Wednesday, December 17, 2014

Is a Christmas Market Rally Around The Corner?

The market has taken quite a beating over the last two weeks. The Nasdaq and SP 500 sold off over five percent, in heavy, above average volume, and sliced through their respective fifty day moving averages, but have all become historically over extended to the downside. While markets can stay extended for quite sometime, in the near term, they will attempt to at least bounce to work off the over extended position.

Leading growth stocks sold off, but not as hard as would be expected. While stocks like Tesla Motors (TSLA), Priceline Group (PCLN), and Qihoo 360 (QIHU) have potentially broken down for good, others like Alibaba  (BABA), Facebook (FB), and Apple (AAPL), have pulled back to moving averages in an orderly fashion. Very few leading growth stocks exhibit the type of patterns associated with major market moves, but several are in position to benefit from a market dead cat bounce.

Short trading ideas rolled over in spectacular fashion, especially stocks in the Casino and Oil/Gas and related sectors. Wynn Resorts (WYNN), Las Vegas Sands (LVS), First Solar (FSLR), Gulfport Energy (GPOR), Fluor (FLR), Peabody Energy (BTU), and Yandex (YNDX), dropped twenty percent or more. Any new short setups are lagging and should be avoided until the market is able to squeeze higher for at least a few days.

All the elements are in place for a Christmas rally. The market and short trading ideas are over extended, and there are few leading stocks that have held up well over the last week despite heavy market selling.

Traders should consider profit taking on extended short positions or at a minimum tighten their stops to protect their profits, and definitely cover any stocks that have not followed through or showing a loss. Aggressive traders could take a position or two on the long side for a potential dead cat bounce over the next few days into the end of the year. Otherwise cash is not a bad position until the market shows some more strength.
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