Have We Found A Bottom?
Every trading day, I
walk into the Fox television studio in Chicago to do my daily market call.
During the baseball season, its not uncommon to hear a loud scream of Boomshakalaka!
echoing through studio. That’s because Boomshakalaka! is the
description Bruce Wolf, the sportscaster on Fox, gives whenever he describes
a towering home run by Cubs slugger Sammy Sosa. It might also be the sound
the door makes when it slams on the paw of an overzealous bear reaching
through toward the cookie jar one time too often. Either way, yesterday was
one of those inevitable bear market rallies we’ve anticipated, but seen so
infrequently, in 2001.Â
   
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The rally was strong enough that even the talking heads on CNBC couldn’t
screw it up! Although, even in the face of extremely compelling evidence of
the bulls coming to a capitulation, the CNBC “pros” kept listening for a
bell to go off or some flag to be waved. What a crock! How could they miss
the $5 billion that fled equity funds? According to Charles Biderman of www.trimtabs.com,
a record $15.3 billion waved bye-bye over the past five business days! That
beat the old record by $900 million and nobody at CNBC saw anything
capitulatory? Even my partner here on our trading desk, Tom ‘Bear’
Haugh, one of the biggest bears on Wall Street, called for a bottom in the
QQQ at 39.50.Â
  
Now, it’s not uncommon that the numbing effects of selloffs like this one
can put the blinders on even experienced traders and market watchers (please
note, I have differentiated between the watchers at CNBC and the traders like
you and me at www.tradingmarkets.com).
I refer to blinders (like the ones they put on horses in Central Park)
because the effect is virtually the same; they keep you from seeing anything
outside of that narrow area of focus.Â
  Â
This happens to rookie traders all the time and experienced traders from
time to time. Your position gets too big and is going against you,
effectively putting blinders on your ability to see what’s really going on
in the market. The best way to get out of that predicament is to reduce the
size of your positions so the pain will cease to blind you from the
opportunities.
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For the record, I’m not calling for the bottom to be in, although the Nasdaq
100 Shares
(
QQQ |
Quote |
Chart |
News |
PowerRating) certainly seems like it may have seen its
worst. After all, if Tom ‘Bear’ Haugh finally calls a bottom, we may
indeed be near just that. However, I would use this rally to take some
profits, profits that could get bigger faster as the stubborn members of the
bearish community continue to fight the short-term trend.Â