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February 21, 2009

Diverging from the Pack

The stock market appears ready to print a near-term bottom. The spyders posted a partially-successful reversal... partial because the close was higher than the open, but not higher than Thursday's close... and were the recipients of a massive $272M of buying-on-weakness (BoW), as reported by the Wall Street Journal. Gary has been kind enough to point out that in a bear market SoS means a lot more than BoW, but given numerous other factors into which I will shortly delve, not the least of which is a Bollinger Band crash trade, I'd say the odds are pretty favorable for a bounce here. Here we go...

Tech stocks continue to show relative strength, and the NDX posted a fully-successful reversal on a nice uptick in volume.

stock index chart

spyders chart

I imagine that if we see any kind of rally, the talking heads will start barking about a successful test of the November low and how now is the "opportunity of a lifetime" (or some other banal catch phrase) to load up on stocks. They will, of course, be wrong, but it will be interesting to see the nature of whatever rally materializes, as it should give us a clue to how fervent the next selling wave will be. In particular, I'm interested to see if my suspicion that SPX 805 will turn the index back down or whether the market gods will induce a larger rally to really welt up the double-bottom suckers.

weekly stock chart

stock index chart

stock index chart

The banks are at the core of prevailing sentiment:

stock index chart

stock chart

Things feel pretty nasty right now, and it is just such moods that typically spur big counter-trend moves. Maybe we haven't even begun the proverbial mid-term rally, yet. Just sayin'.

As I mentioned in the comments section, I had no desire to try to squeeze every tick out the shorts I carried this week. They were closed mid-morning... a little early, I admit, but still at better prices than the close. In any case, with my mind free from babysitting a short line, I was able to focus on finding new trading opportunities, and based on some of the details mentioned above, I actually went long a couple securities. The first was the recipient of a special post: Sprint Nextel. The other is Microsoft. If the market behaves properly in coming days, I may add more tech names for trades or simply go long NQs. At this point, the size of my long attempt really depends on whether the S&P 500 can best 805 on a closing basis.

Before any of you start drawing up execution papers for treason, please note that I am in no way shifting toward a fundamentally bullish stance. These postions are purely technical trades entered in anticipation of a near-term bounce, and I chose them because their charts offer clear-cut long opportunities. I might be wrong, but my stops are obvious and close.

As you all know, gold surged forth once again, stopped only by the closing high from last March. I suspect we're going to see a pause or pull-back from here. Momentum indicators are getting stretched, and if a rally does materialize in equities, I expect it to drain money from gold in the short run. I have some ideas about how I want to approach the gold market from a trading basis, and will elaborate in another post later this weekend.


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