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Take advantage of big market move

|Includes: Baidu, Inc. (BIDU), BKNG, CME

In my last article about stocks approaching oversold territory, I did some technical analysis to conclude that market may be poised for a short-term rebound. We saw that move today. However, with such a big move I wanted to revalidate my analysis. So I created the same chart again. Here is the chart:



S&P500 moved up almost 3% and as we can see that bollinger bands are widening. This also moves S&P500 RSI indicator to again not so oversold category. I think this move is a big aberration on the upside and it will be a great idea to close some long positions a trader might be holding and convert into some cash. I believe that such a large move is not sustainable until we have a clear answer from Euro zone. Today's move was a reflection of some strength still present in asian economies. However, that strength is not enough to sustain the global economic growth if US and Europe are lagging behind. In today's market mood we should not neglect that employment figure in US is not improving rapidly and Fed chairman acknowledged that yesterday. On the other hand, Fed will have to take the extra monetary liquidity out from the market even if it does not raise rates soon. Interest rates have to go up in the near future otherwise it will be a bad recipe for US dollar and US economy itself. We have done numerous studies that show that by keeping the interest rates low, Fed has no power in changing the unemplyment rate. In fact it creates deflationary pressures in the economy which is not good for businesses in the longer term.
So even though market look oversold or near oversold, we don't expect such big upside moves in the market to last for long time.
Widening of bollinger bands indicates that there is still more room for S&P500 to go lower and we should get out of some long positions if they move in our favor. Being nimble in this market is the key point. In one of my older posts I also mentioned that we think S&P500 will bottom out around 900 level that it saw in July 2009. Some stocks have come too far since then and that's the reason they will go down more in any downside market move. BIDU, PCLN, CME are few such names. At the same time based on our valuation analysis some stocks are still looking good but we don't want to initiate new positions at this time. We belive that broader market is still in correction mode and it will go down at least 10% more before valuation based criteria takes over for the overall earnings.
At this point, I would like to suggest getting out of long positions when you get a favorable market move.

Disclosure: No position in BIDU, PCLN, CME