Panic Remains In Wall Street - Dow Flirts With 7500 Mark

I thought it was going to happen. Today, during what I like to now call "The Countdown" (last five minutes before close), the Dow was dangerously flirting with the 7500 line, which many believe is another threshold. We saw it get to 7506 and then quickly retreat, settling at 7552 at the close. If you were to turn your computer off at 9:30 (PST) and came back to check it after the close, you would not have believed it. Today, we had almost a 700 point swing, with an ending volume of about 528M (Avg being about 333M). So we are continuing to see an increase in volatility and an increase in volume, which mixture can ultimately be poison for the market.

Earlier, it looked as though we were going to rally. But at about 11, it all began to crumble. Then it really kicked into gear the last 30 minutes before close. Even though we look at awe at the close, is it really all that surprising? In fact, even in my post from last Friday, I talked about the very good possibility of reaching 6500-7500 range by tomorrow. Everywhere we look, even globally, there is no good news. The jobless count continues to go up, and financial markets continue to go away. The government is like two rival gangs trying to get along, and our retailers have no access to money to buy new inventory, even though the consumer probably wouldn't be buying it. The bad thing about it all is that I believe we, as the consumer, haven't even felt the effects of this crisis all that much. 2009 will be a tough year for most Americans and many other countries.

Well, not to be a Debbie downer, as I am sure many of you, like me, had a pretty successful day today. Sure, my options took a bath. Oil has just been crushed. Once it got under $50 a barrel, it was a free fall. I think oil will continue to struggle for the next bit, but I am still confident I should get a healthy bounce back up before my options expire. Apple and UYG was down with everything else. GDX remained down, but held well against the turmoil. In fact it was up close to 6% earlier in the day. Gold is just waiting to take off, it just needs some support from the rest of the market. This is why I play the options on the long side. As much as all of them got killed today, my losses were pretty minimal.

In the midst of all my down long options, I still came up very strong, because the bulk of my positions are in FXP, SRS, and EEV. I finally shaved a majority of my SRS, I mean how greedy can I get with that stock? We saw it get to $269. What can I say, Rock Star. FXP continued to rise, pushing its way towards $100. FXP was held back slightly today with rumors of China investing in their own agriculture market (only being up 8%, boo hoo, right?). These are all head fakes. FXP should be over $100 in no time. EEV was up a strong 13.5%, which gave me some good profits today.

Tomorrow will be interesting. After the close today, Dell beat market expectations with their earnings, which shot their stock up over 5% in after hour trading. Apple and Google are also getting some love in after hours. News like this could be just enough to propel a nice bear market rally tomorrow, especially for tech. However, we shouldn't underestimate the devastation of what happened during today's trading and also the downward pressure from options expiring tomorrow. All the news will be talking about tonight will be the Dow Disaster. This should bring down consumer confidence, especially in the stock market. However, my gut tells me we will probably rally tomorrow and it could be strong. We may see a new resistance at around 7500, temporarily, unless that is beaten tomorrow. In that case, we could see ourselves heading to 7000 real quickly.

Days like today are why I like to wait until right before close to make my move. The market's momentum was totally different earlier in the day, and could have fooled people into thinking that we were going to end in a strong green. Heck, I was fooled. But with our recent volatility levels, I can't pull myself to make any trades before 12:45pm (PST), unless it's at the open (which I don't do much). As much as I wanted to pick up some more long options before close, I couldn't bring myself to go anymore long than I am already. I may regret it tomorrow, but I will still make profits elsewhere. Playing the options on the long side has really paid off for me. I do not feel nearly as much pain on days like today.

These next few days and weeks could be real defining moments for the market. Days like today may send a wake up call to Washington to put their differences aside and grind down and find some temporary relief. Whatever the case, it will probably not last. There are too many pieces of the puzzle missing, and too many cooks in the kitchen to fix the mess we're in. Take some Advil when you wake up, because it could be another doozy of a day. Expect to see similar volatility and volume that we have seen the last few days. Happy Trading everyone and I will see you tomorrow.

9 comments:

  1. Anonymous Says:

    Hi it's me, anon again.

    I have got to ask you.. where do you get your news? I've been getting most of mine from yahoo/google finance, msnbc, bloomberg, but it always seems to be too late. Are there more reliable sources? Also, what do you do when the market closed? Are you researching the other markets so you can get a better grasp of what might happen the following day? I've been scouring everything I can get my hands on and I have little reason to believe that the market will see any resistance going down for a long time.

    I can't find any good news that would even start a turning point - only ones that may slightly delay it.

    Thoughts?

  2. Anonymous Says:

    correction* delay the downward trend.

  3. Finance Fanatic Says:

    There are a lot of resources available online. I personally like marketwatch and cnbc(although I don't care too much for Cramer). But I really do find and look at many different articles from different web pages. And top it off with what my gut tells me. I am also very involved in the Real Estate Business, so I have privy information dealing with retailers and the credit market, from being in it, that others may not have. I talk to banks, retailers, and corporate hedge funds everyday!

    This is part of the reason I saw great benefit in SRS months ago. There are a lot of great blogs out there (I'll start listing a few of my favs).

    I agree with you about the downward trending market. But I find it very hard to believe that it will continue to go down without any upswings(bear rallies). Just from a technical standpoint, rarely does the market move straight down or up. I try and play the bumps. And with the market so volatile right now, those are big bumps. But from a further perspective, yes I believe there is little news that could turn this market around.

  4. Chad Gibbs Says:

    The market seems to have had some good fridays. Coupled with the good after hours in tech, couldn't we expect there to be a strong bear rally tomorrow? Do you financials might carry with that? Im trying to identify which single industry might be the best - and although I like tech, Im also feeling energy. Any thoughts?

  5. Finance Fanatic Says:

    I think everything might get a pretty good bump tomorrow, especially tech, gold, and maybe some financials.

  6. Bruce Says:

    More "good" news this morning. Talks of a Citi buyout,Dell up- Big rally today? Is there an upside etf that you like, FF? By the way, I'm more impresessed with your insights everyday.
    One thing you may be interested in checking out. I seem to have to hit the post comment button 2X to get it to send. Not sure if any one else has this issue.

  7. Finance Fanatic Says:

    Bruce, the only long ETF I really like for the short term is GDX. Even though I think both DIG and UYG are severally under market, I believe oil and financials are still vulnerable for the next few weeks (even though I own both). Sorry about the post issue, I don't know whats causing that. Watch out for today, even though we are in the green this morning, I could see a massive sell off to end the weekend, (put I think we'll stay green).

  8. Anonymous Says:

    I am curious about your strategy of waiting until the end of the trading day for your trades. How do you approach this? Do you follow the trend to ride it until the end of the day? Do you trade based on what you think that market will do tomorrow, or later that week, or do it some other way?

    I'm not looking for you telling me what to do, but I'm wondering if your approach might benefit my present trading style, which is in & out of inverse ETF's (as I don't have a margin account), generally within 1-5 days.

  9. Finance Fanatic Says:

    Anon,
    A perfect example is like what happened today. The market could have moved either way. Like I said yesterday my gut told me it was going to rally, probably pretty well. I wasn't satisfied at the mid day up 80-90 points.

    Then the last 5 minutes we saw what happened. The inverse ETFS got slaughtered. So I bought up some today. Even if it goes down more next week, I will just load up more (at the end of the day). I'm trying to buy at the peak of these bumps, which lately have seemed to be peaking those last 10 minutes. As far as selling, my strategy differs, but I usually sell at the end, or in the first opening depending on my positions.

    Look at the steepness of the Dow the last 4 days 10 minutes before close. Very steep.