Tuesday, February 24, 2009

Where I am Watching to Get Short

Just a quick chart of the financials - it most likely won't be this easy, but you can see a LOT of resistance converging right around $8.70 to $8.80. I will be looking to get short there via SKF or FAZ unless this market just takes off. After going through my scans, I am still a non-believer and everything I said earlier today still holds true from my perspective. Good luck Wednesday.

XLF
Chart from Telechart2007, Courtesy of Worden Brothers, Inc.

3 comments:

Jeremy said...

Hi Mac, I would appreciate if you or anyone else could share your thoughts.
1. Some say that we should buy stocks with relative strength as it is going to be the first one to shoot up when the market advances. But others say that we should focus on the beaten down stocks as when the market rallies, they will rally the most as they are so oversold.
2. On the other hand, when the market is weak, some say we should only short the stocks with least relative strength as they will go down hardest, while others say we should infact short stocks with relative strength as, if the market continues to be weak, sooner or later these stocks won't hold up and the room to go down certainly much more.
Any thought to clear my confusion please.
As always, thanks alot

Randal said...

Market isn't cooperating with shorts today - more thrashing about.

Mac said...

Hi Jeremy. You bring up a good question that I am sure puzzles a lot of new traders - I am still puzzled by it.

I think most of it depends on your time frame. Generally, I would say in a bull market, you definitely want to follow the leading stocks because they make the biggest moves. It has been historically proven that stocks that are breaking to new highs usually continue to make new highs. That being said, you want to buy these type of stocks on pullbacks, not after they have made huge moves.

In a bear market, you want to focus on stocks that are weak already. There is most likely a reason they are weak and those reasons will continue to keep the weak. If you short strong stocks, the problem is that any time the market bounces, those are the stocks that people will likely look to. That being said, you only short rallies in weak stocks and I do think some stocks get so beaten down that they become very difficult to short individually - the risk/reward isn't there anymore. I hope this helps.