Thursday, February 12, 2009

Playing Both Sides Of The Market

For the past few weeks I've been writing about how we're seeing strength in the NASDAQ but weakness in the Dow. If you look at the above chart you can see a ratio line which represents the NASDAQ vs the Dow Jones Industrials. This ratio line continues to move higher which means that the NASDAQ is the driving force for the stock market on the upside while the Dow Jones Industrials (and banks)seem to be dragging the overall market downward.

I think it's possible to play this market from both sides which is what I've been doing. I've been long Q's and short DIA's. As long as the ratio line in the above chart continues to move higher this position should work out.

Due to the fact that the Q's are trading in the 30's while the DIA's are trading near 80, I have on a little more than 2 times the amount of Q's long than I have DIA short. As always, we'll see what happens.

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