Big Bounce? No Big Deal...
Despite today's huge oversold bounce, one thing is still for certain. My shorts are still outperforming all my longs. In fact, almost all of the short sale candidates that I have recommended are already in the money. On the flip side, most of my buy candidates are still acting under the weather. So what gives? This is actually quite normal and just goes to show you that it pays to hold onto strong short positions during market downturns. That means even holding through 400 point bounces. One thing that I have learned from studying market history is that some of the biggest "up" days can be found in downtrends and some of the nastiest dips can be seen in up trends. This makes perfect sense and can be clearly seen in both up trends and downtrends. I still believe that the worst is not yet over. Sure, there will be people that disagree with me and others that will tell you to start buying financials and other stocks because they swear we hit the bottom. Let them do what they want. They haven't done their homework and most likely will not succeed when the next uptrend begins. This down trend is going to take some time and without a doubt, it will fool a lot of people, not once, but several times before a real bottom forms in. The best advice that I can give is to stay on the sidelines, especially if you are a beginner or do not depend on trading for income.
posted by Nick M. @ 8:38 PM
8 Comments:
nick....my wave count agrees with you...
...The Elliot Wave. I like that theory/observation. I still don't mind "surfing" though. I think if you're watching actively, and not betting the farm, you will make out fine. If you're learning (raising hand), you will learn more.
If anything, it is bootcamp for loss-cutting discipline.
...some people will despise the idea of "learning" with your money though. I think it's the only way.
-Chad.
What an open for Visa though, btw! I know you're down on financials still (Nick), and I'm not saying scoop them up, but when you consider the balance sheet adjustment that this will make for half a dozen financials during this IPO alone, there is light at the end of the tunnel. ...even if it's still a ways off.
Otterby,
I'm glad your Wave count agrees with me. My observations on the market are also based on technicals (although not Elliot Wave). But besides being bases on TA, they are also based on common sense. Common sense tells me that we didn't just absorb 6 years of intense bull market returns in this small downtrend. The market may head higher in the short term, but then it will hit resistance and then begin to hit new lows.
Chad,
Im still learning as well. To me, this is still the tuition phase. But I know that when the next real uptrend begins, I will be ready to take advantage of all of the top stocks. I can hardly wait. This is why I don't mind seeing the market getting hit. The sooner the better. The Fed is only delaying the inevitable with all these cash injections and rate cuts. Let them cut, let them inject cash into the economy, it doesn't matter. And yes, I am very negative on the financials. The financials are still one of the worst performing groups right now. Furthermore, very few of them have put in real bottoms. Most of them are just making a small pitstop before their downtrend continues. I am not saying this to discourage you. I'm only telling you to be cautious about them. As far as Visa is concerned, I am just watching them. In my opinion, they are no MasterCard, so I am not expecting a 200% post-IPO runup. In fact, although their opening price is impressive (in comparison to their outstanding share count), I will not be impressed with close unless it is near the high of the day. So far, they are near the LOD. Today is just a big sale, so if you choose to play Visa, becareful what price you pay for it. Just my 2 cents.
I agree with you; I would not buy Visa today, but I think it was a great sell opportunity for those that got in on the IPO. ...and for the banks that underwrote it.
I did feel comfortable enough to take a long term stake in AAPL yesterday though. It's been side-stepping in a nice base lately. Plus, I really think the rebates that my family has been asking about lately will do a good number for "gadgets."
I agree with you; I would not buy Visa today, but I think it was a great sell opportunity for those that got in on the IPO. ...and for the banks that underwrote it.
I did feel comfortable enough to take a long term stake in AAPL yesterday though. It's been side-stepping in a nice base lately. Plus, I really think the rebates that my family has been asking about lately will do a good number for "gadgets."
Chad,
Today is the perfect example of how messed up this market really is. It is a very difficult and confusing market to trade. Good job on avoiding Visa. Just as I thought, Visa closed near its LOD. Until the stock is able to surpass todays high, I would skip out on it. I believe it will continue to depreciate in value for a bit.
While I agree AAPL may make a good long term investment, I think your timing on it is off. I say this because I believe that AAPL will fall lower in value. Why let your investment deteriorate in value when you can wait for it to fully put in a bottom before buying it. Better yet, why not wait until the market bottoms and buy new stocks that are breaking out of proper bases? That would be the best strategy for a sound investment. I'm not telling you this to insult your choice of stock and timing. I'm only saying it to help you avoid making a mistake that can cost you your crucial capital. If I saw AAPL truly bottom and build a strong base and breakout above the 50 day MA, I'd say, go for it. But that is not what I see. What I see is a past winner that has already topped out and is ready to begin its next leg down. All I'm saying is be cautious about where you put your cash in right now. I know a lot of people who are already outperforming the market and all they are doing is staying in cash and putting their money in money market funds. A measly 5% return in a safer investment vehicle is the next best thing to having a string of successfull short positions in the market (at least right now). Just some food for thought.
Thanks, Nick:
I'm not insulted by objective critisism. I consider most people cordial adults and interact as such. On your note, the one thing nagging at me about AAPL is the fact that they were a previous winner. Like any trade, I would cut it if it turned. I'm not a fan of losing money for any timespan. I think apple will surprise us next month though. There are a few companies that will change the face of the internet and what we use to interact in it (including the giant that is powering your blog). I completely get your point, why not just buy it later, but as we all know: you never know... If I have to drop the position to get in later, it happens ;] Naturally, though, this is a different strategy than my normal short term.
-Chad.
Chad, all of those are good points. Well said.
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