From the Indices, one wouldn't be able to see the kind of stuff that was going on in this market today. If it wasn't for some timely program trading and short covering near the end of the day, we would've for sure closed near the low of the day given the look of things. The story of the day is that many growth stocks, especially the well known ones from last year, were getting hammered today. Yes, we are talking about the Solars, the shippers again, and some growth oriented tech stocks. Even the invincible chemical stocks looked shaky intraday. This is of particular concern to us. If the growth stocks are broken down with the short term trendline, what else have we got to look forward to as a retail trader? As a trader, if the short term technical signs turn very bearish, we aren't going to give the stocks any time to work their way out of it by holding them. We bail and we avoid them. This is our way to control our risk with the long plays we trade. The strategy has done a good job for us for many years so it's not going to be any different this time.
Basically, market is at a point that it needed to test a new low. Naz has already taken out the November low and there's no telling where it's going to bottom this time. Dow and SPX are barely hanging on from November low and we feel it's just a matter of time before the low gets taken out. As a matter of fact, we'd prefer to see it happen sooner than later to get the inevitable out of the way. Therefore, what we don't want to do at this point is to get sucked into a probable short lived rebound. A rebound is not a rally and we have to distinguish the two. A rally can last few days to weeks while a rebound can quickly turn sour as we have witnessed intraday today. For us, we have time to wait this out. Ideally, we'd like to see some more panic selling that take us to a new low the next short while before this market finds a good footing.
Solars, this sector is definitely having a poor showing today with most if not all the plays breaking down. Now, whether some plays closed at the day low or not is irrelevant and don't get sucked into thinking that this sector is reversing any time soon. We think the only thing that can save this sector is a potential stunning earning report (guidance will be most important) from some of the sector leaders like FSLR STP SPWR JASO... Again, even with the breakdown of this sector, it doesn't mean that some of the plays wouldn't get a pre-earnings runup. We feel that the safer strategy with this group would be day trading them on a good day from now on unless the group is back near the high.
Again, this market is going to be tough if you try to trade against the trend. Many of the plays on our watchlist can pullback enough that they'd never come back. It's essential to wait out the selling first and then see which plays are still attractive once things settle. There is going to be a lot of events this month from the economic, political front and as well as the earnings front. It's almost certain that we'd get some good opportunities later on this month. For now, we just have to make sure that we remain careful and disciplined for the next few days.
cheers,