Dealing with the inevitables...

So everybody knew it's just going to be a matter of time, sooner or later...this market is going to rebound from that horrid 500 pt drop last week.   How could it not, right?   Of course, we just don't know when it'll happen and how it's going to happen.    Well, the day did not start with any conviction that we are going to have that rebound day.   You can just feel the jitters with fvery tick of the indexes, up and down.   Actually, there's always that fear looming over some people's head that "what if that 500 pt drop turns into a 1000 pt drop?"   Of course, it's just highly unlikely that market drops 1000 points without any kind of rebound.    We may very well drop a total of 1000 points over the next few months or years, but it probably won't take just 3 days to do that.   A little logic,  street sense, you may call it always plays a role in our thinking day to day.

There was a battle going on earlier in the day between those that looking to sell into any strength (the 1000 pt fearer) and dip buyers.    Finally, when it's apparent that market isn't going to drop today, the reverse happens and people just rushed in to buy up some of their favourite targets.  Hence, we had the inevitable rebound.    At this point, it's going to be hard to convince people that this is nothing but a short lived rebound attempt and the overall technical picture is pretty gloomy.   Well, at least this is probably the majority of the "smart" traders think anyway.    To us, we'll try not to out think the thinkers and outplay the markets.    The strategy is to go with the flow with some contained exposure.    We would bear in mind the potential risk of selling off again but still trade those with the best momentum and setup.    The point here, is that we have to stick with our game and plan.   If we took some loss from last week,  we'd grind it back, slowly but surely.   Having confidence in our ability to trade well in an up moving market is the key to long term success in this business. Some..most..can't do this...so stay put!....Right now, we just have to be super disciplined and be ready to go cash on a moment's notice.    Other than that, it's really business usual and last week's drop does not change our personality or strategy or discipline level whatsoever.    The only thing that may have changed since last week is perhaps our portfolio value ...   Frankly, that is the easier part to deal with given the number of similar scenarios we've gone through before.

Now a couple of earning plays and story stocks that should be kept a close eye on......

ARTC. this is a play that weathered a 300 point Dow drop by announcing its earning last Friday.    When market turned positive today, it's almost inconceivable that this one would do anything other than being up.   After another above average volume day, this one tacked on two points and a new closing high.    Again, we like this one's business and we don't think any "sub prime or prime concern" would have any adverse effect on this one.  It is at the most recent price targets set by a few recently.

AXYS, this one actually had a buy reiteration today, so some of the move maybe attributed to that.   In either case, any stock that gets a new closing high in this gloomy environment deserves a trade from you..

LDSH, this one actually had a downgrade the day after it ran up off earning.   We are just wondering if it wasn't for the downgrade, would this one already be well over $50s?   Of course, it's useless thinking about questions like that.   We just simply have to deal with what's already taken place.   It's going to get a good test to see if it can zoom past $50 and beyond.    We think a lot depends on the overall health of the market.   However, if this market rebound does carry some leg, there's no doubt that this one can be one of the leaders leading the gainer list.

FSLR,  if you happen to catch some intraday swing, it's pretty sweet.   Earning is tomorrow and this one is something we'd definitely keep an eye on as this can set the tone for the rest of the solar sector for next little while.  We said watch for pre-earnings moves in our listed stocks reporting, this one  definitely got one today.

GHM, for a small company with a small float, its earning looks pretty good.   Valuation is still very reasonable.    We would be trading some with the flow

PWRD, this is a new play we've added to our watch list last since Friday.    This can trade wildly but it can be rewarding if you are on the right side of the trade.    There's some good amount interest in this play, so we'd trade it until the characteristic changes. Not for all!. 

There are many bouncing as expected...CCF.....some of these are so thin it is easy to walk up as it was to walk down last week.

So it's another meltdown....

Being a trader in this environment is definitely tough.   This has nothing to with the fact whether you have 20+ years of trading experience or not.  It's simply tough out there.   Ok, lets rephrase it, it's tough for those that are actually "trying" to trade this market.   If you have been on the sideline the last little while, you can literally laugh at this in a comical fashion.

Basically, market's short rebound since yesterday which carried into this morning, got severely rolled over.   We are using the term severe because it really felt that there's just no hope in sight, to trade (long side) out of it.    Of course, all market sell off feel that way and this time is no different.    The "smart" way again is to sell into market's strong open this morning and lock up whatever the profit you've been carrying 24 hours ago.    In our opinion, we don't even think most people had that many profitable positions to begin with to sell into the morning strength.   More than likely, many people have used the morning strength to let go or lighten up whatever the losing position which they weren't able to sell during last week's debacle.

If last week's sell off was due to some worrisome news on potential sub prime fallout, then today we tasted a dose of reality from that fear.   The culprit is AHM and we are sure you must have heard of it by now.     Without needing to analyze the actual effect this can bring to the financial market and god knows how many other companies in a similar situation, we just need to realize how severe and devastating the mentality is among the market participants.     Yes, it can get much uglier in our opinion.   Coupled with one of the worst trading months coming up, we can get fairly rocky within the next little while.    So basically, this comes down to the question, is this market worth trading?   In our opinion, the market overall is not playable.    Trying to time this market movement with sector leading stocks just don't work unless you have deep pockets and a heck of a long term perspective.    To us the little guys, we just have to do what we know best in a situation like this.   We stay put!  Save money.   This doesn't mean that we'd lock up our computer and go away for a long while.   It just means that we are going to be very very very disciplined about our stock selection and setup.  Cutting the number of positions and sizes down to bare minimum is simply the way we go here.     Think of it as a challenge to us the professional traders.   

Some stocks recently noted...

CRNT, for an hour or two, this play reminded you what was going on earlier last week.   Yes, it's only Tuesday and already people are pushing for an IBD run-up.    We are following this one closely to see if there's enough interest on this IBD thing, it may just ignore the overall market sentiment fo the time being.    That's a big if, though.

LULU, this is a recent IPO we started playing off the UA earnings.   Again, when the market sells off hard, you pretty much want to stay away from everything.

Shippers, don't be fooled that this is the sector worth holding onto.   We think it's better to take some profit or trade them in a very short term fashion rather than waiting for them to get shot down like solars.   Momentum stocks can suffer pretty dramatically when overall market gets sold off.    Relative P/E on these don't mean much when they all have pretty much climbed over 100% last little while.

Solars, all eyes on FSLR eps tonight and AH result isn't very encouraging.    There's also a secondary overhanging this stock and we really don't want to speculate what the deal makers going to do if the stock gets sold off hard.    Basically, if FSLR gets sold off hard tomorrow, there's pretty much no point playing any other solar stocks. 

..just to bruise some more, this came out AH...The Wall Street Journal reports BSC already forced to shut two hedge funds that bet heavily on the risky subprime-mortgage market, is now facing big losses in a third fund that has roughly $900 mln in mortgage investments, according to people familiar with the matter. The fund, known as the Bear Stearns Asset-Backed Securities Fund, ran into trouble in July and has refused to return investors' money for the moment

Remaining untrustful....

For a market that went up 150 point, there's really not much to cheer about.     In fact, the breadth stinks on this "bounce" day.       What happened today may be the fact that we had entered a fairly oversold condition so any more selling was just not sustainable given the damage we've already taken.    One thing remains clear about this market, is that it is going to be very volatile the next little while, with the bias to the downside.    The question though, are we going to play this  bounce?    We think the answer really lies in the individual action, which is not much today.    The psychology is to play just anything when you see Dow rallying hard.   However, we think it's best just to stay put and remain calm.   Less trading in this environment is better for most.   Basically, we are dealing with lots of unpredictable pattern that do not put a favourable odds on trades.     If you absolutely have to trade, just make sure you stick with the 52 week high stuff and carry your trade for as short term as possible.

GRMN/TRMB/NVT/TRMB, this is the GPS group that's being pushed by traders today.    Just about every single on in this group hit a new high today because of earning.    This is the kind of leaders we are looking for in a turbulant time like this.   However, we also want to caution that this group isn't exactly new to traders/fund managers and momentum may not carry them as far as we may like.    For the time being, this is about the only tradable group we have left  at the 52 week high.

UA, this play had some good follow through today and it definitely stood out from the crowd.   Again, this is considered one of the most uncertain weeks we've encountered in a while so any long trade will have a very short time frame.

Bottom line, it doesn't feel that market is done getting through the subprime worries.  Also, we really don't have any positive catalysts we can look forward to the next little while in order to push this market higher.   It may take more than a few days for us to sort things out and pick out the tradable names.   Meanwhile, we should really not push for trades but rather just watch the market events unfold.

Trading the untrustable...

While we all like to really just forget about this subprime and credit crunch woes that took our market down last week, we simply just can't shake it off that easily.    Things are looking very tricky at the moment.    On one hand, many of us are just waiting what sort of damage that would come out of this.   On the other hand, market isn't giving us a clear clue what it intends to do once the smoke is cleared.    One thing is for sure, there will be some casualities from the credit fallout and life will move on afterwards.     We as traders just have to adapt our game plan to whatever the scenario that lies ahead of us.    Right now, things are uncertain!  And  when things are as uncertain as it is now, we'd look for plays that stand out from the crowd.    Although no play is totally market independent, but there are some plays out there that are less market dependent, compare to others.

CRNT, this one has been in our playbook since last week and oh yeah, in case you are wondering, it's another one of those IBD100 play.    We like its close today.     As long as the market does not pull a diving action tomorrow, we think this one has a very high probability of closing above $15 tomorrow.    There's just that feeling that market participants wanted to see this one closing above $15.

ARTC, if we have to pick a stock to play, we'd have to choose from the list of recent earnings winners.   This one came back strong today and it looks as though it will take out the old high convincingly.

LULU/CROX, we are pairing this two up for a trade and they are the plays which we think are less dependent to the market.

DJIM #32

Last week we saw what was perhaps one of the most volatile week in the entire year so far.    Fittingly, we ended the week at the lowest point of the week and of the last three months.    No doubt, we all know the cause that is driven the heightened emtional state of many market participant by  now.     So what we all like to know now is  "does this time resemble the last nasty selloff back in early March"?     When we compare major selloffs of different time, there's always similarities and differences which we can point out.    When it comes to dealing each selloff, however, we really have to rely on the unique facts that are respective to each situation and come up with a good strategy.

We want to frist point out that a major selloff does not automatically mean that the market is going into the bear mode.   It simply means that the previous(bull) trend is broken, for now.   What most likely would happen after the selloff is the inevitable consolidation which eventually leads to a new trend, either bull or bear.    Unfortunately at this moment, we may not be at the end of the selloff and potentially further  decline is still on the way.  

In our opinion, there's a few things that are giving this market the kind of heachache that is challenging to overcome.   First, credit crunch is a real deal and the negative impact from the subprime lending will probably not be fully assessed in a while.    This means that market participants will constantly trade in fear that something bad can happen.   We do not like fear and it's tough to hold onto positions when everyone is jittery.   This kind of trading emotion does not drive a bull market.   Second, we are nearing the end of the earning season and frankly there has been some misses from some key technology companies, whether you like it or not.   This puts on a lot of pressure for market participants because they'd be less optimistic about the next earning quarter.   Then, there's a long wait before the next eaning quarter and if you aren't optimistic, why would you hold onto anything?   Third, we have this seasonality factor and August has always proved to be challenging to traders.      So, you can say market is dropping solely because of the subprime issue but we conclude that there's a combination of things that are at work here.    The bottom line, we think we are in for a tough environment at least through August.

Now, how do DJIM traders deal with this kind of market and here's a few things we'd like to share with everyone....

EXPOSURE, basically, the less exposure we have in this market, the better we'd be dealing with this market.   To us, it's crucial to limit our trading exposure because we're more likely to encounter uncertain setups, and possibly make mistakes along the way in this kind of market environment.   Reducing exposure means cutting down the number of positions at any given time dramatically and cutting down the size of each play to the bare minimum.  We don't want to completely give up trading in a tough market because that's just simply not what we are.

DISCIPLINE, when dealing with an uncertain market like this one, we have to basically raise our discipline level to the highest level.    This means only chasing after the kind of setup that we are most certain, and most comfortable with and be very very picky.    Another aspect of it is setting a rigorous stop for all of our plays and executing it promptly when called for.

HEDGING, as most of you know, we do not hedge against the market.    It's just an idea that's sound in theory but difficult to practice.    To us, going mostly cash when things go awefully wrong is a better strategy.    Unless you have few hundred positions and mutlti multi million dollars of position at risk, there's really no need to hedge.    If you really want to stay neutral, go cash.   If you want to play, use less exposure.

We believe even in a tough environment like we are having now, there's still opportunites to trade.    The opportunities may be few and rare but this is going to be more of a stock picker's market and more of a trader's market.     Everybody makes money in the bull market, but only a few good traders do well in this kind of environment.    To us, we are taking this challenging opportunity to improve our game as well.   Remember, we only learn through mistakes and from tough market.   We firmly believe that the more tough market we go through, the better traders we become when a good market rolls around.    

Reassuring day?

Perhaps Not!    It's just troubling to see that index is up so much while the decliners are still out pacing the gainers.     Ok, many of us have to admit at the end of the day that this huge point gain hasn't really done much for us, the individual traders.    What the market is doing is that it's trying its best to confuse and frustrate traders at the same time.    Do we play this rally aggressively or not?   For all we know, tomorrow could be a nasty selloff day.   This is the kind of uncertainty we are facing day in and day out for the last little while.     Under normal circumstance, this rally would be viewed as very bullish.    In the current environment, it only makes us fearful that this is just another rally that would soon be crushed.    Well, if pattern serves right, we'd be going right down either tomorrow or the day after.      Ok, enough of this "once bitten, twice shy" analogy.

What we have been doing today is prioritizing our trading list and put those stocks that have just recently announced good earning as the ones to play and monitor.     Many stocks have suffered lots of damage technically but we are able to still find some decent plays that offer us good trading setups.    Here's a few that ought to be familiar by now...

FCN, this one came out with earnings when the Dow dropped close to 300 points last Friday.   Today we believe traders are realizing the value of its earning and bid it up.  We like this one's momentum and we are trading it aggressively.

ARTC, this one also is a recent earning play that has pretty much weathered the volatility of this market.    Perhaps it has alot to do with the type of business this company does and it's definitely standing out from the crowd and notched another high.

LKQX, it came out with earning last week and it notched a new high quietly.   We like this one's setup today and we are monitoring it very closely.

GHM, this is one of the very few small caps that actually did well today.  We added some and we are looking for some more follow through on this one.

DOCX, after its first earning reaction last Friday, we are more encouraged by its action today.   The more we read the report, the more we feel more confident about this little play.   The only question remains is the question of sustainable interest.   Will there be enough interest that can give this play a run?   At this point, we aren't too sure but we did add some today on its improved action.

CRNT, so this one came out as #1 on IBD100 and we got the initial pop as expected.    We don't think this play is over.  The longer it stay above $15, the more likelihood that  it can try for more upside. 

Volatile but better action...

We have gone through many volatile session recently and today's just no exception.    We can honestly say that nobody that we know expected  smooth action post Fed Decision.    Despite of the fact that we closed well off the highs off the day, but we also closed well off the lows.    More importantly, we closed firmly into the green territory and that's somewhat reassuring.      At least the breadth is much better today compare to yesterday.    We have been concentrating on some of the familiar names most of the day and carried some position home for a change of pace.

Here are some plays...

MR, this old play came out with pretty decent earning last night and we managed to play some middle way through the day.   Again, this one is from the medical sector and the it hasn't taken alot of damage during the past couple of weeks.   This is a strong sign and today we just got an excuse to get on board some.

CRNT, from the look of it, this play is not over by any means.   It may have a pull back here and there but the further away it moves from $15, the better trading action it gets in our opinion.   

LULU, we chased some of this one today as it cleared previous high pretty convincingly.   We are going to be flipping this one very aggressively as we believe taking short term profit is as important as getting in a good entry on it.

LDSH, this one also cleared it recent consolidation range pretty convincingly today and with the help of this market, we think this one can get some serious leg under it.    Of course, just like everything else, market behaviour is the key  here.

LKQX, given its usual churning nature, this one actually did exceptionally well today.    We aren't chasing much up here but in case the momentum persists, we'd be there without hesitation.

Taking advantage of the tape...

The truth is, it isn't exactly easy taking advantage of today's rally.   If you really paid close attention, many if not most of the stocks on our watchlist hit the day high right around 10 A.M. and it's pretty much sluggish action from that point on.    Sure, if you happen to have some poisitons tucked away going into today, then you'd have a pretty good day scaling out here and there.    For those that began the day literally flat, you almost have to buy stuff from the get go and cash it all out half an hour later to enjoy most of the rise.    Otherise, it'd be most likely a diffuclt battle making an entry middle day.     Stocks can be volatile even on a seemingly good day.   For us the traders, we have to recognize the volatility and making use of it to our advantage.    We have been cashing out quite a bit of stuff during the day because as the indices was heading higher, many of our positions were either stalling or drifting lower.    That's a sign of tired play and frankly, many of our recent plays have gone up enough to justfiy some sort of pullback.

Here are some plays that closed well off their highs...

FCN/LDSH/LKQX/ARTC, these four in particular all hit some really nice price point in the early going but they all couldn't stay up there long enough.   Yes, they have been up quite a bit past few days and we basically  have to take some profit here.   Don't forget, big point day like today don't come often and they only happen often in a volatile environment.   During the volatile environement, we have seen more big point down day than the up ones so we have to fully appreciate what's given us by locking in some profit.

CRNT, this one took a pretty nasty turn intraday and closed much lower than its day high.    We are not absolute certain if this is a sign of reversal but it does feel that the easy and sure money has been made in this play already.     Again, we'll leave it at this piont and let it sort itself out for the next few days.

Liquidation..

It's conceivable to assume that there's liquidation process going on out there.   Of course, it is the kind of liquidation that is being forced by funds that simply had enough of a beating.    What we don't know at this point is how many other "market neutral strategy" quant fund out there that's in trouble and in a process of liquidating or simply shutting down.     Well, that is the world most of us don't have any exposure with.   So, we can only speculate based on the action out there.   This kind of chain reaction creates fear and we don't imagine fear is a good thing for this already fragile market.    Eventually, market will find a stable ground and fear gets subsided.    As far as today's closing bell goes, things don't look that promsing.

Is there any point to speculate what might happen tomorrow?  To us, there's simply nothing out there that can give us an educated guess of what can possibly happen.    How about putting it this way....  more bad news means more bad tape and no news can potentially mean a rebound.    Well, analogy like that is making us NOT to want to carry any positions overnight.    We hate dealing with unknowns and if the market does not give us any kind of reading, we just stand aside.    Fortunately, this kind of suspense can only last so long and one way or the other market will give us a clearer direction where it wants to go.    At mean time, we keep our watchlist tight and up to date.    It's definitely a good idea to cross off those plays that have either fallen out of favour or have technically deteriorated badly.

Here's a couple of green plays...

FCN, we are actually being overwhelmed by the resiliency of this play.   It tacked on over three points on a day where most other stocks have dropped miserably.   To us, as much as we respect the momentum behind this play, it does feel that it's run up is a little too extended.   Nothing goes up forever and pullback is necessary for a sustainable move.    This one would definitely be one of our favourite to get back into on a pullback.

LKQX, it's so ironic that half of the stocks we cautioned as being too extended yesterday have fared really well today.   This just proves that these stocsk are strong for a reason.    On a good day, strong and weak stocks all hide behind the index gain.   On a day like today, that's where the real winners get separated from the wannabes.    Basically, same treatment as the FCN, we aren't inclined to chase anything today, given the cloudy nature of the entire market.   We'd look for these ones as the leaders when market does decide to rebound.

The bottom line, we don't want to get caught in someone else's liquidation process.   Let the other big boys pick up whatever the shares they want to dump.   We'll stay at our own course and be selective about our  own plays and setup.

DJIM #33

Last week, we've witnessed some of the most intense and volatile sessions we can recall.    At the end of the week, we are still left with as many questions as answers.     

First, in terms of answers, we know that the subprime woe is affecting not only the domestic lenders and some of the financial institutions but overseas as well.   We also know that most of the central banks around world is recognizing the situation and they are doing what they can(by pumping liquidity into the short term market) to ease the crunch.    Lastly, we know for fact that some of the market neutral funds have been liquidating alot of their assets due to the recent turmoil in the equity and as well as the debt market.     Things are definitely unfolding, and in a way, progressing toward resolving the current situation caused by the subprime market.   

Second, in terms of questions, we still have many questions we'd like to have a satisfying answer with.   Will the central banks have enough power or will they do more than enough to ensure the stability of our financial market?    How much more damage is there from the financial institutions that have yet to admit the kind of losses they've taken so far?    What about the repricing of those structured debts?    There's still billions of debts out there that have yet to be written off and the resulting ripple effect could be catastrophic.     There are tons of topics that can stem from the questions above which are making alot of us to wonder about.

So what about now? 

 For many market participants, as long as they can assess the damage that's being done to the financial market, and knowing that things are being done to alleviate the pressure of affected entities, those things will calm them down.    Like we said before, fear is the most troublesome thing that can destroy an orderly market.   What we were witnessing last week isn't exactly an orderly market and the pure point gyration is enough to keep many market participants at bay.   We definitely wanted to see an end to that.     Once the market returns to a somewhat normal trading fashion, we as traders can also return to our normal routine and game plan to do what we can to make a living.     As of right now, we think we are getting close but we still need to see some proof in the stability in the trading.      August is usually a non performing month and frankly we'd be glad to see a market correction this time of the year as opposed to occurring at latter part of the year.

And what can we do as traders?

Sticking to 52 week highs!   Seeing is believing and there's nothing that can convince us other than the stocks popping up on the new 52 week high list.     We try not to speculate which group of stocks may get there but rather, we'd try to work with the current group of 52 week high stocks.   Stocks are at 52 week high for a reason and they are there to remind us that it's our obligation as traders to discover them and play them.   During the next few weeks, we'd be concentrating mostly on the new 52 week high stuff and hopefully come up with a group of stocks that can weather the volatility of this spectacular market.

Eyeing the range...

Regardless what comes at the newsfront, we believe alot of traders would be eyeing last week's high and low as the sticky point to trade.    Unfortunately for traders, those sticky points amount to almost 500 point range on Dow and about 100 point range on Naz.    Such is the life of traders and this is what we have to deal with.    In our opinion, this range bound trading can last a long while and we have to get ready for it.

Today is the first day in a while, well it seems like in a while, that we've seen less volatility from this market.   This is a good thing and less volatility definitely gives confidence back to traders.    The more orderly the trading becomes, the better looking chart setup we'd get and better probability comes out of each play.   Well, so far we can only hope that is the case and we'd get some more opportunities to trade.

here are some interesting plays we are looking at today...

CRNT, after some very volatile trading in the past three days, it seemed to settled in somewhat today.    Good thing for this one is that it's now back above 9 ema and above $15.    How firm is this price?   We don't know at this point and we'd have a pretty good picture next couple of days to find out.    What is worth noting at this point, however, is that the play doesn't seem to be finished.   As long as there are crowds willing to push it for that IBD100 listing, we can certainly take advantage of such case and trade a point or two out of it.    The most important thing here though, is not to get greedy and remember this is nothing more than a play.    This one looks to be at a pretty good range bound between $14 and $17.

JST, we noticed the earning release from this one in the morning and couldn't help but started a small position.   Well, at the time both indices were well into the green.    What we like about this one is that it held on to its gain and even attempted to run up even near the end.    Its earning didn't seem too bad to us either since both its revenue and income are at the record high.    Of course, this one isn't new to us and if it moves, it can really move.   We are putting this one high on our trading list at this moment.

STAR, this one seemed to enjoy the day far better than many other stocks.   We like the kind of business it's in and the fact it broke out into a new 52 week high is also a huge bonus.    We got a starter in this one and will trade accordingly.

WX, this is almost a brand new stock.   It only traded for three days and again we think this is the kind of stock that may not be affected by what's happening in our financial market these days.   The co. of course seems expensive in terms of valuation but really we haven't found one recent IPO that's trading at a reasonable price level.    It's all about perception and as long as "the crowd" likes it, we'd play along with it.

BIDZ, perhaps it's our bad that we didn't notify everyone that it's releasing earning report tonight.   Well, guess it's ok to slip one through once in a while.    Company came out with earning and forward guidance after the close.   We actually like the number and its guidance.    What we want to point out is that another company NILE has enjoyed lots of success with its model.   There's always the possibility that this one is gaining some good growth in a big market, even at the expense of others.     If it wasn't for its earning report tonight, the setup looks great.   We do have to see if it gets run up tomorrow or not and reaction is really unpredictable at this moment.    Basically, keep a close eye on this one.

FCN, finally, after some much needed pullback on Friday, this one again regained its footing today.    Perhaps couple more consolidation days and we can get another strong runup going.

Tough but understandable...

Well, at least we know why some of the money market funds are earning higher yield  than others.    Joking aside, this is becoming a difficult market to trade(flip) when a sudden drop of news can literally derail whatever the bullish momentum.    Good thing is that we are pretty much used to this kind of volatility by now so today's action is not that surprising given the circumstance.     Basically, you have to flip into strength as oppose to wait till some bad news comes out that'd drop the market and your stocks along with it.   Sell when you can!   We have to be very vigilant about taking whatever the quick profit we may have on the table these days.

The way this month is going so far, it's going to be in the history book as something to remember.    Right now, the game plan is the same which means we  leave very little on the table going home on most nights.    The only exception is that we have a strong close like yesterday and only then we could have a strong case of carrying some stocks for a potential flip the next morning.

Here are some plays....

JST, this one had some very good follow through today and closed pretty strong too despite the dreadful index performance.   For us, if it isn't showing sign of stalling, we are sticking to our long strategy and added some near the end.

VMW, we have put this IPO on our watchlist today as we think this one will generate quite bit of interest days if not weeks down the road.   They claim this is the biggest tech IPO since Google and we'll see about that.

ARCI, we bought a little bit of this one late as it's showing some good relative strength in a very weak market.  To top it off, it closed at a new 52 week high with a break out.   Again, this one is small and may not be for everyone.

SIMC, this one came out with earning very late in the day and from the look of it, earnings looks to be decent.   However, given its past performance, it remains to be seen if this can get any kind of trading interest going this time around.   We'd find out more tomorrow.

Dealing with the reality

So the indices broke through last week's low today.     As many of you have gotten used to it by now, the possibility of seeing some very ugly action in this particular month is more probably than ever.     Hopefully, most of us did not carry much of anything  into last night's close and avoided the action today.    The theme remains the same.   We aren't expecting anything positive from this market and most of the newsfront would involve damage control.     This too, will pass eventually.    At the mean time, we just chew our fingers and wait to see how bad this thing can really get.     If the bounce comes, which will come inevitably, technical bounce or not, we'd be there to hopefully catch a few trading opportunities here and there.

VMW,  this is perhaps the only shining star out there.    There's definitely lots of trading interest about this one and whether you believe this is the next big thing or not, you have to respect the trading force behind it.    Perhaps, this one attracts more traders than usual because there's really no other games in town today, or last couple of days.    Call it a place of trading sanctuary or something else, some of us are watching the 5 min. chart religiously today trying to get a good trade or two out of this one.     Outside of this one, it's just a matter of debating on either cash or money market.    If you go with money market, make sure yours doesn't have any "asset backed commercial paper" in its pool.

Bottom line, market does have a very legit reason to get ugly and this is the month to get ugly.    In the whole process, we don't want to get caught in it and become a casualty.    Just like dozens if not hundreds of crisis we've had in the past, this one ranks somewhere in the middle and it will pass eventually.    New leaders will come out and old names will be forgotten.     We are looking at the financials very closely these days and feel that the day those names bottom, and that's the day we'd get back into this market in a meaningful way.

Possibility of a bounce...

Well, the intraday damage was enough to frighten alot of folks but the ensuing rally was nothing short of breathtaking.    Does this mean we've seen the bottom and time to step into water again?    If you are a quickie type of trader that hasn't been frustrated by this market already, you'd probably have done a trade or two during the last half hour or so of trading.   For the majority of us, it is thankful to see that we are now about 300 pts away from the recent low.    Nope, it doesn't mean that we are done going down but it simply means we are done going down today, and perhaps tomorrow.     Right now, there's no firm data or any speculation suggests that bad things have reached an end.    We just have to be patient and wait a while to find out if today's really the "bottom" or not.

At the mean time, lets talk about a potential bounce.    This bounce, as we have said in the journal last night, is primarily caused by the financials.   Why?   Financials are the most important group in this whole equation here and the reason why we've been sold off last little while is due to the fear that the financial system can collapse due to credit crunch and subprime loss and the equity selling.     So, when playing this rebound, we'd actually want to get right into those financials to play their rebound.    Stocks like GS, LEH, MER, C... all have been beaten down to some attractive levels and playing a bounce at their current level has a very good risk/reward ratio.     Of course, a bounce is simply a bounce and we'd never carry a bounce trade into an investment.     Any other stocks?    We'd also be looking at some of the recent movers with good relative strength including VMW FCN ARTC.. etc.    Yes, you get the idea!   The ones with a pretty decent technical picture are the ones with a safer risk/reward for a bounce trade here.      What about others that have been beaten into oblivion the last few days?    Well, right now is a good time to be conservative, as oppose to be adventurous, in our opinion.

The bottom line, tomorrow is the end of the week and option expiry day for this month.    Market will be volatile and any bounce trade is only as good as the next inflow of news release.    In other words, be careful out there and trade small if you have to.

DJIM #34

If last Friday's bounce has one theme that stands out, it's that the bounce is next to unplayable.    The mostly symbolic cut of the Fed discount rate, announced surprisingly, by Fed, did seem to calm the financial market down a little.     Impact should be temporary, though.   This unfortunately means that the announcement won't help much on the volatility of this market.    Actually, we feel most of us will probably not remember the fed announcement by middle of the coming week.

Basically, we feel that we need to see this market  bottoming out on its own.    If we can weather a few more blowups and bad news from the financial world without some collateral damage to the overall market, at that point, we think market is able to find a strong footing and a meaningful rally can possibly ensue.    Last Friday's rally is about as desperate, and as fake as it comes, in our opinion.

The good news, is that the Fed does seem to keep track of things closely and would step in in case things go out of control.    At this moment, there's a favourable consensus that the Fed really wants the market to correct itself out.    It means that the ones who got themselves into the trouble with the credit crunch and subprime issues will have to bail themselves out.   It's either that or fold up.    In a long run, this is probably a healthier solution because this market needs to weed out the weak ones from the strong players.    This is a free market and if you happen to make a mistake, you ought to pay for it yourself.

Now the plays....  if we think last Friday's bounce hasn't got much meaning, then it means we need another day or two to see if any of the plays on our watchlist deserves a potential entry or not.    At the mean time, we can turn our heads into some of the financials that have been hurt badly recently.     Since financials seem to move in tendon with the overall market these days, it's probably easier to spot a trading opportunity when the market is bouncing for triple digit.    The financial plays we are looking at are mostly big and well known ones which include GS MER MS C etc.