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State of the Stock Market - 8/25/10

|Includes: Power - One, Inc. (PWER), SPY, XLF

 A volatile day today on Wall Street, but a positive one for the bulls, as the trading was very similar to yesterday with the exception of the final two hours.   The bears followed through on the late swoon Tuesday by pushing stocks lower in the first half hour of trading, but like Tuesday, the bulls did bounce back and close the opening gap by lunchtime.   Stocks drifted lower for the first part of the afternoon, then bounced again.   This bounce, however, was much stronger than yesterday's, and instead of fading into the close, the bulls were able to push stocks higher in the final hour and finished with gains.   Volume looks like it will be a good bit lower than yesterday.

Technically, what happened today in the afternoon what was I expected to happen yesterday afternoon, with the bulls taking charge a bit and putting bullish tails on virtually all the indices and ETFs.  The Russell 2000, which I showed yesterday holding its July lows, never broke yesterday's lows today and looks alright.  Financials did undercut yesterday's and their July lows, but closed way above and that is positive.   The S&P and Nasdaq both also undercut yesterday's lows and finished positive for the session.   Overall, the potential is definitely there for a bounce given these bullish tails, but it is not a certainty.

 Russell 2000

The reason a strong bounce is not a given is because there is a lot of overhead resistance for the indices to now deal with, and that is what I will be paying attention to over the next few days.   My eyes will be closely watching the 9 day moving average, which acted like a blanket the previous two weeks on any bounce attempts we saw.   I am also watching the 2155-2160 area on the Nasdaq as that former key support could easily become key resistance. 

Charts from Telechart, Courtesy of Worden Brothers, Inc.

I was stopped out of my position in PWER this morning at $9.43, giving me a 2% loss.  That proved to be the low for the day, which was frustrating.   I do believe that getting stopped out and immediately watching your stock move back up is one of the hardest things to deal with psychologically as a trader.  

For my trading, the situation the past two days was quite frustrating, but also one of those ones you really can't do anything about.   I was a day early with my timing in terms of a potential bounce and when I got stopped out of all of my long positions so quickly, I was in no state to hop right back onto the horse and try to ride some longs again - I did not trust the bounce the second time.   The sell off late yesterday put too much doubt into my mind about a bounce really occurring and being worth playing, so today I did nothing.   I will probably do nothing the rest of this week to be honest.   My timing was off by about 24 hours and looking back, I probably would have traded the same way again if the situation arose exactly the same way. My idea and thought (cover shorts and go long) was correct, but I just acted on that thought a bit too early.  

You are always going to make mistakes as a trader and one way I know I have grown personally over the past year or so is that those mistakes don't bother me anymore.   It still sucks to make them and miss out on moves, but I accept them and move on, all the while hopefully learning something from them.   If you can't accept mistakes and let them eat at you, you will never grow as a trader and never reach your full potential.  

I start back at my full-time job tomorrow and with meetings all day, my trading will change a bit over the next few months.   For any of you that pay attention to my tweets on Twitter, there won't be too many during the day anymore.  As for my trading, I am 100% in cash right now and will stay that way likely for the rest of this week.   Today was certainly bullish but I don't think it guarantees anything.   A relief bounce here could last 3 days or 3 hours and you just have to watch carefully over the next few days for clues as to which of those two it will be.   I think a lot of traders are expecting a nice bounce which is one reason I am not totally convinced it will happen.   We'll see I guess.   Take care and good luck Thursday.