Wednesday, November 19, 2008

Technical Picture - Support Broken

Weak data was no incentive for buyers to follow through on yesterday's late day bounce so we stalled at the 38% retracement and prices reversed (nothing new) and retested range lows. The FOMC minutes reminded us how bad things really are and provided sellers the edge into the last hour.

High level of short expiration put buying ahead of OPEX Friday.

The VIX still feels like a bear flag despite the MACD crossover. That could change if we get follow through on today's sell-off.

4 comments:

Tom T. said...

Jamie,

I read an article today on how over 101 stocks on the S&P500 are trading now under $10. I have paper traded or daytraded for just under two years now and I am noticing that many of the stocks I traded before are under $10 and I fear we are running out of quality stocks to trade. Is the universe of high volume, decently priced stocks shrinking to the point it will soon be difficult to daytrade? For example I have generally shied away from trading anything under $12 to 14 a share - right now I am not noticing a lack of stocks but as more and more stocks trend to below my filter - I am concerned that daytrading opportunities will dry up assuming the market drifts around 8000 over the next 18 months as many predict - is this is a legitimate concern? What are your thoughts? -Tom

Jamie said...

Tom,

It is a concern, but mainly a psychological one at this point. Decently priced stocks have diminished but liquidity, is intact thus far. The reason we don't like to trade stocks under the threshold price, is that under normal market conditions, these are usually small caps which are generally less liquid and less orderly than large caps.

If the 18 month trading range scenario were to develop, this would become a problem and the number of day traders would diminish as well, just like they did in the 2001 bear market.

I'm trading less as my watch list gets smaller, but, I have been able to compensate with futures and ETFs.

My gut feeling is that we will capitulate in a matter of days, possibly as early as tomorrow. After which, we should get a bear market rally that brings prices back up to the 50 SMA. Presumably, that would get a good portion of the 101 stocks back above $10.00.

Over the course of the next 18 months new leadership sectors will emerge and the old favorites will be replaced with new ones. That should give a boost to the universe of tradable stocks.

Jamie said...

Edit:

We may capitulate as early as today - Thursday Nov. 20th.

Tom T. said...

Jamie - thanks for your thoughts - I appreciated the reply - Tom.