Sunday, March 30, 2008

Get Out Of The Markets Way

I'll keep this short as I am on vacation, but have kept an eye on this market.  I would stay out of this markets way on the long side.  The market has been struggling to make progress since the follow through day and looks poised to continue the bear trend.  It seems that any bear market rally is a ways off.  We need more downside work to do in both price and volume.  The other missing piece are the setups to the long side.  Typically you would see more and more instead all you see are failed breakouts and base breakdowns.  I would definitely be looking to short this market.  My preference is to see a bit more weakness to the upside, but nothing wrong with initiating small positions.  If you're not a shorter, go on vacation, you'll have nothing to do.


Friday, March 21, 2008

Is this Rally Follow Through Real?

We finally got a follow through to the rally yesterday.  Keep in mind that since 8/2006, it has taken about a month before the true leaders broke out (currently KEX and LNN are the big mooses, but unfortunately too extended right now).  So it will be interesting to see how this plays out.  There are definately more setups this weekend then last, and given another week or two I could foresee more.  So after all the brutal frustration, we could be in for a possible rally.  Whether it's a countertrend or real doesn't matter.  If there is an opportunity to make money, no need to hesitate.  In fact, there's never a reason to hesitate.  If it's not going to work, we'll know soon enough and your risk management will keep you safe. 


Wednesday, March 19, 2008

So Much For A Relief Rally

It looked promising a week ago as the commodity names were setup to potentially lead a short counter trend rally within this bear market.  But that all ended today as the bear finally broke those stocks hard on heavy volume.  These moves don't tend to last just a day.  And considering that the Fed has thrown the kitchen sink at the market the last two weeks and it hasn't worked, I can't see any positives over the next week or two that will keep this market from continuing to the downside.  In fact, it seem that there are problems developing over the pond in their banking system.


If you attempted to get long yesterday on what seemed to be a possible follow through day, you probably got stopped out today.  The problem was that yesterday's volume was below the previous day's volume which is not a good sign for such a strong price day.  If you happen to get into the few stocks that are still working and have a profit, you can hang on, but don't let the gain turn into a large loss.


If you're looking to short, I would wait for a day, preferably tomorrow or Friday where the market tries to bring in the shorts and fails.


If you're a long only trader, be patient and don't get frustrated.  The market will rally one day.  Keep building those lists.  Even though the commodity names did not work out, a good portion of my list has not fallen apart yet.  I have a good number of stocks that given a few more weeks would be ready to rally with a strong market.  So keep your chin up and powder dry.


Tuesday, March 11, 2008

The Developing Rally

The short side was a fun and wild ride.  But it's time to look past it and focus on the next step.  Oil, gas, and other commodities keep running.  The Fed is standing ready at every chance to keep the market from dropping any further with either liquidity injections or rate cuts.  This makes it very difficult to stay short the market for more then a few days.  So now that we did get some nice action to the downside, the focus has to shift to looking for setups on the long side.  Bearish sentiment continues to rise, whether it's the bull/bear ratio's, put/call ratio's, short interest, or anywhere else you look.


We may be in recession but the market may not care.  If this is as bad is it's going to get, the market will look past it and start to price in an ultimate recovery down the road when the past rate cuts will finally start to make a difference.


Looking at the charts it's not pretty outside of the sectors I talked about earlier.  But it doesn't have to be at this point.  Those sectors have stellar fundamentals with a rising tide behind them.  They are to this market what tech was to the 90's, and there are plenty of stocks to pick from.


What I foresee is a rally of a few months to clean up the technicals of the other sectors, followed by another major correction/mini bear to setup a possible longer term bull.  This would not be out of the ordinary for a market coming out of a bear market.


So stop listening to the headlines and do some work.  If we get a follow through, the market may present a nice opportunity on the long side in the above sectors.  Worst case, it doesn't develop, but you get practice preparing a list.  But for now, it's best to watch from the sidelines, and wait for the Fed to do it's thing next Tuesday.




Don't forget about the short side.  Keep a ready list there too just in case the Fed or the government manges to bungle it.