The slow torture of endless up days with no pullbacks came to an abrupt halt this week. The market did its best to ignore the European contagion and it finally gave in after getting too high. When there is a shock to the system like on Thursday, the market gets nervous in the short term, and that nervousness plays out on the price screen.
I'm happy to see that there are finally intraday moves greater than 5 points. The volatility is terrific, but I don't think it will last for long. This kind of high energy trading is hard to sustain. We'll be back to sleepy markets with no intraday volatility sooner than you think.
We've put a ceiling on this market around 1205-1210, which will be hard to break through anytime in the coming months. This selloff has been more abrupt than any other since the March 2009 bottom and investor sentiment is more like shock than dread. Investor sentiment hasn't had much time to catch up to this new market, and that should put a lid on any quick rallies for the next several days as more traders jump on the bear bandwagon.
How should we play it? With the uptrend still intact and staying above the 200 day moving average, I think you have to play it with a long bias. Looking into Monday, I am looking long. But I think any 2 day rallies can be shorted for next week. I think shorting is now getting dangerous. Intermediate term, the market will likely go back up and fill the gap left behind Monday night at 1198.
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6 comments:
Owl, thats probably the worst advice you have given to date.
No where in your latest post do you talk about fixing the Greece problem.
So I guess you suggest if Greece defaults then it means nothing to the U.S.?
Or a downgrade of Spain or other countries means nothing.
In fact you have posted in the past, several times, that your view is Greece is a non-event for U.S. markets!!
I don't think you and many others "get it". This is not going away anytime soon. There is no quick fix for this problem.
To even suggest "we" will be back to normal in a week and possible for the rest of the year is dangerous.
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Previous post by OWL.
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More Greece Fears
This is the storyline that never goes away. How many times will we hear about Greece debt? Greece is ONE thing that I doubt will crash this market. Its got to something less expected, maybe a Spain meltdown or Fed raising rates. I think we'll bottom in the morning and go right back up to finish strong, filling the gap and going positive on the day.
Posted by Market Owl at 4/08/2010 08:04:00 AM
Remember Dubai ? ... Cmon this will be over and in a few weeks nobody will remember !
Greece only matters in affecting sentiment about Europe, fundamentally, Greek debt doesn't matter to the US. And sentiment is fleeting, in the end, fundamentals matter.
I am more worried about new equity supply coming out, the Fed balance sheet and money printing and an overvalued stock market than anything coming out of Europe.
Also, regarding your comment about downgrades of Spain and other countries, that is laughable. If you make investment decisions based on S&P, Moody's, or Fitch downgrades and upgrades, you will go broke. They are the firefighters that arrive on the scene after the house is already burnt down.
Do we sell into the bounce?
I will be selling my long positions on the gap open.
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