Wednesday, October 24, 2007

Wide stance

Here's the NASDAQ closing ETF heatmap, suggesting which sectors may continue recovering tomorrow. For most of the day the map was uniformly red. The early money was made in the ultra short ETFs (not shown) .

EOD traders missed all the fun today as evidenced by the size of the daily bar tail. The Qs volume was the highest since Aug 16th and it looked for a while like the results could have been similar as the Qs dropped a full 2 points with the rest of the markets bleeding in like fashion. But the turn came, ending with the Qs down a modest .41 and again showing the NAZ100 the place to be. While DIA and SPY looked decidedly weak, the Qs continue to demonstrate resilience. While I like a little volatility to trade off of, these wide swing days have an inherent danger that the bottom can fall out while you're waiting for the turn. As a result, I have found it's safer to be a trend trader rather than a counter trend trader in these times. . at least until it's clear that the trend has indeed turned.
Similar EOD comments for the VIX. It could have been a calm inside day except for that 3 point tail popping through the upper band. Still riding well above the 16 DSMA (our 4 day target) on day 3, I'll be interested to see if the closing surge carries forth tomorrow. The markets are technically looking rather shaky and, as evidenced by the reaction to MER's earnings, are ready to sell down whole sectors in the face of weakness. The positive tone of last week's earnings reports has gradually eroded to the current situation of looking for the exits.

October has a historical pattern of high volatility. . the trick is not to get hammered by it.

No comments: