After the kind of run up that we have had since the QE2 announcement last Wednesday, a pullback is hardly surprising and even expected and a 60 odd point drop in DOW is nothing for bulls to lose sleep over. The overall bullish trend is very much in place and the market leaders are doing their job well.
But what was far more interesting today was the way many momentum stocks such got hit, mining stocks being a case in point. Palladium, which has actually outperformed gold by quite a bit this year, had around a 10% intraday drop today. PAL, a palladium play that has treated me very nicely in the last month or so and in fact which I held until yesterday, got hit quite badly and the chart will take some time to recover. I must admit I was repenting my sell in 5.60s a bit when it opened in 5.80s today but not it doesn't look that bad!
SWC, another Palladium play, also has a similar chart. JASO, another stock that I like to follow and posted good numbers early today, also got hit badly in spite of gapping up quite a bit in the morning. The key with these momentum stocks, especially the Chinese ones, is that you have got to take profits while you can and not get too greedy. The action in these stocks is pretty much dominated by day traders and no matter how good their charts look, you have got to be careful and monitor them closely or use trailing stops. Unless these momentum stocks that went down quite a bit on heavy volume today post impressive gains tomorrow, their charts will take some time to recover and I will be avoiding them until they set up again.
Like I have often said, I will continue to remain bullish until we break MA(20) on the S&P and I still stand by that. The chart below shows how far we have come from the MA(20), thanks to the action last week, and that gives the market quite a bit of room for a healthy pullback.
My over 85% cash position will act as a hedge to my long PTEN position (took partial gains at 20.41, so can give it a bit of room) and I have no intention of shorting in case of a pullback. Its been a nice last one week and its time to protect those gains.
Here are the links to Chart of the Day and an analysis of the US dollar. Take care and good luck!