Wednesday, February 15, 2012

Nasty Reversal - Now What???

Today was as nasty as a day that we have had in 2012 (although that's not saying much) and one of the few examples so far this year of clear distribution in the market.   When you look at the number one leading stock of this market and the way its chart looks after today, you have to think that a correction/pullback is close by.  Actually, it may have started today.
AAPL

Please don't misinterpret what I am saying here.   I am not calling for the start of a new bear market.   I am not calling for 2500 on the Nasdaq or something crazy like that.  More than likely, I think we will pullback here in the neighborhood of 2-4% before this rally starts back up.   It may be more severe than that - it's too early to tell.  Heck, we could take back all of today's losses tomorrow and it would not shock me (well, it would be pretty surprising).   However, simply put, we have risen to a position where a pullback or correction was way overdue and may have started today.   Numbers and stocks were stretched.   Pullbacks or corrections are normal and healthy in a bull market - they help stocks set up new patterns from which they can hopefully blast higher.  

I still hold one long as of now but put on some short-side hedges today.   I am still seeing some really nice charts out there which is one main reason I don't think we will correct for more than a few weeks.   I am going to be a little more hesitant being aggressive on the long side here but if names trigger, I will still consider them strongly.   The charts below are the names that are at the top of my list.
MX, CALX, MITK, AKAM
 RBA, SHS, CDNS, HSFT

It is possible here that instead of a meaningful correction, we will see some rotation from strong sectors to sectors that haven't rallied as much.  This is normal in bull markets.  With AAPL acting like it did today, perhaps money rotates out of tech into something else for a few weeks or months.   One area I am watching closely here is oil.   The commodity itself has been basing for about three months now and I am seeing more charts from the energy sector pop up in my scans.   There is also the geopolitical aspect of Iran and Israel - who knows how that will play out?   I am definitely watching this sector closely.   I am not posting charts of the low-float momo names like ROYL, BDCO, etc, but those are probably worth keeping on your lists as well for day-trades.

FST, NBR, NFX, DO
 
 All Charts from TC2000, Courtesy of Worden Brothers, Inc.

Good luck Thursday - as of now I am looking at a potential pullback as a good thing in that it will set up some new setups.   If we get some really heavy and severe selling over the next few days, then perhaps we will be looking at a deeper pullback, but as long as any selling we see isn't too heavy, we can probably start looking to get aggressive again on the long side in a week or two.   Take care.

2 comments:

DrVanNostrand said...

The Reversal today looks way to obvious everyone turned bearish, I expect the crowd to be fooled again and the shorts to get squeezed.

Anonymous said...

Mac: Is ATPG going to break to you? Thanks a lot! Elena