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Trading the Rally
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This market is very, very difficult. Many people, rightfully so, are wary of this rally. I am one of those people. And as I've said before, the trend is still down. The best strategy is probably to stay heavy in cash and wait for the rally to prove itself. However, if the market holds up reasonably well, we could have a sharp rally. Although there was a lot of short covering yesterday, there's still a lot of cash on the sidelines. Investors will want to get in on another move up, and I want to be on that wave as it picks up steam. I kicked myself for not participating more during the last rally that started in late January. What am I trying this time? Gamestop (GME), Goldman Sachs (GS), and Genentech (DNA). Each of the 3 stocks has upcoming news: DNA with an analyst meeting Friday, and GS / GME with earnings reports next week. It's risky to anticipate these events, but in this environment a little good news could go a long way. Also, these are fundamentally sound companies (at least they appear to be sound, as far as I can tell). If the trades go against me, I will cut them quicker than you can say "Hey, Stock Surfer, you're an id--". Yes, that fast. If you chose to trade this rally (in real life), I suggest you also shoot first and ask questions later if your trades go against you. Set stops and protect yourself. There's nothing wrong with risk if it's managed. Let me also put some S&P levels on your radar: 1350ish-1370ish is the next area of resistance, which also corresponds roughly to the 50 day moving average. The exact numbers aren't important to me, I just want to use it as context. When we get close to that ballpark, I want be prepared to keep a disciplined swing, hit the other way, and possibly go shortstop. Trying to stay ahead of the curveball... Note: This post also appears on my personal blog, with charts. | ||
Comments (3)
I enjoy reading your blog surfer! I feel like I've been violating your rule #4 for about 15 years, even had to hold back this morning from getting back into my short positions just yet (premarket they are way up).
I'm trying to learn more TA, but I like trying to decipher the financials and reading the earnings calls. Except for my disaster (CROX - what was I thinking not selling last year at 75?) I've done okay. Like you I think the trend is down, this rally is more smoke than fire; we're already seeing talking heads saying the fed's action was a short-term band aid.
ADBE comes out with earnings same day as GME. I've kept an eye on them (but my checkbook firmly closed) as they've tried to combine Macromedia and Adobe. I think they're finally turning a corner, and hope they too get a push on good earnings.
Hope you're not going to fall victim to a Cramer effect of some kind with GS. Maybe you'll create your own surfer effect!
Posted by uniqueconstraint | March 13, 2008 9:02 AM
Thanks for the comment. The morning futures look terrible, and maybe the rally will end before it begins--some waves do fizzle, after all. I tend to have a quick trigger finger, but I find I trade better if I wait until at 10:30 am (Eastern time). The market has a lot of head fakes during that first hour...
Good luck!
Posted by thestocksurfer | March 13, 2008 9:07 AM
I agree that most people have a concentrated portfolio that may vault them to the top, but the nice thing about this competition is that it takes more than that to win. There is a lot to be said about your risk management, and when it comes down to the finalists, you have a strong case to be picked the winner if you stayed strong, diversified, and employed risk management. It certainly won't make you look worse than the others.
I also agree with you regarding the falling dollar plays. I have made money off the falling dollar, and it is true that those that concentrate on the falling dollar are vulnerable. However, the dollar's bottom out point still looks to be a ways off, so jumping on that bandwagon doesn't look to be as risky. It isn't like the dollar will turn on a dime and skyrocket tomorrow.
----Jonathan
Posted by Jonathan Coyle | March 14, 2008 4:23 PM