Of all the stocks I track:
3896 Closed Down with Volume Up. This can indicate an oversold market, but that is usually after a trend that lasts, well longer then a day. In this case it indicates panic selling and on a dominant scale.
1979 Closed Down with Volume Down-this is the theme P/V relationship of a bear market
Only 741 closed up, in both P/V relationships combined.
All 30 Dow stocks closed down
98 of the NASDAQ 100 closed down
And amazingly, of the Russell 2000 stocks, only 47 stocks closed up of 2000 (or thereabouts).
Volume was up over yesterday, but not anywhere near a capitulation moment.
$109 was a crucial level
We closed today very close to $109, below $109 and we have lower lows; lower highs, lower lows define a downtrend and many trend traders are likely to have stops in at $109. The next level of consequence is $104 and at this level you want to be fairly loaded to the short side, at least I do. Below the lows of June at $101, I want to be 75% short and 25% in cash for opportunities.
In after hours we saw prices below $109, I don't know what to make of that being we have this on the chart....
This is a 5-min 3C positive divergence at the EOD. This suggests there is accumulation occurring for the purpose of a bounce. Many bulls will be relieved and buy into a bounce, right now they are living on hope and as the Marine corps. say, "You can hope in one hand and spit on the other and see which one fills up first". Sorry ladies.... The point is, the play will work and catch Bulls and make more money for institutional money. Does after hours enhance or negate this, especially with the way after hours trades. This divergence doesn't have to play out in the morning, it could build tomorrow to launch at some other point.
I want to share a quick story on After Hours trading and how dangerous it is. I've had a couple things happen, I've wanted to sell 100 shares, looked at Total view, saw 100 shares at the price I wanted, filed a market order, got a partial fill of maybe 10 at my price and then the rest at quite unfavorable prices, that's how fast the bid/ask can change in an illiquid market when it needs to.
I also had a stock, a bio-tech that was to get an FDA letter with regard to some trials they had run on their drug, I was not using 3C at the time, but based on the charts, I thought it looked like good news would come into play. My trading partner in New York instant messaged me and told me the stock that had closed around $10 was seeing bids for 5 and 10,000 shares, he sold a couple hundred shares at $10.50 so I went in the market and lifted the ask to $11.00 on 100 shares, it got hit. I then put another 100 out there, I noticed the 5/10k bid moving around a lot, $10.50, $11.00, $10.25. Then buyers started flooding the after hours market. Volume went way up. I got out of the rest of my position around $10.75.
The next morning the bio-tech got their FDA letter, it was not a "No approval" instead it was a request for more tests, the stock was cut in half in one day. The FDA letter had been leaked, smart money bought some shares, flashed some big bids until everyone noticed and started buying assuming there would be a positive outcome, all the while smart money sold into that demand in after hours. It was a big game and the small guys got gamed, paying 10-15% more in after hours for a stock that would trade at $5.00 the next day. This is exactly why I don't trade after hours, you need to specialize in that kind of trading and you need to know every participant in that stock and how they act, it's not worth it. It's also why I don't watch level two or Total View, there's too many flashed bids pulled or asks.
If you have been here awhile you know I've been bearish. You also have probably heard me say, "Whatever the initial reaction to the Fed, it is usually reversed within a day or two. that's what happened today-again. I can't remember the last time this didn't hold true.
Finally, I said I would talk a little about owning inverse leveraged ETFs like FAZ vs. shorting a stock, say a financial stock since we are talking about FAZ. This is one of the beautiful things about being short. As you make money from a falling short, a portion of those proceeds can usually be used to finance other transactions or to add more to your short position-this is how you can actually make more then 100% in a short. Buying an inverse ETF, while you have short market exposure, you are long an ETF, you can't use proceeds until you close out the trade. However, the fact that they are leveraged 2-3x makes them compelling investments, but you must understand this-they are meant only to approximate 1-day's return, not 30. In a trending market this can work to your advantage, in a sideways/volatile market, this can eat you alive. Imagine, $10 is your cost, the ETF gains 20% in one day so you have $12, but the next day loses 20%-you are left with $9.60 not $10 because of compounding. You do that over and over for a month in a very volatile market and you can rack up serious losses, so be aware that can happen with ETFs. They are meant to approximate 1-day only and then reset. Still they can be effective tools if you understand that. For my inverse ETF's go to June 3rd of the June list. I would suggest blending real shorts with the leveraged ETFs.
Now there were some questions of taking profits today because of a possible bounce tomorrow. Everyone trades their own way, I am first and foremost a trend trader so unless I' using that 25% cash to trade around a position, I ride out the ups and downs and don't try to get too fancy trying to catch all the swings from day to day, here's a good reason why...
If you look, we had down days and you could try to catch the bounce but the last day of each of these shows a massive drop-I don't want to get caught missing that move trying to make a few extra bucks. I keep it simple.
Now, don't be surprised to see some intimidating up days, Wall Street will try to squeeze shorts out of their positions, just look back to the 2008 Head and Shoulders decline. Try to put yourself emotionally in the moment when you do. You'll see a week of up days and imagine how you would feel being short, you'd be scared, you might cover, but look at the trend and you'll see that it lost 50% from where we are now. If you ever get feeling like that, look at a 5-day chart and forget the noise, stick with the trend and understand this will happen in even the worst of downtrends.
As for tonight, I'm going to look for some trades but with so many down, it's going to hard to find good setups, a bounce would help us with that. Instead, make sure you look at the many trades that have triggered, if you are going to participate, you need to jump in at some time. Every trade listed last night is at a profit today. I don't expect to find much, not until we get a bounce and longs.... again, we trade with the trend unless we have a darn good reason not to. We are well on our way, the big events we have been anticipating are happening now. Be patient. Keep sending your emails if you have questions and when a trade triggers, take a look at it, anyone who did today is making money.
