Stocks for the Rest of Us
Index Notes
Notes on the Major Indices
Time To Trim The Hedges
Jan 15th
If you took my advice in the last post and put on some hedges I think it might be time to take those off. We’re currently a little oversold so even the slightest spark can cause a fire. Clearly the market is starting to get excited about the news of a Bank of America bailout. Although I can’t imagine how the failure of yet another major bank can be seen as a good thing there’s no reason to fight the tape. Having said that I’m not so sure I want to be getting long here either.
The Market Is Approaching The Top Of The Range; Get Defensive
Dec 16th
I’m getting defensive as the market approaches the top of the range. The rally today on the news that the Fed is basically doing anything and everything it can do to “help” the economy seems counterintuitive to me. How is it a good thing when the government has to step in and do all kinds of crazy tinkering that no one really understands to keep our financial system from failing? I don’t think it really can be so my guess is that this rally will eventually fizzle like the rest of the bear market rallies we’ve seen. People always say “don’t fight the fed” but it would appear that betting against the rallies that have followed fed rate cuts is a winning strategy.
For now I’m going to let the rally play out a bit. We might rally to 1000 or so on the S&P but I expect some retracement soon. Whether we’ve seen the lows or not is a fool’s guessing game but as long as you move quickly and keep losses contained you’ll survive.
Remember, The Primary Trend Is Still Down
Dec 10th
Be careful getting too excited here as the market rallies. A lot of stocks are up 50% from the lows and anyone who was lucky enough to catch that will definitely be unloading into the strength. If you’re already long you can try and ride the rally as long as possible but if you’re not long then wait for a better entry point. There’s going to be a good bit of resistance here around the 50 day moving average on all the major indices.
Keep Your Finger On The Sell Button
Dec 8th
It looks like the year end rally might come to fruition. As I mentioned in a previous post the ability of the market to shurg off the bad news and go higher is bullish. However, there’s still no reason to think that we’ve seen THE bottom and the stock market is going no where but up. Until more evidence surfaces this is still just another bear market bounce that deserves to get sold. If you caught the bounce, consider doing some selling into the strength. If you’re in a long only buy and hold type portfolio then you might want to consider putting on a hedge in the form of index put options or the SDS.
S&P 500 Support: 820
Dec 2nd
If you’re thinking about getting long take a lookat the bounce today around 820 on the S&P 500. That’s probably the best bet for a point of reference. Consider placing a stop around 810 to protect yourself if the market starts to break down.
Update 12/3: Support has held 820 again today. If we can’t rally here then I suspect we’re going to go through it.
General Motors Bailout Could Be A “Sell The News” Event
Dec 2nd
Just a word of caution here for anyone expecting a rally if the Big Three are bailed out. The GM bailout might turn out to be a “sell the news” type of event in which we get an initial spike up and then a big sell-off. I think today’s rally was driven in large part by Nancy Pelosi saying that bankruptcy was not an option and the fact that we sold off so hard yesterday almost gaurantees a little bit of a dead cat bounce today. It’s looking more and more likely that the automakers will get the money and I’m starting to think that it might already be priced into the market. Just be careful chasing any strength you see as it can quickly turn into weakness.
Stock Market Rally Warrants Caution
Nov 26th
If you’re long, consider being less long. We’ve rallied hard off the last bottom and that kind of move warrants caution. If you’re in a long only portfolio, consider hedging yourself with some SDS. Here’s why. We’re currently moving up into what I like to call the “Dear God Please Let Me Out” range. This is the range where traders bet incorrectly that we saw the bottom on October 10th and were in a panic as we blew right through that previous support around 850. Now that we’re back around 850 those people want OUT and we will most likely start to see some resistance as the holiday trading subsides and the big boys come back to the office on Monday. As a side note we’re also approaching the 50 day simple moving average which will be natural resistance to anyone looking at a basic chart.
Dear God Please Let Met Out Range
Bear Market Rally Underway: SSO For The Win!!!
Nov 13th
We bounced hard just below the old lows this morning in the S&P 500. I initiated some longs in the form of the double long S&P 500 ETF (SSO). Volume in the SPY was huge so there are clearly some large buyers coming in and buying. I’m keeping an eye on the old lows but the target is again going to be around 1000 on the S&P 500. The fear of being left behind is definitely kicking in here and causing this enormous rally with momentum on the upside. If it continues at this pace I’ll be looking to sell probably within the next couple days.
Update: This is why stops are so important. Keep them tight and positions small and you will survive.
Stock Market Stuck In The Trading Range
Nov 12th
The stock market is stuck in a trading range and right now wer’re at the bottom of that range. Unfortunately, I’m starting to feel that everyone knows about the range and is already trading around it. I would be careful picking up stocks here. As I mentioned in my previous post the financials are seeing new lows and the market overall could follow. If you’re short, I would cover. However, I would wait to see if a bounce develops before going into any long positions.
S&P 500 trading range
Financials Appear To Be Leading The Way Lower
Nov 12th
Considering that the finaicials are at the epicenter of this crisis one could assume that they will lead the market in whatever direction they go. Unfortunately, right now they appear to be heading lower. While the market overall is holding those October lows, the XLF, the financial sector ETF, is breaking to new lows as I type. This is very troublesome for the market and because of this I’m leaning more towards breaking those lows rather then bouncing off of them like I previously stated. Rather then jumping in expecting the bounce I’m going to wait to see if a bounce develops. I’d rather be safe then sorry.