Friday was a bear market rest day after last week’s onslaught for the long only community. The level of fear remains high and the heightened language coming from so many senior officials from the G20 countries makes it apparent that they know there are serious issues and they’re going to do their best to resolve these issues (at least short-term).
The market will move as the news and the rumors occur. Any sign though of a short-term solution will lead to one very large short covering rally. The rally will be broad-based and will be led by the industrial stocks which have been hit the hardest (look at what blue chip companies like ^AA^ and ^DD^ did last week). A rally, should it occur, can be played many ways so it becomes a function of how much beta one wants to put on. If you’re right about the market movement, the higher beta stocks will outperform stocks like ^JNJ^, ^KMB^, ^WMT^, etc. The volatility products will move substantially too (long XIV or short XVV).
I’m not picking bottoms here. I am though pointing out that correlations are at extremes and everything is going to move together both up and down (just beware of the metals). Therefore the stocks which have dropped the most, especially the blue chips with the highest betas, are going to be the big short-term winners when the market does rally.
For those of you who are in Chairman’s Club, The Machine Screener using the S&P 100 and 500 lists is an additional place to find very good names to trade here.
The above is from Larry Connors’ Daily Battle Plan.
To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.
And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.
David Penn is Editor in Chief of TradingMarkets.com