Thursday, January 17, 2008

Small Caps in Official Bear Market

The small caps have officially crossed into bear market territory.  The NASDAQ is 2% away, but along with the S&P500, NYSE, and Mid Cap 400, is now in mini bear market territory.  The DOW is now the lone holdout, but probably for not too long. 
I fully expect a counter trend rally to develop at some point soon, most likely within a week.  I would advise only the most aggressive investors participate.  The best course of action is to wait for a new round of short setups (experienced investors only), study your past trades for rights and wrongs, and start preparing for the next bull market.  The latter two are a MUST!!!!
There are almost no setups right now.  But keep an eye on stocks with excellent fundamentals that have corrected in line with the market or less.  Those will most likely be the stocks that will setup for the next bull. 
Don't get frustrated if the list you build suddenly gets taken out behind the barn and shot.  It's all part of the process of becoming a successful investor.  During bears I am forced to rebuild my list several times, as the selling rotates from sector to sector, stock to stock.  But you will find a few stock that survive list to list, and those tend to be the strongest out of the gate. 
We all work hard for that promotion and raise, the road to investment success is no different.
Good Luck
1/17/2008  Correction   Correction Levels 
Index  52 WKH   Start   Length   Low  % 10% 15% 20% 25%
Dow Jones Industrial Average  14,198.10 10/11/07        14.20  12,125.56 -14.60%  12,778.29  12,068.39  11,358.48  10,648.58
Nasdaq Composite Index    2,861.51 10/31/07        11.40    2,343.65 -18.10%    2,575.36    2,432.28    2,289.21    2,146.13
NYSE Composite Index  10,387.17 10/11/07        14.20    8,805.67 -15.23%    9,348.45    8,829.09    8,309.74    7,790.38
Russell 2000 Stock Index       856.48 10/11/07        14.20       680.13 -20.59%       770.83       728.01       685.18       642.36
S&P 400 Midcap Index       926.67 10/11/07        14.20       758.93 -18.10%       834.00       787.67       741.34       695.00
S&P 500 Index    1,576.09 10/11/07        14.20    1,330.67 -15.57%    1,418.48    1,339.68    1,260.87    1,182.07
S&P SmallCap 600 Index       445.82 10/11/07        14.20       353.06 -20.81%       401.24       378.95       356.66       334.37



Tuesday, January 08, 2008

More Downside To Go

This market is a day away from taking out the August lows on the major indexes.  DO NOT take shorts at this point, use the selling as an opportunity to cover shorts.  The market will most likely find it's footing after one or two more big down moves.  I'm looking for a oversold/short squeeze rally to develop for the rest of the month starting this week or next.  We could even get a follow through day. 
There are a few catalysts that could put a bid under this market.  Macworld should get everyone excited about AAPL and tech.  PPI/CPI next week could come in better then expected which would excite everyone about how aggressive the Feds next move will be.  Just the speculation about the the Fed's action pre-meeting or at the the meeting should keep the sellers at bay. 
The rally that does materialize will be very very narrow.  I would only attempt to play it if you are extremely disciplined and aggressive.  Look for bounces off moving averages and breakouts on some of the sectors that still haven't been sold off.  But keep in mind, this rally could end as soon as it starts.  Keep your stops tight, the rally will not turn into anything big.  It will be one big bull trap.  I fully expect the market to resume it's downtrend sometime after the Fed.  When all is said and done, this will be a bear market.  There is one positive.  If you were looking to short, the rally will setup lower risk short trades, and the third leg down in the market is typically the most severe.
If you're not a short seller, use this time to review what you did right and wrong in the last rally.  Then post your mistakes in big letters above your monitor to remind yourself not to repeat them.
Good Luck


Friday, January 04, 2008

Crash Coming?

This intra-day pattern is as ugly as I've seen it in sometime.  These typically lead to afternoon meltdowns.  With the indexes down so much, and possibly getting killed further, could create a panic going into next week.  The rally is definately over.