Friday, January 4, 2008

Not A Whole Lot Of Panic

Not A Whole Lot Of Panic

By normxxx | 4 January 2008

We had a decent long setup coming into the year, but it has failed and I managed to come out just about about flat. (I mentioned that I ended the year with a slight positive bias, but my shorts have done better than my longs did badly, so I 'lucked out'.) Not the best way to start the year, and I've backed off trying to buy into these oversold conditions as the technical picture in the S&P has deteriorated further.

There are plenty of examples to point to that show a severely oversold condition, at least in the very short-term. Volume on the NYSE is running 12-to-1 on the downside, the Arms Index is well over 3.0, and several of the broader sectors are showing price declines greater than 3% on the day. All of the above have typically led to short-term rebounds over the past decade, with a success rate between 70%— 85%.

I'm not banking on that tendency to repeat itself, at least not yet. I'm not a fan of trying to buy into a market that has had so little ability to rally from recent oversold conditions, with seasonality that is now turning a bit negative if anything, and lukewarm sentiment on an intermediate-term basis. But Monday will tell; Wall Street comes back to work from their Holidays in the Hamptons. If this does not signify anything other than "nerves," expect at least a 200 point bounce on Monday.

For those trading pure price, there could be an argument that the S&P may find support around 1400 - 1410 based on the long-term uptrend line from 2003 and the closing lows from August and November, but I don't trade purely off price levels.

I imagine we're going to start hearing rumors of an emergency Fed rate cut, but unless it actually happens I would stay away from trying to trade any rally based off such a rumor. About the only thing that would interest me from the long side at this point— and it would probably only happen on Monday— is a complete washout with new lows that expand to over 800 (they're currently sitting at about 500 on the NYSE) and huge volume. Given the mixed longer-term sentiment readings, I'm not interested in buying big price declines that don't generate panic-level readings.



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The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.

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