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June 23, 2008

Calling a Bounce

Calling a bounce in a bear market is no easy task. Such follies have drained the wallets of many an expert trader. Bear markets are punishing, and they tend to stretch technical indicators far beyond readings that produce upward inflections in tamer markets. Why? Because that's how market psychology is skewed. For the most part, people are bullish, and by the time it is apparent that the bear's claws have set in, everyone wants a bounce into which they can liquidate. But the markets just aren't so accommodating.

Furthermore, bears are a masochistic lot. How else could they stand placing bets counter to what society demands and, in malfeasant compliance, governments attempt to provide? For this reason, these poor souls covet their gains so tenderly that they tend to compound their habits of self-flagellation by closing shorts too early.

In my wrap-up of last week's action, I noted that price had extended to a point where a bounce seemed likely to occur. Barring an outright market crash, I still expect this to occur. However, given my statements above, you will forgive my portfolio's deficiency of a long poistion. In fact, I dearly want to be short, and if the market delivers on the type of bounce I described, I will be short. Monumentally short. If there is no bounce, and I miss a market crash, well, I will sulk a bit, but there is always opportunity. A trader's worst enemy is emotion. If you tie your pride to one event, then you will be trading in fear of missing it, and will likely lose more money trying to catch that event than you make when it happens... if you catch it.

Today's action was mostly uneventful, as I expect will be the case until about 2:15p on Wednesday. However, there were a couple of curiosities. First, oil managed to gain a percent despite the production hike announced by the Saudis and the fact that the greenback traded higher. If crude breaks higher and burst through $140, it will likely be a non-stop ride to $150. That would hurt the economy... and stocks... badly.

The second curiosity had to do with gold, specifically mining shares. Unlike oil, precious metals were not able to ignore the rise in the dollar, with gold slipping about 2% and silver tanking 4%. GDX, however, managed to gain almost 1%. My first thought here is that these shares are finally finding a footing, but who knows? It could just be an anomaly.

 

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