Tuesday, December 9, 2008


We formed an inside day. Technically, the market can go either way, but it usually marks a period of consolidation which marks a continuation in the trend. The market (SPX, DJIA, COMP) is sandwiched between the 30-day MA and the 50-day MA and there's going be more neutral trading.

Volume has also become increasingly light. Typically on a breakout, you see huge volume, and during consolidation, you see declining volume. We are seeing the second but we didn't see the first, and that alone can be worrisome.

Still, the market remains in a neutral range bound by the 50-day MA and Monday's gap. As long as the market doesn't breach 880 and breakdown, then the bulls still control the market for the short-term. As of today's action, the breakaway gap still stands and judging by the action in the last 2 hours, we could be setting up a small double-bottom.

What I'd like to see is a break out from the 50-day MA, but that is probably too much to ask for. If we form a bullish stick sandwich and cancel out today's loss, then that would be bullish enough. I think the smartest thing to do is to have a large cash reserve to take up positions once we leave the consolidation zone.

My two biggest plays today were long DRYS (since yesterday) and EXM (this morning), bringing me up to a +18.4% gain for the month so far. I got smart this week (vs. last week) by getting into a 50% cash position and cut out all leverage. Those we're heavily-concentrated allocations for my spiker strategy. Typically, these same names turn into short candidates once they run out of steam, enabling you to profit from them on both sides. Always look out for spikers for a quick day trade or 2-day hold.

SPX 1-day

SPX 3-day

SPX 5-day

SPX 10-day

SPX 6-month

DJIA 6-month

NASDAQ 6-month

Don't forget to try the Free Trend Analysis. It's FREE, so give it a shot!


Bob said...

Credit card companies next to fall?

John C. Lee said...

credit cards are already falling.

JWC4 said...

Hi John,
I am up about 16% in RTI, your thoughts on when I should get out.


John C. Lee said...

hold it, place trailing stops set at the previous day's low. This pattern is called the 'measured move' and it's beautiful.

JWC4 said...

Great! Thanks John