I think that today presents a better lesson on psychology than normal analysis. I've heard bearish argument after bearish argument. Everybody is trying to convince each other of this macro-economic reason, that technical setup, or the extreme sentiment reading. What we see are a lot of people getting ahead of themselves. Sometimes we get so into our analysis and setups, that we forget what are job is... to ride the current trend and manage risk along the way. When we make that fine cross from analyzing and being prepared to actually predicting, we induce pride in our mind that our analysis is right, over what the market may or may not do. This is a dangerous place to be. Even I have come up with bearish arguments over the last two weeks in the Daily Reports, yet I remained long. Why? How? What indicator did I use? Simply the trend. While many people are trying to look the hero by calling the turn, the smart traders are quiet and riding the obvious trend. What is the obvious trend? Look at the charts below and you tell me...
If you have initiated a short beyond hedging risk, why? Sector Analysis
More weakness in Real Estate and strength in Energy. Energy theme is going on three weeks of strength since we first noted it. I would watch this sector closely. This inflation/commodity/dollar play definitely has potential as a longer term trend as we see fundamentals in oil and natural gas showing a trend that is still in the growth phase. Meanwhile, the sector that started much of this collapse is showing weakness again (in breadth, not price). Below is a ratio chart of IYR (one of the more liquid ETF's representing the Real Estate sector) and SPY. As you can see, weakness has entered and could be considered a tradeable trend. Look for weak names within this industry for ideas to short and/or hedge with [What!? Short! But you just.... There is a huge different between predicting and preparing, and that often makes winners and losers].
Equity Analysis While today was a strong day for most leaders, the usually strong technology sector had some weakness displayed in $FFIV, $EBIX, and $CTSH. We saw some heavy accumulation today in names we have mentioned in the last week or two including $AFOP, $RDCM, and $IMAX. As far as position trading and intermediate time frames, I have gone through a number of stocks to find those that are in the middle of building bases. I will post that list later to help you narrow down your research. Also, I will try to highlight a stock by market open tomorrow including some basic fundamentals. Positions: IEC, MIPS, TDSC, PLPC, CASC, PIR