Bulls Looking to Run
Tuesday’s market action showed all the technical signs of a bottom. Volume expanded, new lows dropped, up volume was 90% of down volume, financials rallied and the momentum names came back to life. Both Europe and Asia are in rally mode and the futures markets are showing signs of a positive open. With all this occurring, we need to ask if yesterday was a bottom and the markets are prepared for an onslaught of the recent highs.
While I would be a fool to ignore yesterday’s strength, I am uncomfortable saying that the worst is behind us. After all, one day does not make a trend. My long-term outlook is colored by my view that an over-leveraged economy will stop responding to stimulus and eventually fail. However, if that view is correct it will take time to develop in the markets. For today, we need to sense where the markets are going and profit on a short-term basis.
Looking at the futures, we see a modest open. However, many of the high flyers are up further. Early indication show Apple (AAPL), Research in Motion (RIMM) and Google (GOOG) are going to add to yesterday’s gains. I told a client yesterday that the remainder of this week would provide treacherous trading. Last week it was easy to short everything and make money. Yesterday you could buy anything and make money. Now, we are facing a situation where many of the stocks that cratered last week are approaching key resistance levels. My plan for today is to long those names into resistance. From there, cover you long and wait to see how the markets react. If we overtake the 10 day moving average, these names will fly higher. If we don’t, it will represent a failed rally that will push us lower. The game plan for today must be to ride momentum names with tight risk control. If these stocks stall, it will get ugly.
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Inflation data was tame. Gives the Fed a *tiny* window to work with but it’s enough for the bulls to take over. We will hit support at S&P 1490ish though so be prepared for a battle. Should be fun nonetheless. I need the bulls to hold out long enough so that I can make some extra money for Christmas gifts this year
I wouldn’t bet on them holding out too long Jorge! Bank that extra christmas money each day the market closes up because you know the next sell off will once again be big!