Tuesday, September 21, 2010


On Sunday we wrote on StockTwits that we were looking for a rotation into areas which were not extended and instead basing: 

Tech got more extended and we went short yesterday. Step One.  Now we're looking for Step Two and that's a rotation into XME (we're also long OIH sub 108 and a small XLF long we probably won't add to unless market pulls back 2-3%).    Today was a good start as XME closed well off its lows while QQQQ closed on its lows. Let's see if we can get some follow-through tomorrow.

This is the type of trading around the core swing we do on a daily basis:

As posted at 1:55 PM EST we added to XME

Day-trade around the swing:  add on the pull-back, sell it on the strength, keep the core.  Posted at 2:44 PM EST:

As long as we have conviction that XME will touch 53 (which we do), we can constantly trade around the core.  We will take off at least 1/3 on 53 itself.


Note divergence of XME/QQQQ price-action post FOMC.

Why do we like the rotation idea?  As we wrote last week in our blog we do believe we will go higher and if this is the case the market cannot just be led by REITS and momo tech; other sectors such as financials and commodities will most likley catch up.

QQQQ to our eyes is running on fumes -- however we wouldn't short it without being hedged.  Why?  Because we often engage in momentum trading ourselves and know very well how irrational the moves can be and how extreme the pendulum can swing.

Great hedged short.  We're short QLD 65.26

This chart on the other hand represents to us a very nice base getting ready for break-out.   That being said we are also aware of the lagging status of the XME, thus the adds only on pull-back and the exit on strength.