Busted Charts and Ongoing Trading


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Given what happened yesterday in the markets with the evaporation of bids leading to crazy down spikes in many individual names and the indices, I believe it is prudent to make some decisions about how I'll be looking at the charts produced by yesterday's action.

I will be ignoring for the most part anything that went on between 2:45 and 3:00. That said, my major level of support on the [[SPY]] will be found at 111 which was the low set after the spike backed up at about 3:02, everything below that I will ignore, there isn't enough volume there to matter in terms of people who took positions yesterday.

There are still a good number of stocks that are setting up with healthy patterns given their closing prices, keep them on your lists and do not be worried about the illiquidity induced sell offs in those names, I do not believe they represent the real supply and demand for those stocks under normal market conditions.

Remember people, stocks, unlike commodities, have intrinsic value. Companies have cash flows, book values, liquidation values, and even dividends. We as market participants are on any given day haggling over a relatively small range in what we believe the value of these companies to be.

At times, market forces do change that game and lead to a collapse in stock prices across the board. And sometimes, macro economic forces really do lead to a fundamental change in the fair value of many companies at once, a la the 2008 crash, leading to rapid changes in prices. I believe yesterday represents the former and not the latter; companies are still worth within 5-10% what they were worth Wednesday, those crazy prints on stocks like Apple ( AAPL ) do not represent the true value that all market participants believed to be fair, and as you can see, Apple closed down less than 4%.

So in conclusion, block out many of those long wicks on your charts. We are still in a dangerous market here, short term rallies should be sold into and shorted on day trading time frames if that is your trading style. I will wait for this market to show signs of being healthy again before I dip my toes back in.

See also David Einhorn's Greenlight Capital Bets on CIT Group and Pfizer, Takes Six New Positions on seekingalpha.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks , US Markets
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