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May 22, 2008

Narrow Range

Stocks put together your garden-variety consolidation today: sideways action with a range contained within yesterday's range. This action is very typical for a day following a large drop. Odds favor seeing more solid selling within a couple of days. Based on the 65DMA, I'm guessing we have a minimum of 30 more points to the downside.

stock chart

The consolidative nature of today's action is better illustrated on an intraday chart:

stock chart

In other action, gold and silver saw mild pullbacks today, as did oil. So many people are trying to call a top in oil these days, it is almost laughable. The same behavior surrounded gold's run in 2006 and early this year. Yes, when this run ends, it will end hard. Oil will probably drop 20% or more within a few days. But top calling in this type of market can cost a trader a fortune. If you are keen on shorting energy, at least wait until we see a failed rally. All we are seeing now are failed attempts at breaking lower. An even more conservative approach would be to wait until a correction ensues and mostly plays out. Then buy energy. This bull market is far from over, and most of the money over the coming year's is to be made on the long side.

 

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