Monday, February 8, 2010

Where do we go now?

Firstly, today is the first month anniversary of this blog! I am very encouraged by, and grateful for, the support given by you readers out there. Thanks!!

On the markets.... Today was pretty disappointing for the bulls. Absolutely no follow through on the bounce on Friday afternoon. I kind of saw this disappointing performance coming last night. If the bounce that we had on Friday actually stood for something, then considering the scale of the bounce, the futures should have been way up last night. Instead, the futures were struggling to stay in the green. I thought this wasn't a good omen and posted about it on Twitter (I cant get myself to say, I tweeted about it!).

So, that was my frame of mind when I entered the trading day - highly skeptical of any green. So, I got out of my overnight NGD position at 4.33 for around a 7.5% gain. Not bad. But as I had explained on Friday, it wasn't a very big position. Sometime during the day, I also got out of GMCR at 81.75 for around 0.74% gain. As you regular readers know, there was a thesis behind this position - everybody was too pessimistic on Friday morning and I felt I should go long some quality stock. Well, the bounce showed that I was right. But now with the bounce out of the way, I couldn't justify to myself holding this position, so out it went. In hindsight, and I am cursed with an excellent hindsight, both these decisions were the right ones.

Early in the trading hours, I also took a fairly large position in LCC at 5.88. It was in the watchlist I had put up last night, so I hope some of you readers benefited from it too! It was larger than the positions I usually take for two reasons a) I was still feeling fairly confident from my trading on Friday. (b) My stop-loss was 5.84, so I wasn't really risking much. Well, a few minutes after I bought it, it broke out on fairly large volume. I don't have to tell you readers that its a nice feeling when you can anticipate a breakout! I sold half my position at 6.07, giving the other half room to run. I though that was a pretty decent plan, and still think I made the right decision, but the stock turned with the rest of the market in late afternoon and closed at around 5.92, leaving me with a smallish position now. So, that was my trading day. Not bad, I would say. And I don't say that just from a money point of view. Any trading day where you have no regrets at the end of the day is a pretty satisfactory day, at least in my by book.

So, where do we go from here?? Like I said in the beginning, today was not a good day for the bulls. They had a chance to take back control of the markets following the comeback on late Friday, but it wasn't even a close fight in the end.

For the S&P:

Immediate Support - ~1032
Immediate Resistance - ~1072

Though the chart looks pretty bearish, I do see a couple of encouraging signs for the bulls - (a) Lower volume on the selloff today (b) A positive divergence beginning to emerge on the MACD.

To summarize, I would recommend keeping an eye on support and resistance levels given up there. The chart does look bearish and is in no way in the oversold territory yet (I checked some other general market indicators). Perhaps another day or two of selling and we will get there. As we come closer and closer to MA(200), I expect more and more bulls to come out of hiding. No matter whether you are bullish or bearish, I would recommend holding a substantial cash position to protect your account and also to make full use of any opportunities that might come knocking. I for one, am in over 60% cash, after my adventures today.

Take care and Good Luck tomorrow!

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