Well, the market certainly liked the news out of Alcoa even though I think the market reaction is somewhat misguided. Alcoa did beat earnings, but they were reduced estimates from 30 days ago. It is a really simple trick: under promise and over deliver (and Wall Street will love you). Anyway, with Wall Street optimistic about company earnings, the market is up strongly today. This brings us to interesting level in the market, which sets up for a good risk/reward trade--the 200 DMA. If we are indeed entering a bear market, the market should stop its advance at the 200 DMA, which makes this a good place to begin shorting. You can put a stop-loss at say 5% above the 200 DMA to give the trade some leeway. If you are a bull, you can wait until the market holds the 200 DMA for a week and then go long with a similar stop-loss for protection. Personally, I am taking the bear side because we are already below the 200 DMA and have been repulsed here before in June. Furthermore, the slowdown in China and the US is going to continue since the stimulus packages have both run their courses. Also, the real estate market rolling over should put strain on the already fragile banking system as well as the consumer. Hard to see a sustained recovery under these conditions. Gentleman, make your bets.
Disclosure: None--but I will look to short stocks in the next few days.
Disclosure: None--but I will likely be shorting in the next few days