Are we there yet?

Posted by downtowntrader | 9/17/2008 09:17:00 PM | 0 comments »

We started to get some panic trading late this afternoon, with several fear based indicators starting to hint at a low forming soon. T2108, which is my favorite indicator for signaling intermediate term bottoms closed under 20% today. The VIX closed over 30 as well. The Put/Call ratio was at a level consistent with overwhelming fear in the market and new lows have been at that level as well. The question is, are we there yet? As much as I trust these signals, I get the feeling we're not there yet. The market has to prove that we're there, and that means some sustained buying. A lot of traders have been burned recently, and I have a hunch that plenty of people are on margin calls and will be looking to sell once they "get back" some of their losses. Also, everytime the market is near a real panic, the Government intervenes and manufactures a low. These false bottoms end up just prolonging the inevitable and making it worse, by not allowing a real flushing of weak hands. The way I see things playing out is a sharp rally occuring at some point in the coming few days. I doubt we will get a rare V bottom, so it should eventually roll back over and have the critical retest, and possible bottom. Once that occurs, I will be more interested in getting long.

I did cover most of my shorts today, as I like to cover when t2108 get's under 20%. Maybe I'm missing out in the case of a real market crash, but I prefer to play it safe. One thing I will try to avoid the next few days is getting anxious on the long side. One of my faults is getting greedy and trying to get in early on a bottom. Even now, I am seeing plenty of bullish looking charts, inspite of the more common massacred charts. My plan right now is to start building a list of bullish charts that have not been damaged, so that in the case a bottom does form in the coming weeks, I will be ready. A few on my list already are bke, odfl, vocs, bwld, hubg, afam, cnqr and wbsn.

The longer and deeper this weakness lasts, the more likely we will set an important low.

Good Trading,