Monday, February 2, 2009

Working Lower

The Dow closed below the 8000 support level again and the Transports closed below the November low confirming the trend is down. However, it looks as though we will see one to two more days of rally in the Qs. Looking at a chart of the Qs it is actually beginning to look rather bullish, but I think this is a deception. A 2 day short squeeze fired off today in the Dow as the bollinger bands on the 2 day chart moved from inside to outside the Keltner channels and the Dow is below the midpoint of its 14 period range. (See John Carter's "Mastering The Trade" for details on this setup.) This squeeze setup has been developing since November and could be very powerful once the Dow begins to accelerate to the downside. This process may take the rest of the week, but there does not appear to be a catalyst to alter this outcome at the present time. Even the vaunted "Bad Bank" is probably already baked in so any positive response to news with that is likely to be short lived.

This month is the time to be looking for longs on the other side of the low and a number of stocks are building bases that look positive for March and beyond. Take a look at GMCR, SQNM, PETS, AMZN, RIMM, CPSI, QSII, AZO, HANS, ATHN, CMN, COGT, CEPH, TSYS, SAFM, EBS, OSIR, VRTX. These are a few that I like for later. I am currently long RIMM from early in January and I see no reason to exit just yet. It seems to be rising against the tide.

Patience. Patience. Patience. This narrowing trading range has eaten up 2 1/2 months, but we should soon see a strong trend or two.

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