Sunday, June 3, 2012

No Man's Land

Going into this week, I was pretty neutral.  The market was forming a bear flag and I saw many stocks with bear flags, but I also sensed that a rally would surprise most so I was not going to be surprised if it happened.   Turns out we saw both of these last week.  Tuesday's action was just strong enough to pull people in - the market got over its nine day EMA and volume was even a bit heavier than the Friday before.   This action however turned out to be a major bull trap as the next three days were about as nasty as you can get.  Except for Friday, the intraday action was all over the place and it made trading very difficult.  

Monday's Nasdaq
 Current Nasdaq
 Charts from TC2000, Courtesy of Worden Brothers, Inc.

Going into this week, I am in cash after trying a few longs (stupidly) at various points in the past week and am fine with that.  I do believe we are in no man's land right now, meaning it is far too late to get aggressively short here but too early to go long because of how "heavy" this market feels.  The worst part of this market is that we seem to be back to being dominated by news.  Spain, Italy, Greece, France, Germany, Antarctica....when will this all end?   That's the problem I guess - no one knows when this will end and when there will be a little bit more certainty about what is going to happen across the Atlantic.  

To me, this seems to be a market that could drop 4-5% in a day on some panic (think August 2011) but could also squeeze shorts for a 3-4% move up on the slightest mention of government intervention or QE3.   Good luck trying to game that correctly. 

Some markets junctures are just too hard to trade and this seems like one of those times.   I will be watching from the sidelines this week, perhaps waiting for a panicky sell-off from which to try some longs.   I just don't know that will see that, however.   For the time being, cash is good for me and over the more intermediate-term, any bounces we see look to be shorting opportunities and nothing else.   It's going to take a while for the market to fix all of the damage done recently, and we are also entering the summer, where volatility will pick up.   Because of that, it's not going to get any easier.  

Be very picky and very patient here - otherwise you can really get yourself into trouble.  Good luck this week.

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