You Might Be Surprised That I Traded This One
Maybe it is because I am
coming back fresh after a long vacation, or maybe the market is
really just offering some good signals here, but I have to say that the market
looks rather tired and unable to rally on good news (good in the way the
cheerleaders define it). However, never forget the power of summer trading —
it can distort truly how the market sees everything. The fact is, we are in one
big trading range for the last few weeks, with neither bull nor bear claiming
victory.
Yesterday was typical of summer trading. Good
action in the morning. Did you fade the gap, then go with the trend on
Elan (ELN). Once
ELN came back through the opening price, 4.80, it got smacked down to
4.56 before stabilizing. The opening trade was to buy the first "up-tick" print
at 4.85, it was not worth much, but you never know. Towards the end of the day,
it came back and broke below 4.53, a key support level from June 30th; that is
when I decided to step back in the ring and get short again. I covered most
down around 4.37, and have some coming into today’s session. This stock is now
poised to head lower.
You may ask, "Why a $4 stock?" Good question,
liquidity (nearly 11 million shares traded hands) and a nice smooth trader
allowing me to put on size in order to take advantage of the moves. Lastly, I
have seen stocks like this before, TYC,
GLX and CPN.
This type of news has a nasty habit of driving stocks lower than one might
expect.
After that there were a couple of jiggles and
wiggles, but nothing to get excited about. The afternoon sell-off was worth a
few; however, if you had tried to anticipate a break prior to that, you got
chopped up, typical of summer trading. Best to lay low and simply observe the
market’s behavior and strike when everything comes together. I am fine with not
having to be the first person on the move in order to ensure a better
risk/reward.
The gold stocks, Newmont
(NEM) in particular, went on a bender mid-day. I find it very
interesting to see these gold stocks continuing to hang in there despite the
relatively strong market. However, the move in gold is more likely a move
regarding the carnage in the bond market as well as the fragile dollar. I
suspect after the brilliant comments by Fed Governor Bernanke "we will drive
rates to zero" that it will not be long before gold becomes of far more interest
to traders/investors. The simultaneous de-valuation of currencies worldwide in
order to maintain some purchasing power with the dollar will likely not end
well. We will wait and see.
It certainly seems like the Fall is shaping up to
be good trading. There are far too many divergent signals right now and the
market is simply ignoring them, but it does not matter until it does matter. In
the meantime, do not let your opinions or analysis get too in the way of what is
really happening. The market has sold off towards key support in the 971-75
level. It has bounced here several times in the last few weeks, so pay
attention to the subtle signs for signs of a good move either way.
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As always, feel free to send me your comments and
questions.
Dave