Friday, June 4, 2010

New Lows!

Huge sell off today, and we are 4 points bellow the previous low. You may say 4 points is not a big deal, and indeed is not but the fact that SMA200 proved to be a huge resistance level for the second time in less than 10 days it's a big deal.

If market resumes the downfall on Monday I may go short again and by that I mean a decent move on the downside, at least half of what we saw today. I don't like to anticipate day-to-day moves (I suck at this) but somehow I do expect bulls to try to defend the lower edge of the trading range one more time.

Cash is still the best until market decides which way to go. I am sure there are people who are trading even in this environment but I am not one of them. If market is going to have another powerful leg up or down we will see the signs and there will be plenty of time to jump in. Better join later the crowd than going in and caught on the wrong side. Big moves once started tend to continue for a long period of time so there is no point to rush in. Capital preservation is my number one job and should be yours too.

QQQQ lost over 3% but did not establish new lows also managed the stay above SMA200. As I said the other day I liked to see NASDAQ climbing above the downtrend line but I didn't think this is going to be THE downtrend line since I didn't see DMI turning positive at the same time. We have now a second downtrend line. Is breaking this second downtrend line going to be enough to see bulls in control even on short term? Once again, we are going to get this answer from DMI.

I've seen people reading into these uptrend or downtrend lines more thay are supposed to do. For example going bellow an uptrend line doesn't mean the stock is going to plunge. This may happen but is not a sure thing. More likely that means the stock started to advance an a lower speed. When the stock starts moving up again one can use this new low to draw another uptrend line. That uptrend line can be broken again without seeing the stock plunging. A new uptrend line with a slower slope can be draw. Breaking the uptrend line for the third time is more likely going to be for real. The thing is you need to be cautions when you see the trend line broken for the first time since you may not the second or the third chance to exit. If it's a fake move then you will see the stock recovering immediately.

Once again I am emphasizing that bulls need to push the indexes back into the trading range. Otherwise, we are likely to see another leg down.

Happy trading!


P.S. I was asked to give some advice to people who are the usual "buy and hold" type of investors, mainly 401(k) holders. I am going to post an article tomorrow (June 6) about the way I am investing in my 401(k) that is a bit different from my usual day to day trading.


  1. Babaro,

    Great update. We are in lateral movement still, and I will be surprised if we see a new leg down, problem is that we haven´t had a week without raining very negative news. Just for fun, the bearish lunar cycle ended today. As we advance towards new moon, we should see a higher bullish sentiment, LOL.


  2. you are right, we may stay in this range for a while. The bad news are still coming. The question is if the market can absorb these bad news without plunging.

  3. The majority of news coming down will be negative.There is NO easy solution to threat of Sovereign defaults in Europe. The response of ECB and EU are not encouraging to say the least. A monetary union without fiscal or political union appears to unworkable! No one is willing to surrender their nationality to some committee at Brussels!

    No ending to decline in the value of Houses which in turn affect MBSs in our Zombie banks! No end in unemployment!

    Just on Friday the deficit of USA reached 88%! After 90% there is inverse relation GDP growth rate vs increase in deficit. Fed is getting caught in a no win situation with ZRP and other bullets left!

    Bulls may try again and again but it will be futile since fundamentals are getting worse week by week!

    As a hedge i use calls on 3x-up and puts on 3x-down ETFs with net negative. I also nibble on MGC, WMW, FOF, PXQ. Leap calls on cash rich Cos! I bet on tech (net working) coming back faster than any other sectors IF and when recovery starts!


  4. I do agree that there is no quick fix for sovereign debt but these are fundamentals and I must admit I am not good enough to make an investment call based on fundamentals. My challenge here is not to predict a major top or a major bottom but to try to be on the right side when market makes a significant move up or down. I did catch the move down, took my profit and stay in cash and I am going to jump in as soon as I see a move outside what now seems to be a trading range.

    I do like your eTFs, I never trade them but they look good, especially PXQ. I'll keep an eye on them for a possible break out. Among 3x I like TNA/TZA or BGU/BGZ pairs but I don't like FAS/FAZ.


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