Overhead Resistance Galore
Maybe I’m just another “trend-following moron” like my colleague Dave Landry,
but I welcome the opportunity to ready trades against this countertrend
rally. For whatever reason or entity (say…perhaps the Fed’s plunge
control team?) sparked the furious panic buying during the last hour
of trading yesterday, it
should be short lived.
You have to love the fact that the
semiconductor group is being heralded as sector
“most likely to pull the Nasdaq out of the bear market.” What’s next,
the semiconductor group
will pull the Nasdaq up to new index highs? Make a note
of this and watch this group closely for signs of a top since it is my
opinion that the
semiconductor group will be decimated some time not so far off
in the future. The fundamentals surrounding the sector are dismal and do
not have hope of improving
in the next two to three quarters. The CEOs of both
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PowerRating) and
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PowerRating) told us Wednesday that a second-half recovery is not possible and the
inventory glut may take a
longer time than expected to work off. The momentum
boys and Wall Street “fast money” crowd had to find a way to shore up
the tech sector and they
are doing so by manufacturing these lies about the semiconductor
stocks. Don’t believe the hype. Ready your swords on the short
side.
Let us now look at the current
condition of the Dow since the March 07 top:
As detailed in the chart above, the
Dow actually has displayed a quite orderly
selloff in terms of the two clear legs down interceded by the sideways
period of consolidation. Yesterday’s rally retraced exactly 38% of
the drop since 3/14 in
roughly one hour of trading. Does that seem strange to
you? Whatever the case, as we suggested weeks ago, this index is broken
and will resume its move
down once all the bottom pickers and gamblers are in nice
and tight. Today should do wonders for the bullish case as it will no
doubt suck in lots of
money (whatever is left) from investors who are waiting to
buy. Do you see what I have been talking about all this time? How can
we have a bottom in place
when people are still eager to throw their money at stocks
at the first sign of a bounce? How can we have a meaningful bottom in
place when people are
still more afraid to miss the snap back rally than they are
concerned about the preservation of their capital?
The Nasdaq is displaying many clear
resistance levels and windows which it probably
won’t overcome at this point in time. Watch these levels and get ready
to short on a failure to exceed them.
I cannot make any
recommendations long or short at this time as it is not my style to trade with
an interceding market move that goes against the major trends.
The duration of this move may be too short to trade at all from the
long side and may not be
worth the risks associated. Rather, I will continue to
short retailers and apparel stocks which have clearly broken down nicely
from their topping
patterns. These groups have been broken and I will continue
to hammer them on the way down. Play the bounces in those names.
Goran