Saturday, February 9, 2008

State of the Market - Weekend Edition

A mixed market on Friday as the Dow and S&P 500 closed down marginally while the Nasdaq closed up marginally. As has been typical of the past few days, the market rallied a bit in the morning, sold off in the afternoon, and rallied a little back into the close to end up mixed. All in all, a pretty boring day that doesn't give us any more clarity as to where we are headed in my opinion, especially with volume coming in lower as well. It is possible that we are starting to rest in this area, and that would be constructive if it would last a few more weeks. That would allow the technical damage done to charts over the last few months to slowly be corrected, and we could possibly see more charts start to form nice bases out of which they could go significantly higher. Earnings season is winding down, and with the Fed decision and some of the economic reports out of the way, things slowing down a bit is definitely a possibility.

That being said, this market has proved that it can't be counted on for anything, so I am preparing to play both sides of the market as things hopefully become clearer. Although I am still leaning bearish, I am compiling a long watchlist with stocks like OI, CREE, INFA, VCGH, SMTS, PTEC, and SDTH on it just in case. I don't know what is going to happen so I want to be prepared if we happen to base here and rally higher in a few weeks. Right now, there are still only a small number of charts that look worthy of even considering, so there is still a lot of work to do to produce a rally worth anything.

I am still looking at possible shorts as well and still hold several short positions that I am simply managing right here. My SKF position is doing OK, but the XLF really hasn't broken down like I expected so I am just going to tighten stops on most of these shorts and see what happens. I haven't found as many good setups the past few days as well. One I really do like is UA, and I will be looking to enter this if we get further weakness in the market.

XLF
UA
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Bottom line - you always have to be prepared for anything in the market and that is what I am trying to do. I am still overall bearish, but the possibility of us rallying a bit more is not as ridiculous as it seemed to me last week. Keep your mind open, watch what happens next week, and act accordingly. Good luck.
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