Are You Going Long? I’m Making A Short List. Here’s Why
The market rallied nicely today. I don’t believe this will turn into anything
other than a bounce on the way lower. There is little doubt in my mind that within
the next few weeks the S&P, Dow and Nasdaq will be hitting new lows once again.
While the decline so far in the larger cap indices has been relatively mild, the
downtrend has lasted a significant amount of time. This makes the selloff significant.
The best chance for a downtrend like this to end is to see clear-cut capitulation
followed by a strong reversal. Capitulation wasn’t evident the last several
days. Today’s bounce, while OK, was not representative of the kind of very
strong moves that are often associated with market bottoms — either from
a price or volume standpoint. I also did not like the way the SOX lagged on the
bounce.
There were some breakouts today that may be worth watching in case I’m
wrong. Travelzoo (TZOO) is one.
Austria Index Fund (EWO) is another.
If the market is going to put together a rally, more stocks and foreign leadership
should emerge like these examples and we should also see strong follow through.
Gold stocks also appear worth watching over the next few weeks (and these have
the capability to rally regardless of the general market direction). I’m
not holding my breath, but I am keeping an eye out.
I believe the best way to play things right now may be to start making a list
of potential shorts in anticipation of the next leg down. I wouldn’t get
excited about the long side without some further evidence that a rally may be
taking shape. Let the trades come to you. Don’t overreact, and don’t
overextend yourself.
Good trading,
Rob
robhanna@rcn.com