Decision Time
The close on Friday of the S&Ps below 900 probably
left everyone with a few thoughts over the weekend.
- Was this just another failed rally, like all the other ones since 2001?
- Are we simply just going to revert back into the lower end of the trading
range? - Regardless of the direction, will intraday volatility pick back up?
Based purely on the charts, it does appear that there are some pretty good
hurdles that the S&Ps will need to tackle right out of the gate this morning.
Take a look at the chart below.
Perhaps some decent price action will precipitate as a
result.
Looking from a much longer time frame, the
Retailers and the
Housing Stocks are
beginning to break down on their weekly charts. I have found that the weekly
chart has been a much better time frame with which to establish “portfolio
positions.” Naturally, these trades do not have to last for many weeks and
should be aligned with overall market direction. In this case, however, one may
conclude that these two sectors, which have been the glue supposedly holding the
economy together, are pointing to something rather unpleasant.
Regardless of what that may be, it is not important
from a trading perspective. I am looking to establish short positions if the
overall market fails at the levels mentioned above. For me, rather than sifting
through all the stocks, I have come to rely more on ETFs or HOLDRs. In this
case, I am looking at the Real Estate Holders
(IYR) and the Retail Holders
(RTH). Q-Charts does not recognize the RTH symbol. Be sure to look at a
weekly chart of it on your quote platform.
I think it is safe to say that most traders take their
cues from charts, rather then fundamentals. Granted, a combination of the two
can be an ideal approach. Nonetheless, I have had little to no success
approaching my trades purely from a fundamental viewpoint. However, from time to
time, simple observations can yield important clues.
Just last week while killing time waiting for coffee, I
picked up a copy of a publication called The
Learning Annex. If it is not available in your
area, it is simply a free catalog of upcoming seminars, classes on a whole
variety of subjects, cooking, computers, personal finance, well being, etc. You
name it, there is probably a course for you.
Well, I recall back in 2000 most of the featured
courses were on, you guessed it, Daytrading. And to top it off, there
were probably half a dozen or so. Were there any in the November 2002
catalog? Not a one. So what were the featured classes now? Yep, “How to Make
Money in Real Estate,” “How To Flip Houses for Quick $$,” “Quit Your Job and
Pursue Real Estate.”
Human nature never ceases to amaze me. Despite all of
our advances over the centuries, the one thing that does not change is the
battle between fear and greed. Sure you can make a case that there is a housing
bubble, and I would also say there are some “decent” arguments refuting
that. However, when all is said and done, you can be reasonably sure that the
people who are NOT chasing the most fashionable asset class will be the
ones with the big smile on their faces at some point down the road. There is far
more risk on the downside for housing and housing-related stocks than there is
upside potential. You will have to be flexible and nimble, but this sector will
offer up some nice gains.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| **925-27** | 1042 |
| 916 | 1033 |
| 911 | 1029 |
| 903 | 1026.25 |
| 897 | 1019 |
| 891 | **1007** |
| 882 | 995 |
| *871-72* | 984.50 |
| Â | 975.50 |
| Â | 968 |
* indicates a level that is more significant
As always, feel free to send me your comments and
questions. See you in TradersWire.