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


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