I for one can’t wait for this year to be over and it’s not because I think the markets are magically going to rebound in 09′, but as a trader you get a fresh slate to work with and you can clear your mind. This year has been especially difficult as I’m not a pure day trader and it’s been very hard to hold positions over night with all the government interventions that take place over the “weekend huddles” that are held on most Sunday nights.
I hope/believe that the government is running out of bullets with which they can manipulate the markets as they’ve thrown everything but the kitchen sink to keep these markets afloat and now the real question is will it work? I’m looking forward to when the capital markets can do their own thing and we as traders can get back to what we do best is work with technical analysis instead of trading off the most recent breaking news story when the markets zig zag 500 points up and down in the same day.
As of Friday’s close the Dow is 15% up from it’s recent lows of 7449 and has risen as high as 21% back on December 8th. I would say the general consensus from most of the blogs I follow is that the markets are going to roll back over here to fresh lows very soon. While I do see the markets hitting new lows sometime in 09′ I have a feeling that we rally a little bit more here and I’ll give you a few reasons why I think that may occur.
- Seasonal bullishness. Tax loss selling could be a factor here so we’ll have to keep an eye on any particularly heavy selling.
- I calculated the average bear market rally from the 1930 timeframe as being around 33% and with this current rally being half of that right now I think there is still room to run higher to suck more people in on the long side before it rolls over. My target is slightly north of 9500. If we got that close people would start to have visions of grandeur (Dow over 10k again) and start piling back in only to be tricked when the market rolls over.
- The Beta Watchlist is yielding quite a few long candidates with rising volume breaking out of consolidation areas.
- The Vix is dropping which means volatility is falling and that’s always bullish for stocks.
- The NYSE Summation Index continues to rise which is great for stocks as are the RSI and Full stochastic on this chart.
Let me be very clear about this one point. Although I am bullish and my market timing system was telling me have the mind-frame up until the close on Friday. I got a neutral signal which means if I’m currently in positions (long THI and REG) to hold and to back off entering new positions as we could be about to enter a new downtrend.
These next few days will be critical in determining which way I play the markets. We have had many whipsaws lately and false directional indicators, so I’m holding off making any big bets at this point. If we have a solid green day my indicators would go back to green and it would be safer to buy stocks long in my opinion. An equally bearish day would push me in the bearish camp. Be aware the Nasdaq has been displaying strength and could drag the markets up and financials have outperformed the Dow lately. These two factors could help drag the markets higher.