Thursday, February 05, 2009

NASDAQ Shows Relative Strength

Above is a daily chart of the NASDAQ and in the lower panel is a ratio line of the NASDAQ vs. the S&P500. You'll notice that since December this ratio line has been rising which indicates that the NASDAQ has been outperforming the S&P.

Even though the NASDAQ has been strong relative to the Dow and S&P, the NASDAQ is still in a trading range which is why I am not involved at the moment. In December and January I got a little chopped up trying to trade the Q's from the short and long side which is why I am now going to let this market break free from the recent trading range before I take a new position.

Financial stocks such as the banks are still very weak which has me leaning towards the short side but on the other had there is strength in some of the biotech and healthcare stocks. Like I said, I'll let the market break free from it's trading range before I take a position in the Q's.

It might also be a good idea to play the sectors by buying the strong groups on dips and shorting the weak groups on rallies. ETFs would be a great way to play this strategy. If I get involved in any groups or sectors, I will post my analysis right here on this blog BEFORE the move not after.

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