2:15.   When you look at today's action as well as yesterday's nasty afternoon reversal, things certainly look very bad for the bulls here.   Key technical levels were broken on all indices and my main signal went back to a "sell" (for what it's worth because it's been flopping back and forth around like a fish out of water for the past month or so.)   Certainly caution is very warranted here.

 Chart from TC2000, Courtesy of Worden Brothers, Inc.

I went into today with two shorts, but hold only one right now.   I am getting very frustrated with this market as an end-of-the day swing trader because it is virtually impossible to string together a series of good trades right now with this volatility.   BEXP broke above key levels today and stopped me out early, but then fell straight down later.   I was also whipsawed in a gold trade (DGP) today as a "breakout" above moving averages was quickly reversed.   It is what it is I guess and I don't want to complain, but I really wish we could get a reasonable trend going that would be easier to swing trade.   Perhaps today is the start of one. 

I do have my doubts about that last statement however (short-term).  This is the kind of market that although today was very bearish, I would not be at all surprised if we were up 50-60 points on the Nasdaq tomorrow.   There doesn't seem to be any rhyme or reason to anything that is going on day to day.  I see a lot of potential short setups here (COH, DKS, NE, CTSH, RAX, the aforementioned BEXP, DRC to name a few) but we are also a good bit oversold by my main measurement here so I am hesistant to get aggressive right now.   There is also the well-known phenomenon of  the post-Fed day often being different from the initial reaction to the Fed moves, so we have that to worry about tomorrow as well.

I think we're at a point where we are going to just fall off a cliff here and chasing shorts will finally work (chasing anything hasn't worked for over a month) or more whipsaws are coming and the market will frustrate all of us for another week or two.   I don't think we'll see a mild, slow decline here if it happens.   If you're OK with the possibility of getting whipsawed here, then go for the shorts.   It looks like a high risk-high reward setup at this point.  Personally, I am so frustrated anymore that I don't know if I can go for it or not.  I may just sit with my one short and wait for a better risk/reward.

Good luck tomorrow - the only thing that would surprise me is if Thursday is a quiet day.   Be ready to go on the short side but keep your stops in place because it is still "that" type of market.  

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