Wednesday, April 06, 2011

What would make us nervous

Momentum leaders such as $NFLX $BIDU $OPEN $UA $LULU $CMG all red today as they take a well deserved breather.   Oil and gas also weak; again not a big surprise considering the run they have had.     We are worry-types by nature, possibly a personality trait, and also possibly because we started our career trading tech breakouts right before the Nasdaq lost 78% in the bubble crash.     However,  that being said, it’s hard for us to lose too much sleep over today’s action because of the following reasons:

Support is still being bought.   Notice $NOV 50SMA perfectly defended today — as long as support buyers show up, you have to stay long.   Once this changes though it means the music is stopping and you better grab your chair.

As our readers know we love following copper and what is this metal doing today?  Having a huge rally right to its trend-line.  How can we worry about  market health when copper up 2.6%?   What would make us nervous?  If 421 goes.

We had two ideas this weekend for our readers,  long $GDXJ through trend-line near 39.6 and long $GS on trend-line (which we put at 160 in our newsletter last night — trade 160 to 162 resistance).

Financials and semis have been lagging this market but both have a bid today.  Rotation.   We would get much more nervous if there was a broad breadth sell-off.  As long as you see rotation, stay long.

The leaders of this market, silver and gold, act great.   Big break-out yesterday ($SIL $GC_F $SI_F $GDX $GDXJ) and nice consolidation today.    We take our short-term cues from silver/gold more than any other sector in the market.   What would make us nervous?  If silver/gold start breaking down.

As long as 1) support keeps being bought  2) copper holds support 3) we see rotation instead of strong breadth sell-off  4) silver/gold don’t break-down   we’ll trade to the long side.    If any of those factors change, so will our bias.