Wednesday, November 02, 2005

Market turning point




This is where the bears' last stand will happen. Check out the included nasdaq composite chart. I hope to see a resolution tomorrow so I wanted to lay out my plan here. I mentioned this weekend that I felt it was probably a good idea to stick my toes in on the long side and I've done that. However I still haven't covered any shorts. This is my primary concern at this point.

I see the QQQQ is up in after hours. Typically when the market gaps, I will fade it, but it has been my experience that gaps through key trend lines will tend to continue in the direction of the gap. And the line I've drawn on the chart above definetely counts as a key trendline. An example of this gap follow-through behavior is GOOG. On the GOOG chart, I start the upper-channel line on the peak in July, and cross over the peaks in September and early October. Clearly it was not profitable to fade that breakaway gap!

If the nasdaq does gap up significantly tomorrow, I will cover half of my QQQQ short position in the morning, and if the close is going to be higher than the open, then I'll cover the other half at the end of the day. I also have a bunch of individual stocks short, so I've identified the most dangerous ones to be short of as CERN and SBUX. If the nasdaq makes me think at any time that it will close above that line on the chart above, then I will cover these two shorts immediately, even if it is at the open and I have to really pay up :D

I'm not too worried about most of the shorts I have in the retail sector though because they are in solid downtrends and quite a ways from my entry prices. These shorts are: SPTN, DECK, and HOTT, which is currently down about 7% in after hours on dissapointing same store sales numbers. I'm a firm believer in cutting your losses short and letting your winners run.

I was going to talk about my long candidates for the rest of this week, but I just got a call from my friend Jarod to play a game of DOTA for Warcraft 3 with he and the rest of the crew so I'll do it later tonite.

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