There were a lot of message board traders calling for a massacre as if it were a no brainer. We feel vindicated in our neutral stance from yesterday and are really glad, we were out sitting out of this one. XLE hit 44 and even the SPY went into the "demilitarized zone" (but not SPX). We need to listen to the market here.
Yes, we are overbought on the momentum indicators, but the key is to determine whether this is a buying opportunity or a selling one. A week of hard rally doesn't make a bottom after a 1.8 year bear market. We need a base pattern (for e.g see the oil chart forming a nice base over 2 months from Dec 08). We need to see how the market handles the pullback.
In simple TA terms, overhead resistance comes from the 50MA. The 50MA and the 20MA are pointing down and the 20MA is still below the 50MA, meaning the up trend has still not gained traction.
What do we see playing out: We think the market can advance for another day or so, piercing the 50MA, but it is not guaranteed. Seasonals say that, Mar 20th will be a red day => we could see a decent pullback into 25th-27th, breaking down through the 50MA and 20MA. The nature of this pullback will tell us whether the market has bottomed or not.
Rant (Feel free to ignore): Mr. Roubini and others were calling for Dow 5000 and C, BAC to be a penny stock on March 9th. The media and our leaders have been painting this as the worst time since the depression. Of what I have read in books, we are still way better off today than in 1974, in terms of unemployment numbers and the likes. Yes, we may slide further but it is just something to keep in mind. The FED today finally officially called for debasing of the dollar. It might be a sad day indeed, but the key is to not allow transference from news to effect trading. Block out the news and trade.
Addendum: The mclellan oscillator is extremely overbought. We are seeing degrading internals in the market as the rally pushes on. There is a good chance of a >=10% correction over the next week or so.
2 comments:
I like your daily update and very useful for me. I am 70% long US stocks and gradually raising cash. For the year still down by 20% being long.
Please share your knowledge as your time permits.
-- sastocks
Good luck to you.
Thank you for your kind words.
I usually post as a record for me to revisit and learn my mistakes (I have made so many :-)). I will post the gist of my trades as my time permits.
I am up about 7% for this year. I am (>95%) in cash for now and about 2-3% in spy shorts. I don't usually find time to trade but the last couple of weeks, I have been relatively free.
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