Wednesday, February 23, 2011

Give the bulls a chance

You readers don't need me to tell you that the bulls got crushed yesterday. You get enough of that from people proclaiming a top at the start of every pullback. Yes, yesterday was bad for the bulls. I am not arguing with that. Perhaps, the only consolation for the bulls was that SPX managed to close above MA(20). All I am saying is that seeing the dominant performance by the bulls in the last few months, they deserve a chance. Don't panic. No market can go straight up forever. 

I am willing to side with the bulls for now and will take short positions only as trades, using cash as a hedge for more possible downside. But no one can get the benefit for ever, and so must be the case for the bulls. Looking at the chart below, there is strong support for the bulls at the 1275 area with the MA(50) providing further support above this level. 

Until this level is breached, I am siding with the bulls. Cash remains my choice of hedge until 1275 is broken. The plan is not to chase momentum stocks, but see how they behave during pullback and look to take small starting positions in case they do behave well. The small positions would allow make it possible to give these positions room to run, thus avoiding the futile task of calling bottoms.

Take care and good luck!

No comments: