One of my favorite parts of trading is observing ridiculous human behavior. Only in the stock market can sentiment do a 180 within a two week period.
You could find dozens of more examples, but these two quotes stuck in my mind.
Today
In addition, Mark Mobius, a prominent money manager, declared that a new bull market had begun.
“You have to be careful not to miss the opportunity,” Mobius, executive chairman at Templeton Asset Management in San Mateo, Calif., told Bloomberg Television. “With all the negative news, there is a tendency to hold back.”
http://articles.moneycentral.msn.com/Investing/Dispatch/market-dispatches-032309.aspx
I think the quote by Mobius is silly and at best self-serving. At best, he is hoping for a bull market so his firm can stop bleeding market. Perhaps it is a stunt to get some buzz in the papers. If he can really make such a glib comment and mean it, it is proof he knows nothing about trading markets and only marketing and selling funds. Pretty disgraceful in my opinion.
March 5, 2009
“Civil unrest will break out before the end of the year. The Military and Guard will be called up to try to stop it. They won’t be able to. Big cities are at risk of becoming a free-fire death zone. If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go “feral”; witness New Orleans after Katrina for how fast, and how bad, it can get.”
http://market-ticker.denninger.net/archives/2009/03/05.html
I am a big fan of Denninger’s blog. I think his writing is top notch. On March 5th, everyone was feeling the panic. On March 2nd, I wrote about it as well.
http://chartsandcoffee.blogspot.com/2009/03/what-to-think-of-today.html
Perhaps Denninger got a little carried away. It happens.
My purpose is to demonstrate the extremes that have occurred in a matter of weeks. It is still March!
MARKET IS GETTING HARDER
On February 24, I titled my post “Easy Street.” My basic premise was that the market looked like it was entering into an easy trading period. While everyone might not agree that it was easy, it turned out to be an easy period of time for me to trade.
http://chartsandcoffee.blogspot.com/2009/02/easy-street-spy-esi-precious-metals.html
With the break above 805 today, I think the market is getting more difficult.
The bull case certainly looked better after breaking 805. Not only was 805 prior support, but the market tested it on the 18th and the 19th, fell back, and then blew right through today.
With that said, the bear case still generally looks pretty good.
- Volume was unimpressive today. Volume on the Dow was actually below average.
- Momentum is bumping up against its recent January high (as measured by RSI)
- $VIX is still resting nicely above 40.
- All the other government induced rallies have been great shorting opportunities during this bear market.
- The Dow, XLI (which was the beautiful descending triangle) and the QQQQs have not confirmed the breakout on $SPX. Could this just be a false breakout? Happens all the time. Remember, we did not have the volume spike today to confirm the move.
With the break of important resistance at 805, the overall trading range for the market becomes larger and thus generally harder to manage. The next really strong level of resistance is all the way up at 880 with some decent resistance at 850. Things would have been much easier if this would have been a perfect retest and bounced off of 805 and went lower.
Look at IYT. This is an important index and does not look bullish to me. Volume on the uptrend is much much lower than on the decline. IYT also looks pretty sloppy instead of tight and coiling as it reaches resistance.
More generally, looking at the ETFs, where do I see volume today?
XLF (financials), XHB (homebuilders), XRT (retail), IYR (REITS)
One could argue that this is the financials leading the market. Why do I not buy this theory and think this was mainly short covering? Because if this was the case, I still think we would see at least average to above average volume in the industrials.
We actually had below average volume on DIA, IYT, and XME.
So what am I doing?
- My AAPL short got stopped out today.
- My SMH short got stopped out today.
- I added to my SPY short at $80.25 and $80.70
- I added to my QQQQ short at an average price of $30.50
- I was trimming junk long positions throughout the day.
- Added a small amount to my DXO long position. I liked the breakouts on USO and UGA.
Because my junk long portfolio was off the hook, I was actually in the green today even with all of my shorts until I added those additional short positions towards the end of the day only to see the market break out. Still not bad, just a small loss even with the breakout.
I like to think it is because of my objective view and not because my portfolio is short that I am still playing this as a false breakout until the Dow, XLI and QQQQ confirm the breakout on $SPX. DIA and XLI had beautif
ul descending triangle patterns and are close to resistance (at $80 and $20 respectively). The QQQQ held strong at $31.80. I’ve set a stop order to cover part of my short QQQQ position at $31.80.
For me, the risk/reward here is pretty easy. The market is close enough to resistance on the Dow and QQQQs for me to stick my neck out a bit and play this as a false break until the other indexes confirm. For the reasons I mentioned above, I feel that relatively small loss I will take to wait for confirmation before covering is worth the potential risk of covering because of the breakout on $SPX only to see the market drop.
My IYT and XLU shorts are also near death so if the market moves up to 805 those guys will likely be goners which will lighten my shorts up a bit.