By: Scott Redler
Last night I went on CNBC Asia in order to talk about trading strategies through the choppiness that we have seen in markets early on in 2010. Here is that segment, as well as my preparatory notes and charts:
Coming into this year we were looking for a composure change in the market–the uptrend break was it. We said that this year would be a CHOPPY YEAR, a trader’s market. Now it’s time to consolidate last year’s big move, with lots of negative headlines that the WORLD will have to digest–this is very tough news.
The uptrend broke on January 21st, with the S&P at around 1,130 and we have corrected about 9%, down to 1,044. See the chart below for a visual.
The question is, where do we go from here?
On a micro level, we need to see if 1,085-1,095 contains this reflex, oversold rally. If so, and we turn lower, then look for a break of 1,060-1,064. Such a break would confirm a move through 1,044 and a test of the 200-day moving average, which now stands at around 1,025.
Trading institutions and investors must manage their positions and figure out what news is priced into the markets, and what isn’t. Tech is acting the best overall, as they have the cleanest balance sheets and the least risk to geo-political headlines.
Here is an example on how to trade ranges–Google (GOOG) was at $620 when it sold off on the Nexus One release/sell-the-news event. Now the stock is ranging between the $535-540 area. It’s worth looking to try a long in order to catch the oversold move, using the low end as a stop. Take a look at my attached chart as an example.
We are continuing to buy the semi’s, and also Apple (AAPL), Cisco (CSCO), Microsoft (MSFT), Research in Motion (RIMM) and Baidu (BIDU) (I have attached Apple’s chart for an example).
Sector rotation is the only way to trade this market and outperform the indices.
We sold gold on December 2nd at 1,210 an ounce, as it went parabolic. I was on CNBC Asia that night and told Amanda Drury that I was done with it and would buy back in at around $1,060-1,080. The buyback came on February 5ths outside reversal day–around $1,060 in the futures and $104-105 on the GLDs. This is a prime example on how to TRADE THE RANGE. I have attached the gold chart as yet another example of range-bound trading.
There is a ton of BAD news in the world–news that markets will have to absorb. Right now, homework is prudent and watching the market reactions is key.
In early January, the market sold “great” earnings, and yet now we are buying bad news like Greece, etc. I do think it would be best if Greece does not get bailed out at this point. I also think CHINA is being very prudent in raising its reserve requirements. TOUGH MEDICINE is the only way the world will move forward. America should learn from this as we need to worry about our own state budgets that are bloated by public sector spending.
We need to live within our means–and it will take time–this is why you MUST trade the ranges of this market and not chase any large directional moves.
