Friday, March 30, 2007

I Don't Like It - Cash Is The Way

I did not like the rally from the start this morning. Once I could see that it wasn't going to hold, I made the decision to move to cash. Even the bounce this afternoon was fishy as volume decelerated from this morning. There are several problems:

1. The market is uncertain about everything.

2. The markets rallied the 2 - 5% and stalled at their 50DMA as I thought they would.

3. Powerful volume breakouts failed to make similar price moves. (I know it's one week into a
rally, but at least some usually have powerful price moves.)

4. Other Breakouts were weak on volume or stalling.

5. With such a strong opening and no breakouts, that's a problem.

6. Leadership in the market is thin.

The major market averages will most likely try and test the 50dma ( 1- 2% higher from here)before going lower. Considering tomorrow is window dressing (quarter end) and early next week is a Jewish holiday, volume should remain light and the bulls should have their way. After that, I would get out of the sellers way.

If you're still long and are nervous, my advice is cash, no need to wait for the breakdown, or at least cut your positions in half. Never stay in a position when you're not sure what to do, it just leads to bad decisions. If you're a trader, look for shorts, next week should be the optimal time to start shorting (by mid week the latest). My short setups all make me feel that the market just needs to stay up for another 2 - 3 days, then they will be perfect (aaaahhh, nothing ever perfect in the market). Don't stop looking for longs either, we haven’t rolled over yet, the rally may still find it's footing, but I doubt it.


I'll flip sides if I have to!!!

Wednesday, March 28, 2007


The market is tough. I've been convinced for a while that we were going to tumble further then the low set on March 14th, but the market followed through and confirmed the rally on March 21st. Since I won't argue or trade against the market, anymore at least, I had no choice but to sit in cash or nibble on some longs. I didn't want to sit on all cash, since the markets will do what they want, so I chose to nibble just in case my bearish assumptions were wrong. So far it has worked in my favor, but now not sure for how much longer.

The markets haven't acted badly since the follow through, up to today, where we got our first distribution day. Now it might be just jitters ahead of big economic reports tomorrow (anyone's guess at this point what the market wants out of them) or the weekend (Iran is out of it's mind and cornering itself to a point it may not be able to get out of).

I did have some breakouts today I did not take because volume was suspiciously low.

What to do? I'm going to watch the tomorrow very closely, if the action looks bad, I will most likely move back to cash and pull up my short list (which by the way has grown in the last two days). I will probably wait for next week to initiate any shorts as I don't want to be run in by an early rally next week if there are no major problems in the Middle East or elsewhere for that matter (rally may not happen, but want to remain cautious).

I know this makes me look like a flip flopper, but I'm a swing trader and need to adjust weekly, sometimes daily (which I hate, but have no choice), until I can see the true trend. How do I know it's a true trend? Breakouts/breakdowns hold their pivot points and continue to follow through before their first major pullback. So far, that statement holds true on the bull side. The problem, the number of leaders (breakouts) is still scarce.

All I can advise at this point, keep doing the homework. When markets have no clear trend, it's better to sit in cash or do as much work as possible so you're not caught with your pants down. Once a trend is developed and you're on the right side, you can take a breathe or two, but never for too long.

GOOD LUCK and buy a lot of Excedrin tension headache pills if you're trading.

Random Musing:

If Iran is truly cornering itself with a confrontation with the West, the markets will sell off as they usually do leading up to the boiling point. But, historically, when these confrontations come to a head (i.e. War), US markets start major rallies and not continue the sell-off leading up to the solution (if you want to call war that).

Tuesday, March 27, 2007

The Little Rally That Could

Chooo!! Chooo!!! I think I can, I think I can. The market is showing some resilience and new leadership is slowly taking hold. I spent a lot of time this weekend pouring over charts and found that the place to be is long. There was a sudden surge of setups that crept up over the last four days.

The only problem, most are kind of sloppy, but if you take out that one week disaster, the bases start to look much nicer. My long list went from none to a ton. I did have to do some work to weed out the few that were able to escape the markets beat down, and so far they have performed great.

Again, I have to reiterate my skepticism, but at this point I have dipped back into the long side today, and will continue to do so until signs of trouble emerge. I would have thought that by now some signs would have emerged. But outside of this morning's sell off, on low volume, which is great, the market itself has acted quite perfectly. And the recovery off the lows today came on a pick up on volume and the many new potential leaders that are on my list really picked up steam just before the market really perked up and exploded as the NASDAQ went positive.

With a quiet period ahead, we may be in for a nice little rally over the next few weeks with some powerful moves. I don't expect much more, but considering no one else does, maybe the market surprises us.


I still hold my bull trap theory. Now that we got a correction of around 8%, the good move off the lows will serve to bring in the money that was waiting for the correction. The money that did not leave the market during the market, will stay put. The skeptical money will creep in as the market moves higher unabated (if that's the markets plan), and just when things start to look rosy, watch out. But for now, play it long, just look out for the subtle sell signals, I wouldn't ignore them. But they are hard to recognize, since you will be looking for the signals that reaffirm your bullish view.

Thursday, March 22, 2007

I Can't Buy it or Ignore it

I don't buy this rally, just seems to quick for me. Lack of leadership is the problem. But that doesn't mean it can't develop.

Where do I stand? I haven't gotten short, it was too early for that, and didn't move completely to cash since I did believe a small rally would develop. Can't ignore today, we did get a follow through day, which confirms the rally.

For the rest of the week compile both a possible long and short list. My opinion was that the rally would carry to the 50 day moving average, which all the indexes broke above today. I was looking for 2 - 5% rally, we got 2% today. I think this momentum should carry a little longer. Then the market will most likely stage a sell off. The strength of that sell off, and the number of stocks that setup to break higher afterwards will be the key.

I wouldn't hold my breath, even though I was shown a chart that it is possible for the market to rally significantly from such a short correction. Even 2000 had a great bounce.

Point being, not the right time to do anything. Best to sit on the sidelines and prepare. If this is a real rally, you'll have the next few weeks to get long. No need to rush, this one, you can wait and see if it proves itself.

Sunday, March 18, 2007

The Coming Bull Trap

OK, the market did what it had to short term, take out 12,000 and bounce hard. Now I believe we're going to get a 1 - 4 week rally ranging from 2 - 5% before the next leg down. We're in the last two weeks of quarter end, where news tend to be quieter ahead of earnings season. Of course there will be earnings warnings and economic data, but the market needs some relief after the volatility over the last 3 weeks, and a small relief rally would be just what the doctor ordered (a.k.a "Bear Trap").

Now having said all that, would I buy into the rally, NO. In fact, I would use the opportunity to move to almost 100% cash and wait for the opportunity to get short. If you're not a short seller then go back and review your trades from the bull market and prepare and keep a watch list for the next. Otherwise, you probably have a few weeks to take a breather.

Why am I so scared of the market, even if we get a follow through confirmation rally day? The politicians got involved in trying to calm us down. They seem to be trying too hard to tell us everything is ok. Not only domestic politicians but foreign one's. Now that's scary. I feel like something is about to give and global governments are holding on to the last fiber of a string about to snap. So prepare for more calming talk from the fed, white house, congress, and other foreign leaders. Then prepare to look out below if you buy into it.

Does this have to turn out to be some multi year bear market, absolutely not. Does it have to go further lower, yes. But as always, that's when the opportunities are the most plentiful and fruitful!!


If it were up to me, I'd love to see 10,000 on the DOW violated. That would set off a panic bottom worldwide!!! Good Luck.

Tuesday, March 13, 2007

Time For Cash

If you haven't done it yet, it's time to move to cash. The market isn't looking too healthy on the way up here, especially after the Tuesday romp we took two weeks ago (volume waning hard). If you need to be long, I would hold onto ONLY the stocks still moving higher. Any hard reversal in the market and I wouldn't stick around. If you play the short side, good time to look for them. If not, review your trading from August through February and slowly start preparing for the next leg up. At this point, we're at least 5 - 6 weeks away from even considering getting long, and preferably longer to shake this market out. I still think we can get to 3,000 on the NASDAQ before we really go down, but for now, I'm off that train.