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November 2006 Archives
Tuesday’s unimpressive come-back didn’t prove anything. Monday’s route was more convincing.
On the other hand, end of the month portfolio adjustments might provide a bit more lift from now into the first couple of days of December.
I am looking to scalp short swings on both sides, long and short, for the next few days. After that, I might lean toward the short side a bit more, on the assumption that the downside correction may have further to run.
It was overdue and had to happen sooner or later. U.S. stocks are finally having a much deserved and long delayed downside correction after being overbought for weeks.
Stock valuations are expensive, and overly optimistic general expectations are fully discounted, leaving little room for disappointments. So, even the smallest shortfalls in actual versus expected might be used as excuses to sell.
Ford Motor announced that it would borrow about $18 billion by the end of 2006, partly to provide a cushion against the possibility of a recession.
The U.S. dollar hit a new 19-month low on news that China now sees risks for its dollar holdings. True that prospects seem to point toward slowing U.S. economic growth and so the next move by the Federal Reserve might be to cut interest rates. Both would be downside drags on the dollar. A sharp enough fall in the dollar could spill over into demand for stocks.
Three yards and a cloud of dust.
The market is not very exciting, but it is steady, making small gains most days. After a few months, small gains add up.
Very low volatility hardly merits aggressive short-term trading. When volatility returns, and it must return eventually, it may return with shocking quickness and magnitude. So don’t immitate Rip Van Winkle. Stay awake.
Sure the market is over bought, but at this time I don’t see any catalyst to stop the slow upside grind.
When the catalyst hits, it may not be obvious. Overly leveraged, overly concentrated, overly secretive hedge funds are like giant icebergs of risk, with most of the danger hidden invisibly under the surface.
5 up days in a row makes stocks overbought. This buying wave should be about over. A 2 or 3 day pullback seems due.
Several modest intraday rallies on Thursday offered opportunities for quick short-side scalping profits. Hold shorts a longer on Friday, even overnight.
The crowd seems too long, so long side liquidation before the weekend would be normal.
4 up days in a row makes stocks overbought. This buying wave looks to be about over. Day trading momentum already turned down on Wednesday afternoon.
A 2 or 3 day pullback seems due. Look to short on modest intraday rallies.
I could be a day early. But some long liquidation would be normal before the weekend at least.
New highs are the market’s way of telling us what the trend is: up, for some stocks at least.
History shows that past tops have taken time to unfold, sometimes many months. Some stocks may be tired and already topped out, but others may have further to go on the upside. I don’t see any immediate catalyst to spark a big selling wave for the general market, although I feel that there are substantial hidden risks, just below the radar at this time.
Currently, I am willing to trade both sides, long and short, buying dips and selling rallies. I see crosscurrents ahead, so I wound expect a choppy trend, rather than a smooth directional trend.
The great Dick Diamond is talking about the final move in the 4-year bull market happening NOW. It is a bold call. He has the smarts and experience to make such a call.
It is possible that the final high already has been made for most stocks. Cycle time tells me that it should have been made even sooner, so it is late already, in my opinion. Perhaps a few stocks still may make higher highs, but the majority may have already topped. Market and economic cycles, plus the big change this month in U.S political leadership, might be enough to finally put a lid on this old stock market bull.
Still, history shows that past tops have taken time to unfold, sometimes many months. I don’t see any immediate catalyst to spark a big selling wave. So, I am willing to trade both sides, long and short, buying dips and selling rallies, but I am a bit more willing to tilt toward the short side.
The Dow fell six days in a row, and some think that makes the market oversold. Also, some trendline support is close at hand.
I think the June-October rally is over, and I am looking for two-way trading to develop in days ahead.
I expect frequent group rotation. Energy stocks are looking promising on the upside, while tech stocks look vulnerable to price decline—but rotationally, and not an even trend every day.
Weak actual data is casting doubt on “Goldilocks” economic assumptions (not too hot, not too cold, but just right). The ISM Index and the Chicago PMI were worse than generally expected. This is providing a convenient excuse to liquidate longs after a persistent overbought condition.
The Employment report on Friday may provide a further excuse for action.
Selling rallies is paying off—at last!
A reader writes: “Your October 26th post, “Sell on the Good News”, called the top – precisely! You ARE a genius, after all. If your other readers don’t think picking the turns like that is significant, then they just don’t understand this game. The biggest gains are made by picking the turning points.”
M replies: Well, maybe, sometimes. I do like to pick the turns, which sometimes give me quick rewards.
But let’s not get carried away. Picking the turns too often can result in fighting the tape. The trend deserves more respect than that. Only rarely should one try to pick the change in trend. Most of the time, we do better by sticking with the trend.
Nevertheless, at this time, I feel that the four-month stock price uptrend might have run its course. I am looking to short on temporary price run-ups, but I will cover to take profits during periods of weakness, then hope for another bounce to short again. I am willing to trade minor overbought and oversold extremes. Since the real trend seems uncertain, I am willing to take only relatively light positions at this time.
Copyright © 2007 TradingEducation.com, LLC. All rights reserved
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The Mystery Trader writes these impressions and thoughts as a kind of an uncensored stream of consciousness journal or diary, largely for his or her own amusement, but also hoping these thoughts might help readers somehow, perhaps occasionally, prevent them from doing something stupid.
The Mystery Trader hopes that his or her thoughts might help YOU keep from losing YOUR shirt in the world's biggest casino. The financial markets are notoriously tricky and have ALWAYS been loaded with disinformation, deception, raw deals, chicanery, and outright criminal theft. Unfortunately, little of this bad behavior is caught and punished because the financial markets are too big and chaotic.
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