Friday, October 14, 2011

wow, what a week!

Wow, what a week.  If you had bought into the market on October 5th, the day I emailed all to do so, you would be up roughly 10 percent (even higher if you bought the nasdaq).  It has been a nice run to say the least.



Since Wednesday I sold all my longer term positions and am again trading very short term (intraday) as I am just shocked that we have moved as much as we have without a decent pullback or breather.  So, although I have been enjoying it, I'm waiting and expecting a pullback to come very soon.

Technology stocks (mostly the Nasdaq) is by far the leading sector, with many tech stocks breaking out to all time highs like Apple, Amazon, IBM, today.  Today, on the Nasdaq, we finally made and held a higher high ... it is also above the 50 day and 200 day moving average and all averages are pointing UP ... what all this means is that we are officially back to a bullish market in that index.  In fact, looking at a chart, we have almost recovered all of the loss we had in July and August and are officially up over 6% for the year.

If you look at the SPY and IWM, we still have a ways to go in order for me to consider us in a bull market.  We have yet to make a higher high, both are below the 50day and 200 day moving averages and both averages are still pointing down.  All of these characteristics are required in order for me to consider this a bullish market.  Is the market still tradeable, of course ... but it is more risky and therefore needs to be watched closely.  On both of these indexes, we are getting close to the previous higher highs, which means we have some heavy resistance to get through in the coming week.

The financials are lagging and hanging heavy on this market.  I think most of this is because we still have yet to address the real problems that got us into this situation to begin with.  Everyone know this and therefore are staying away from the financials.  But, a sustainable long term up trend requires all parties to be involved especially the Technology sector (which we have) and the financials. 

My afternoon analysis shows we are getting quite overbought on this run which means we are overdue for a correction.  Is that reason to panic, no.  The market doesnt move straight up and down (as we have seen over the past week), it moves in a jagged fashion ... new high, new higher low, new higher high, new higher low ... so it is very normal to expect a pullback.

How big is a healthy correction?  Usually you will see a 35% - 50% correction from the previous run before the market will start to move higher again.  So if we are up 10% over the past two weeks, I would expect (and would not fear) a 3 - 5% decline before moving higher again.  The market eventually will exhaust itself and from that prices will decline, waiting for a new round of buyers to come in.  Usually this new higher low coincides with the crossing of a moving average ... at which time most institutional investors will decide that the current price represents a good value and are comfortable buying, vs. buying in a mania at the top ... the ole' 'buy the dips'.

So, with that said, I expect (and would be surprised if we don't get it) on Monday or Tuesday the start of a decline that could shave 3-5% off your bottom line, then we should be ready for another leg higher.  I will wait for this dip and start buying on the way down at key price points.  Might even short the way down, but it depends on the strength of the move whether I will feel comfortable doing that.  As I said previously, I don't like to trade counter to the trend, and currently the trend is obviously up.

SO ... as I joked in my last set of posts ... probably should sell your 10% gain and put it under your mattress for the next 13 years again ... cough ... cough ... just kidding!

Have a great weekend, I hope it is peaceful!

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