This Is The Bright Side Of Wednesday’s Market

• October 13, 2004
• Rob Hanna

With
the market action I saw today, it’s difficult to focus tonight’s
column on anything other than commodities-related stocks.  Steel, copper,
aluminum, gold, oil, and oil service stocks all got whacked.  What looked like a
constructive pullback in many of these areas as recently as last night no longer
looks constructive.  Here’s a few charts to illustrate:

 

 

 

 

 

 

 

 

 

 

 

Many of these stocks have had
nice runs.  Is the run over?  For a short while, at least.  Longer-term I
wouldn’t write them off completely just yet.  The damage done the last few days
will likely take weeks or months to repair, though.

 

One lesson from today’s action
enforces is that early pullbacks tend to provide better risk/reward ratios.  The
longer a trend lasts, the higher the risks.

 

One the bright side of today’s
market action, the VIX continues to spike higher.  This indicates that a bounce
in the general market is likely soon.  For those who would like to catch the
bounce in some of the commodities related stocks, I would be careful trading
individual companies here.  A better choice might be to look for an opportunity
in an ETF.  (IYM and IGE are two that track commodities-related stocks.)  Just
don’t overstay your welcome.  This next bounce in commodities-related stocks may
be of the dead cat variety.

 

Best of luck with you trading,

Rob

 

robhanna@comcast.net