Wednesday, March 4, 2009

Hesitation or hopeless?

EDIT: My 100th post !!!!

Yesterday
Well it turned out as quite a day, not much from a trade perspective but the importance of yesterday was significant. I had mentioned that the 700 range should hold, or rather needs to hold here but after seeing the weakness in the morning I realized we will be in for a rough ride. Normally I do not post as much as yesterday intraday but someone said, when the market does not do what you think it is going to do, change your strategy.

This is what occured yesterday, one I was still with my 50% long I had held overnight and assumed the market would see the mid 710's before breaking down. This did not occur and I described in that comments that a breakout is imminent that could be either way. The market fooled me and showed me a fake breakout - but as always we need to wait for confirmations, I was ready to add more to my long position after the first breakout, my 15min pattern seemed to have been broken and it was ready to move up, however I did not see much continuation there and the market showed us what it really wanted to do and reversed the break out just to fall over.

I had warned about this before it occured as I saw major hesitation and too much selling - we broke the 700 towards the downside and remained there most of the day thereafter. If you follow the comments you can see that after the first drop the market was not quite done yet - we broke the first low by a few points before we found a bottom. While I am glad that my call for the low and the 2-3 hours under 700 worked out we were not able to hold on to our gains after our rally in the afternoon.

Closing below 700, while only a few points away is very bearish, yes yesterday could be considered a sideways day, something we were expecting but a close below 700 is quite bad.

If you have caught up on my long term review you can see I already moved up my low of the year target to September, if we do not manage to hold out a bit more here and break down hard this week we may have to move this target yet again and bring it closer. This month will give us great signs of how the rest of the year will play out as we have just broken major support and are nearing a major retracement.

Today
While we have been able to hold without further "major" drops off the 700 range you can see that the market is itching to go lower. I am still a believer that at least for the next day or two we should try to remain above the 700. I even dare to say that the rest of the week will stay above that line. Its a bit of a contradiction as we had closed at 696 yesterday.

Now why am I so strong on this 700 range - first, you can sense a bit of hope in my calls to remain above this range as I am fully aware of the consequences if the market is given an opportunity to break down - I feel the market will take this chance. However on the technical side, we have now cleanly broken away from the 741/7450 range, however have not given it a proper test as resistance. Major support points are normally always re-attempted as resistance. I feel here we may not see this due to the significance of the double bottom that did not occur, kind of like "why would you trade towards a range that gave the market a major failure?" - its an emotional thing again thats why I had hinted that the best case scenario this week would be the mid 730 range.

How to trade this?
Well you know how to, remain on the sidelines today until the market finds direction.

11 comments:

  1. congrats on 100

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  2. Happy 100th post! I wish you many more, and thank you for your hard work. :D

    I opened a small short this morning at the 710-711 level and trailed it for a small gain. I also think that the 700 level may hold today (held once already). I don't feel safe going long at 700 though, so I'm hoping we get out of this 11-point range. If not, it's gonna be a slow day.

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  3. thx =) and yes I am hoping to continue to improve my abilities and share it with everyone to add value to our strategies.

    I would love to see another low range day with small moves - the longer we can hesitate here the better it will be for the overall market place. Yes of course with big wide ranges and strong moves in shorter time frames we can make more money but its not about that. What good is it for us to make money when everything around us fails.

    If we can hold today there may be a chance for a bit more of an upday tomorrow, not something to go long with but a potential for a short entry. And yes after Monday and yesterday we can safely say that any longs carry great risks with limited gains and its best to remain on the sidelines until the market makes its move downwards.

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  4. let me go into more detail about the why I would prefer a low range day - its an emotional thing again. We have already given the 698 a test today and are now trending a bit higher - this puts the brakes on a little for the bears in the market that were hoping for the market to fall over, shorts will be covered and selling will be controlled. As a result it could occur that bears will re-evaluate and trade more with sense then with greed and emotions giving a bit of room for some of the bulls to bring the market towards a test of the major support that was broken - something again I feel will stall out before but a great short entry for us small guys to run it towards our major target of the mid 600 range.

    So today is wait and see =)

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  5. I'd also like the overall market to improve, and I would trade short-term profits for long-term strength. After all, I have some investments from the mid-90s that got hammered (MSFT, DIS, etc). I'm only 25, so at least I have time to ride it out.

    You think that hesitation here is better from the long-term perspective? It seems like we're going lower no matter what, and that we're going to churn for a long while. Shouldn't we just get it over with?

    Then again, I'm still very inexperienced... I started trading in December after I lost my job in the finance industry. I figured the real money to be made right now is in trading, not investing. I've learned a lot in the past few months, and I'm happy to say I'm currently profitable (thanks in part to this blog).

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  6. I understand that short-term upside will make for a safer and more profitable short, but I don't really understand how the hesitation will help in the long-term.

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  7. I had a long argument yesterday with a good friend of mine related to the markets. We all know that we are going lower, I mean thats kind of assumed. However, if we see capitulation type drops, the overall effect on the economy, sentiment, emotions will be very severe. The nation cannot stomach drops on a scale like we had in october, the effects on corporate spending, lending, credit will be devestating, companies will hold on to whatever cash they have, cut budgets, cut hiring and most importantly hinder inovation and growth.

    A steady controlled downturn will actually be better. Many are saying "lets get it over with so we can recover" however in this case that is not the right thing to do as it will cause panic and chaos. We need to ensure that we as people can continue making decisions based on objective analysis rather then driven by fear. Thats why the feds are doing everything in their power to "manipulate" and control - some say its a bad thing. I say its something that is needed for the sake of everyone else.

    And trust me, ther feds have a few more aces up their sleves, we think they are throwing everything at this problem but they are holding back a lot because they know as much as we do that the "big movers" (policies) need to be kept until we have fear coming back into the market.

    Many disagree with the administration on the money they are throwing at it, I have similar thoughts on what they are doing because I feel there are other areas that they can spend money on to improve but I 100% agree with the principle.

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  8. I had mentioned in my long term review that this month will be very telling for the long term. Take a look at the daily VIX chart. See where we are? On the edge of falling over again - if we do fall over fear will come back for everyone which causes a ripple effect not only on the markets but companies and consumers. Hesitating here will give us some breathing room and ensure that we are approaching our major retracement with a bit of sense instead of capitulation. This in turn will lead the path to a strong rally and recovery of those levels.

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  9. To take this a bit further (apologize for those long comments, much easier to talk in person). The 401K liquidations I keep on referring too. We have dropped severly this year already, if we drop down to the 650 levels FAST without any relief in between those 401K moves will have a lot faster and sooner. Consumers that are heavily invested are hopeful, thats all they have at this point, hope that things will turn around. Those are the type of people that cannot control emotions as good as many of us traders. When we all started do you remember your first losses? They were devastating, you just wanted to get out, be done with it, and never trade again (maybe not that bad). Now we can manage those emotions. However someone that has never learned to manage this will make rash decisions. Being at the 50% loss point where you can see those funds and investments eating in your "real" money (not that it was not real before), seeing day after day with more and more losses will spur more forced selling of institutions based on moves out of funds.

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  10. Thanks for the analysis. It definitely makes a lot of sense.

    I know the feds have a lot more they can do, and they have contingency plans ("big movers") ready to fire when the market is on the brink of meltdown. In that sense, the manipulation does seem somewhat healthy.

    I also agree that gov't spending is key to a recovery, but I don't like the piecemeal way we're doing it. It seems like we're heading down the same path that Japan did, firing bullets at a problem that really needs some rockets. I know this crisis is unprecedented, and firing rockets may not even help, but these bullets seem wasteful. Sorry for the poor analogy, and my opinion may be a bit naive. :)

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  11. Ha, my first trade was a 17% loss (2.5% of my portfolio)... talk about being hopeful and not managing emotions! Then I got sorta lucky and had 8 winners in a row... that got me hooked to trading! For better or worse, yet to be determined...

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