Bearish Day For Stocks
Today was an interesting day in the stock market. The NASDAQ made a bearish 3 day engulfment on good volume. What this means is over the short-term there is a change in sentiment from bullish to bearish.
You'll also notice that when the NASDAQ made a new high, the On Balance Volume indicator formed a bearish divergence.
Even though this appears to be bearish, I'm not going to short QQQQ or SPY. I will say I am heavy short interest rate sensitive stocks such as Reits, HomeBuilders and Utilities. I think these are the stocks that you want to be short and I always try to be short the weakest groups.
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9 comments:
I was reading a recent post in the abnormal returns blog and was inspired toleave a comment. Of the spectrum of blogs I read most are purely entertainment; excepting this and one other. I just wanted to write and say "thank you" and "great job" for the insights you provide. Very well done and appreciated!
Thanks alot...
Thanks for taking the time out to comment....I appreciate it..
Kevin,
When you measure sector strength/weakness, what time frame do you use to measure relative strength? Is it a year, 6 months, 3 weeks? I wonder what time frame is most important. Also, do you use ETFs only or single stocks in this approach?
I have just started to come up with a trading plan/idea, and the relative strength approach seems to be fairly easy and well working.
Thanks, Joe
Hi Joe,
I usually look at the last 1 to 3 months. That's what time frame I like to trade.
There is no right or wrong answer..It all depends on your time frame as a trader. If you are an investor then looking at relative strength from 6 months to a year might be the thing to do.
I usually trade both ETFs and stocks.
Hi Kevin,
Given the recent strength in the airlines sector, have you covered your shorts, or still holding on to them?
Thanks,
AJ.
Kevin,
What is your take regarding a potential (small) rally in REITS as the CDO auction went OK and that rates may be moderating?
Hi Aj,
I covered half my airline shorts right on the day of the low last week and I took off the other half at yesterday's close.
Here's the links which explains what I did..
http://kevinsmarketblog.blogspot.com/2007/06/airlines-index-at-year-low.html
http://kevinsmarketblog.blogspot.com/2007/06/new-year-low-for-airline-stocks.html
Hi Robert...
I try not to think too much because whenever I do I am usually wrong..
Right now the reits look very very weak so I'm going to hold onto this short position until the price action tells me to get out.
Hi Kevin,
Great job as always. I trust your blog the most. You said before that On Balance Vol indicator negative divergence is quite powerful, combined with other indicators. I see negat. diverg. on 4 indicators on the QQQQ's chart:
On Balance Vol
MACD
RSI and
CMF.
I will try to paste this chart, tell me if you agree...
Thank you
http://stockcharts.com/h-sc/ui?s=QQQQ&p=D&yr=0&mn=6&dy=0&id=p95639129760&a=109907818&listNum=10
JC
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