Thursday, December 11, 2008

Stocks Tumble

If you've been reading my blog recently you would know that I've been on the sidelines for weeks but finally entered a position today on the short side. Just the other day I posted about how important it is to watch how the market reacts at the 50 day moving averages for the major indices. My strategy was to let the market tell me what to do once the 50 day averages were tested.

As you can see in the above chart the NASDAQ (as well as the S&P and Dow) were not able to penetrate their 50 day moving average and have all headed south. The stochastics are in the overbought zone and have crossed lower which was my signal to get short today. I chose to short the NASDAQ because the NASDAQ is weaker than the Dow and S&P as can be seen in the middle panel which is a ratio line of the NASDAQ vs S&P. You can see how the Q's made a higher high but the ratio line is making a lower high which indicates weakness in the NASDAQ.

The only problem I have with being short right now is that there is a strong seasonal tendency for stocks to rally going into January. Rather than talk myself out of making a trade, I shorted the NASDAQ (QQQQ) and my protective stop is right above last Tuesday's high. We'll see what happens.


Anonymous said...

Thank you for your on-line seminar in real time!

Can you say something about your money management strategies? Percent put at risk, etc?

Do you scale into your positions?

Do you have a specific profit target where you exit, or a trailing stop, or both?

You have one of the most educational trading blogs I've seen.

Anonymous said...

hi, after such a strong bounce off the lows, it isn't too surprising to see the markets stumble at the 50-day resistance. I like your strategy to short when the indexes reached the 50-day. But are you planning to then stop and switch to a long position if the markets penetrate the 50-day once the pull back is over? Short-term indicators were very overbought a couple days ago. When the overbought conditions ease, I think it is likely to see the bear rally resume and break above the 50-day.

Anonymous said...

I think the TRIN maybe tipping its hand to this short play ? (braeak of the old lows coming ?)

Anonymous said...

I think the Q's are headed next week for cracking the high's (30.83) of this week. The NAZ was the strongest group this past week, a trend that is common for impending rallies.

Kevin said...

It wouldn't surprise me if the market rallied. We had bad news Friday yet the indices closed positive.

Anonymous said...

Check the average daily volumes on Friday before you get to bullish .

Brendan Lee said...

I think that is a good move!

farouk said...

i think we are very near to the market bottom


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