Japan and Libya Cannot Phase Buyers
The market moved
markedly lower yesterday. Volume raced higher as the indices dove 2% on
the heels of the crisis in Japan, violence in the Middle East, and big
misses in economic data - notably PPI and housing. All stocks fell
yesterday as investors raised cash and bought bonds.
While yesterday was a decidingly bearish day, I believed it was
time to begin nibbling to the long side of the tape. The SPX was around
1261 at the time, but I also firmly believed it would test 1250 in the
coming days. It actually made that move a few hours later.
In the face of such a bearish
onslaught why did we go long (and not short) Wednesday afternoon. First,
it was only two positions. Secondly, the stops attached, especially for
the solar stock, should prevent an unsavory decline. Also, both picks
were coming off great sessions earlier in the week, which indicates if
the market turns (bullish) these stocks will increase more and faster
than the herd.
Despite Jim Cramer's analysis, I like solar. And it may get extra
attention over the coming weeks as uranium becomes the red headed step
child of the stock market. Individually, I think SunPower (SPWRA) is the
strongest fundamental stock. It's chart is the only concern. I also like
Trina (TSL) and my favorite chart is GT Solar (SOLR) in the
space.
Many stocks have come down over the past few weeks and look ripe to
bounce.
On the long term chart 1250 is an important level
to hold. We will monitor it in the short term (for trading), but I am
more curious to know how it stabilizes SPX over the longer term.
SPX bounced almost exactly at 1250 yesterday, but it needs
additional buying today. Yesterday did not look like a bottom, at least
on the long term charts. I would prefer the SPX dives below 1250 intraday
and rallies at the close. In the shorter
term, I like the bounce off 1250. Although yesterday may not be anything
more than a bottom that rallies the SPX back up to 1280 resistance, there
are good reasons to believe the 1250 area will be defended by the bulls.
After all, the long term trend is bullish and RSI 50 confirms that
bullish trend on a weekly chart.
But 1250 is a long term support level and if it cracks, the trend
is bearish. In a bearish trend volatility increases and holding periods
decrease, and expected returns decrease (in the simplest of terms you
make more money when a stock goes from $4 to $8 than from $8 to $4) - so
I don't want a bearish trend to unfold.
Also, if 1250 breaks, it doesn't mean I will sell all longs and
short everything. We still need to be patient with our entries. We must
also make trades with the knowledge that bearish trends (unlike bullish
trends) reverse quickly and that could result is us switching strategies
constantly. For now, 1250 has not broke, let's continue trading with a
bullish bias until support fails.
Finally, I should have worked this more seamlessly into the
article, but I didn't, the yen surged last night. In fact I was up all
night watching it. The big move came in the evening. The yen moved over
3% higher but has since come back down, slightly. The euro is also up
this morning. The dollar is at a long term support level, but these two
other currencies are pointing to a dollar demise. Of course a dollar
crash would in the short term jack commodities higher, so today could be
the beginning of a very big trend for the dollar.
Watch
List
The TradeMaster Daily
Stock Alerts watch list is
bullish again but cautious except on bonds and technology. For a full
list of our trades and video of our current stock watch list CLICK.
