Traders Create Their Own Problems

The stock market closed at the lows of the day. All of the major averages and sectors were abysmal. The NASDAQ 2109 level did indeed offer a momentary pause, but the Bulls were about as macho as a Richard Simmons exercise video. Simply put, it feels as if there's just no reason to step up to the plate and buy at this time.

The problem with the stock market is that tomorrow does not offer any more glimmer of hope. The media will still be sounding the death knoll on Hurricane Rita and no other positive catalyst will likely be available to alter the downtrend. The best the stock market can hope for is that Bullish traders attempt to move in early against each other, each trying to capture this dip. They will only step in as the time compresses between their entry point and the peak of market fear. Remember, day traders usually like to be exposed in their long positions for only a few hours. Any more time spent in the stock market than that will open them up for sudden and sharp reversals.

Managing time in the market is of the utmost importance in Day Trading School 101. As the risk for time exposure is reduced to acceptable levels, the migration into the market begins. Eventually other sidelined anxious Bulls notice the markets so called levitation and start to join the party. What started out as simply day traders jockeying against each other, morphs into something more substantial. The excuse for the late comers would be that all the bad news has been priced in. This phenomenon that is initiated simply by day traders looking at their watch is what creates the self fulfilling rallies that save the stock market from attaining the capitulatory rinse.

Inevitably the market later corrects and achieves even lower lows once the "late to the party" traders puke out their positions. This is the reason why downtrends seem to last much longer than expected and prior good support levels are not holding as well as they used to in years past. The day trading community has changed the characteristics of the stock market and needs to be noticed by any serious portfolio manager (more on this in future posts).

If You Held a Taser to Our Head:
The trading community is a force to recon with. Therefore, after careful consideration, we have determined that the "feel good" price targets on the NASDAQ of 2185 may be temporarily unattainable. Traders are moving earlier and earlier against each other nowadays and this time should be no different. Begrudgingly we will be entering long-side trades on any weakness tomorrow morning. Yeah, we know…we're part of the problem.

See You Tomorrow

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