DJIM #46, 2007
Monday, November 19, 2007 at 08:30AM Three sucky days, one so so day and a really awesome day. This is pretty much the action from last week. While this isn't for certain a bottoming action, we can see that this market is working pretty hard to fight off this extreme volatility. There have been signs of the market rebounding from some excessive selling. We are glad to see a somewhat different pace toward the end of the week and hopefully it carries into the coming holiday week. This doesn't however ensure that we won't go down in the near future and break the previous low. We have to be prepared for any possibility. At the end of the week, we seemed to have some good action from the solar sector and some bottoming action from the big tech names AAPL, RIMM etc. This might bode well for the up coming holiday trading week. Traditionally, the Thanksgiving holiday week has been a strong week for the bulls. Although we can't promise the same this time around, our fingers are crossed in hope for some good action. Even just to show some good action, we can demonstrate to the public that this market isn't just a one way ticket, down. Right now, the most important ingredient this market needs is the confidence. The confidence level to see a market turning to the upside is comparable to that of August's level. We as traders don't really know what to expect on a daily basis. Do we have to deal with gap downs after gap downs or a strong rebound? This is pretty much the same dilemma for everyone here. If we put a big wager on one direction, we'd pretty much end up just hurting ourselves. This is the period where our confidence level, our patience and our discipline level are being tested severely, and repeatedly. If you took some losses, just leave it behind and do not let it get to you. The last thing you want, is to go reckless and chase back the losses in an extremely difficult trading environment.
Our game plan here, is to go after the safest and most obvious kind of plays. We are cutting our sizes down to absolute minimum so the volatility has little or no effect on our position. Now it's easier to assume that you want to carry some hefty positions to enjoy a day like last Tuesday. The fact is, for every huge day, there's probably four to five times as many really crappy days waiting to hammer you down at this time. Since we are still facing a very uncertain market with extreme volatility, we have to use our disciplined judgement to carry ourselves through this downturn. The bottom line, there will be a time, sooner or later, where we can go big in the market, but now it's not the time.
Some potential plays for the coming week....
Solars, FSLR JASO STP SPWR etc., this group seems to go the same direction as oil price, and more so lately. It might be too cute to think that this group can challenge the old high on its own while ignoring the overall market condition. As long as you have both the oil and market in the green, this is the group you want to be in for some quick trades. Also, since many of the plays in this group tend to move in a healthy percentage on a given day, we'd think smaller sizes is the prudent way to go.
QSC, it seems this little bugger refuses to pull back in any meaningful way. Trust us, nothing goes up forever and we'd really like to see a good pullback sooner rather than later print on the daily chart. If you missed the big run so far, there's no need to chase it aggressively knowing that a pullback may be just around the corner. We've seen on Friday how quickly it drops from $5+ to $4.30 and that's just a quick 15% that nobody would enjoy.
PCLN MELI, MSTR, DLB are some of the recent earning plays that seem to trade much better compared to the rest of the market coming off earnings.
China plays, it is becoming obvious that it's absolutely essential NOT to play the earnings. We've seen it from the likes of WX and now EJ STV so far that regardless the earning number and expectation, those stocks are getting sold hard. It is also micro-small caps in general that are not getting a positive reaction off earnings at this time. So don't expect too much out of these next little while since it's very much a sector problem rather than individual report. Be careful with other China's reporting this week as well. We'd look for the group/sector to see some sign of life before we are willing to really get back into some of these plays.