Auto bailout shakeout December 13, 2008

To bail. Not to bail. To bail. Not to bail. Friday's market gapped down big time on news the bailout failed to pass the senate on Thursday night. Then just hours later, rumours were surfacing about the White House stepping in with the TARP money. As of Saturday, FP headline reads White House holds off on auto bailout.

Since I'm no economist, I am not going to discuss about the auto bailout here. What matters to me is the market. As I was saying, the market gapped down Friday morning and even touched 851 in the first few minutes. However, it hacked its way back up to close positive at 879.73.

We managed to hold this critical 850 support level as I noted in Thursday's post-market analysis. However, I wouldn't want to add to the longs at this point because both of my uptrend channels have been broken. I feel that at this point, it is safer to watch and be more late into a trend than usual.

Specifically, I would like to see the S&P 500's behaviour around 860 or 900 (Figure 2), which ever comes first, before adding to my existing positions.

[caption id="attachment_971" align="aligncenter" width="500" caption="S&P 500 ETF"]S&P 500 ETF[/caption]

[caption id="attachment_972" align="aligncenter" width="500" caption="e-mini S&P 500"]e-mini S&P 500[/caption]

On a more personal note, my stops for DRYS and SKF were triggered on Friday.

On December 12, 2008 8:30:32 AM, my -\$1.0 trailing stop for DRYS were triggered (stop at \$7.90) and my last 100 shares were sold for a basement price of \$7.34. I have definitely been a victim by the market makers gunning for stops. As DRYS pushed higher throughout the day and closed at \$9.37 on Friday.

As I'm actually away on a trip for these few weeks, I don't think I'll re-enter DRYS until it clears the resistance at \$12. I simply cannot watch it as close as I would like.

In any case, I already unloaded half my position previously at \$11.11. So although I feel I've been ripped off with my stop, I believe this is overall still a good trade because I unloaded on strength and have set a reasonable (using my channel) stop just in case it turns back down on me while I'm away.

[caption id="attachment_973" align="aligncenter" width="500" caption="DryShips Inc."]DryShips Inc.[/caption]

My Ultrashort Financials (SKF) stop was triggered on Friday too. This one I am a little dumbfounded. I have set my trailing stop at -\$17 on the mark for SKF. The stop price of \$124 was triggered and my 7 shares were sold for \$124.09. Having bought at \$128.83 the previous day, this is a small loss.

Notice that giant opening spike in the chart below? This is yet another example of the market makers gunning for the stops. I believe I should have set a hard stop instead for this one since I'm using it as a hedge.

[caption id="attachment_974" align="aligncenter" width="500" caption="Ultrashort Financials (SKF)"]Ultrashort Financials

This is still a trader's market. Since I'm away oversea, I can't manage my account as effective as I would have liked. Setting the trailing stops was a safety measure. Although they worked against me this time, I still think it was a good decision given my circumstances.

Anyway, I am at 50% longs now with no hedge (not good). My other 50% is in cash. My primary short term goal now is to seek out a good short entry to hedge my longs. I don't think I have the guts to add anymore longs until I see more strength in this rally.