Friday, January 11, 2008

Market Talk

Well, this has been, thus far, one of the most pathetic dead-cat-bounces we have witnessed. One of the problems is that there are just too many people stuck in positions that are deeply red and are waiting for some type of salvation rally to take them to break-even territory. The trade is just too crowded. Our guess is that investors will finally cry uncle and panic sell before we can finally reach any kind of meaningful bottom. This actually is the best case scenario -- gap-down, panic vertical move down, and then finally a tradable rally.

The next scenario is more painful -- a grind down with small intraday rallies that are constantly sold for weeks on end.

Either way, stay smart and wait for a meaningful reversal before going long. Never underestimate the power of the swing of the pendulum.

Wednesday, January 09, 2008

Market Talk

Let's take a quick look at the tracking stock QQQQ for the last 6 months. At point 1, she broke the short-term up-trend line in November and spent two months hovering around the 50dma (point 2). At the start of 2008 she broke the new support from November lows and fell steeply yet again (point 3).

Today's rally could be the start of a tradable bottom that takes the market back to the recent support (point 3) and if lucky, back to the 50dma. Don't think about being bullish or bearish -- just look at the following chart and interpret it. What does it tell you?

For you perma-bulls, there will always be strong sectors, seek them out (for example agr-fert/gold thus far still holding) instead of trying to catch falling knives on old leaders.

Let's see how far they can bounce this cat.

Tuesday, January 08, 2008

Market Talk

What a brutal day -- nothing quite kills the spirit of the bulls like a rally into an oversold market which is not just sold off, but crushed, with the market closing deeply red.

We should be getting some kind of relief rally soon, but for those of you tempted to buy longer term holds.... look at the following chart and imagine this was the chart of a stock for which you had interest:

You'd say "No thanks". This is one bad-ass ugly chart. However, for shorter term bottom lovers, the sell-off has been fast and furious and some kind of rally will be coming. There will be many temporary tradable bottoms coming up (and one should come relatively soon) within what we believe will be a much larger bear trend.

Here is a weekly chart of the Nasdaq -- as you can see we'll be hitting the trend-line soon and should find some support in that zone. However, it's hard for us to believe that the trendline will hold. Gun to head, we're guessing 2008 is going to be the year of the Bears.

Do you remember back in the bear market 2001-2002 so many were waiting for the one event to help the market? "They're going to catch Osama soon," one would hear. Historically, it hasn't been too smart to wait for some event (Osama, Fed) to save the market. It's going to be a deep, painful process that will probably go on for a while. Of course, hopefully we're wrong and the market ends +20% this year instead of the -20% we're predicting.

As always, this is just fun talk. We're short-term traders and will go with the trend, not our opinion. If the charts point long, we'll go long. But most likely, they're going to point short short short for a long time coming. Having said all that, we must add that we make much more money in a bull market than we do in a bear market (our type of momentum trading works much better in a bull market) so we hope that we are completely and utterly wrong!