I’m 6 ft 3 But I’m Still Short
The market’s recent rise on diminishing volume spells setup to me:
I’m firmly convinced that there is no way out of the current economic “situation” that entails a rising stock market. However (and there always seems to be a damned however), I’ve learned my lesson a thousand times over: being right about the call is meaningless if you’re wrong about the timing. And on this scale, it’s easy to be wrong about the timing by months. There’s no way to know if this setup is leading up to the bigger, longer-term drop I’m anticipating. So I’ve gotta mind the rules, and trade the chart.
I have a small short position I’ve been carrying since early March, a position which has its stop above the February highs. On the next break (below the previous day’s low), I plan to add to that position and reset my stops lower.
If we roar on through the (2/27 and 2/22) resistance levels I’ve marked on this chart, well, c’est la vie, I’ll get stopped out.
Getting stopped would give me a great excuse to start drawing lines in the other direction, and look to get long. I’ll do it based on the chart, but I’ll do it with great caution, because my overall big macro umbrella blanket cosmic overarching opinion is that the Fed has been castrated by the combination of slowing growth and still-threatening inflation and that there’s nothing they can do to avert the coming crisis (they’ll try lowering rates and pumping in more money again, but I don’t think that’ll work this time; not enough room to lower sufficiently, inflation will flare, and the dollar will crater).
What a downer. Guess that means I’m thinking we’re near some kind of long-term top, and Goldilocks’ hair is about to fall out.
Well, hell. I guess it does.
Fan said,
April 8, 2007 @ 6:46 am
superb analysis as usual Will. Now here is something nutty on the charts—look at SPF, LEN, MHO and tell me they don’t look ready to bounce??? But can you imagine a deader cat than homebuilding? I cannot, so I can’t recommend these stocks for any fundamental reason at all. But those charts sure look interesting for the short-term, or the justified cratering could always continue. still, I did not think you would mind me pointing these out. cheers.
Will said,
April 8, 2007 @ 9:49 am
Don’t mind at all- I enjoy hearing other folks’ thoughts and ideas, helps keep me from getting too narrowly focused, gives us all new ideas, and makes the site more interesting for everybody.
Those charts (SPF, LEN, MHO) do all show that same massive downtrend since January, and they’re no doubt severely oversold on any oscillator we put on them, but I’d never try to “guess” where to enter. Maybe we could watch for a particular candle formation (bullish engulfing, strong bottoming hammer) or for an oscillator signal (the old “bottomed out and crossed over “x” on the way back up).
Many of the trading methods which attempt to capture a bottom (I’m thinking specifically of something like an RSI below “x” and then 2 or 3 lower closes)… those methods have shown multiple FAILED entries on this downtrend, so I wouldn’t really trust one of them- better to wait for a clearer sign of a reversal.
Also, I completely believe that any reversal to the upside for these stocks would be very short-lived, and if traded, should be traded as a retracement play (short swing trade) with an aggressively-trailed stop.
Fan said,
April 9, 2007 @ 5:19 am
exactly right. the doji on MHO was the main reason for my post.
will watch and learn today. no trading.
Best
Fan said,
April 9, 2007 @ 7:46 pm
Now MHO has put in a hammer on the candlesticks. It will be interesting if this will mark a short-term bottom. Will if you were considering a trade of this dead cat would a buy stop above today’s high be a worthwhile way to go about it???? This ain’t no Warren Buffett buy and hold play, that’s fur sure. cheers.
Will said,
April 10, 2007 @ 7:07 am
Fan- that MHO candle is poorly-formed, and doesn’t seem to me to present a clear entry; I’d think of it as a much stronger signal if the high were lower, the upper wick were shorter, and the volume heavier. That being said, if the morning action today looks promising, a buy stop above its high may just work. With the long trip down to the Initial Protective Stop, the position size would necessarily be smaller than normal. As oversold as these things are, they may bounce heavily at any point- I’m just very wary without a really strong signal.
Fan said,
April 10, 2007 @ 4:38 pm
what are you putting in your morning coffee Will? Looks like you were dead right, again! thanks for the input. this dead cat looks like it just wants to lie there…
Will said,
April 10, 2007 @ 10:07 pm
(Thought I’d throw the chart in here so folks could see what we’re discussing)
***
In answer to your question, Jim Beam.
Fan said,
April 12, 2007 @ 6:40 pm
Check out MHO today. A buy stop above the prior day’s high might have been a great way to get into this bouncing cat.
what say?
Will said,
April 12, 2007 @ 11:23 pm
Long above the prior day’s high would’ve caught a *very* nice move, but only if we used it today. I saw that thing running, and I thought “damn, I wish we had seen SOME kind of indication”. Only thing notable was the string of lower, lower, lower, knowing it had to rally at some point. Today would have been caught nicely by the Trading Markets R2 method, but that same method (3 lower two-day RSIs below 60), would have gotten killed over and over previously, so I still wouldn’t trust it to trade this stock.
I think I’m more inclined to wait for a pullback and then enter short. Fewer ulcers that way