Inevitable retreat...
Perhaps your watchlist still showed quite a few greens and it made you wonder if this market can continue last week's performance. To us, when the major indices pause at the resistance, it's simply either standing on the side or start considering shorting the broken (crappy) names. Either way, today is clearly not a day to enter or chase any new longs. Sitting on your hands day as far as pulling the trigger on new trades. We just continued to do what we did a lot of Friday and that is take positions off the table today in anticipation of further consolidation.
To be honest here, we aren't impressed by this particular earnings period thus far and winners have been far and few in between. Obviously the chemical/agri. group has been the most consistent in terms of earning but we just can't say the same for others. It's basically an exercise of finding oversold stocks that can come up with a not so bad report. In addition, despite the fact many well known names have been beaten down going into the earning, they'd still get hammered after a lousy report. This week we have the CSCO report to deal with. Actually, we'd rather not look forward to its report because we still remember what happened after CSCO's last report in early Nov. http://www.djimstocks.com/journal/2007/11/8/cscothe-straw-that-broke-the-camels-back.html
In any case, we are going to be very light on the long positions and only start dipping into names at levels that we are comfortable with.
Right now, we are due for a pullback and that's the bottom line. You might be attempted to buy on the first dip but we think it's wise to wait a couple of days and scale in on the purchase. In the current market condition, there's absolutely no rush to buy anything because it just doesn't look like this market is going to challenge highs any time soon.
Chemial/Agri. This group (MOS POT TNH...) is of particular interest because most of them closed at or near the day high when Dow took a triple digit drop. Had the market closed green or showed strength, we'd have no doubt to chase them. However, even the best group can succumb to a pullback when the overall market is weak. It would've been great if we can reenter some of these names at the level a week and half ago, but we think realistically the best entry point is probably just a tad over 50 ema.
Solars, we are actually surprised that some of the most popular names have held on to their gains today. Again, other than day flipping, this group is still in the beaten down category and there's no need to get excited about them yet. Coals, continued their move. Another name we left out is JRCC in the under $20 group.
Bottom line, we might have just finished a bear rally here and the bias for many traders is still a downward market. We have to be very disciplined here in choosing the plays and decide on an appropriate strategy. So far what's been working is to buy the dips of strong(good) stocks on selloffs and short the weak(broken)stocks on upticks.