Thursday, February 4, 2010

Let's review the carnage

Well, the title of the post says it all. That's what today basically was - the carnage of the bulls on Wall Street.

Did we see this coming? Oh, definitely! Saw it coming a mile away. I had been going on and on about the bearish volume pattern for a weak now. Most of did expect a weak bounce today to MA(50) and down again. And as usual, the market likes to be two steps ahead and started the downturn before that.

I knew something was amiss last night and today was going to be "special" when I saw futures down even after the bullish Visa and Cisco results. So, I posted a short watchlist after initially posting a long one. Anyway, what's done is done. So, let's have a look at the major indices and try to figure out the extent of the damage and what possibly lies ahead.

Lets start with DJIA. Impressive volume today continuing with the tradition of last ten days or so of higher volume on down days. Some support in 9700-9800 area but not a very strong support. The next major support I see is the MA(200) in 9500 region. A very bearish chart overall.

Moving on to S&P 500. Again, heavy volume to the downside. Compare today's volume to the volume we had on the two up days earlier this week. 1070 was broken today.

Next support - 1030, 1018

And finally the NASDAQ. Its a better looking chart than S&P and DJIA but that's not saying much. Just have a look at the volume pattern and you will see what I mean by this was seen coming a mile away! Of course, the exact timing is another matter.

We have the job reports tomorrow. If we have a surprisingly good number, maybe we get a bounce of some sort. But in case any such bounce happens, again keep an eye on the volume associated with it. Chances are any bounce would be an opportunity to sell your longs and go short.

Personally speaking, I didn't get time to watch the market today until it was already 200 points down and that too for a few moments only. Its been that kind of week at work. I am kinda disappointed I missed the action today as I would have expected myself to open short positions once 1085 was broken and add to them once 1070 was also taken. I got "limited" out of my IVAN position at 3.39 in the morning. The regular readers of this blog will notice that I have kinda learnt from my mistakes two weeks ago :).

I hope none of you readers got hurt too badly today. As a short term trader, one should never let the losses get so high that they do irreversible damage to your account. That's the beauty of being a short term trader - The market gives us numerous opportunities everyday but it is up to us to always try and keep ourselves in such a position that when the opportunity arises, we are able to take advantage of it.

Take care and good luck out there!

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