Thursday, May 7, 2009

Sell On The News

The day began on the upside, but the rally quickly faded and led to selling the rest of the day with most of the banking stress test news leaked yesterday. There is no indication as of yet that this is any more than a 1 to 3 day pullback. (See additional comments below.) The bears were definitely able to defend against the upside breakout above the January highs in the SP500, but for how long will they be able to keep it up, and how fast will they have to cover when they fail? The news on the banks is clearly not as bad as was feared regardless whether we can believe it or not, so there there is little doubt that the uptrend will resume, in my opinion.

It is also not surprising that there might be some selling ahead of tomorrow's employment report even though the ADP report was much better than expected.

The Qs closed just above the 200dema and I expect that level to hold even if there are probes below it intraday. If they were to close below the 200dema and fail a test from below, it would be a signal to lighten up on the long side.

I am short RIMM and EXPE (half positions) for an expected visit to the 200dema for each. Both are extended above their 50demas and a pullback is in order. These are 2 to 10 day trades, not trend trades.

APOL closed below its trendline today. I expect there may be a test of the trendline from below before more downside, but the trade is working nicely. I expect STRA will play catch up at some point. I am also short GME from 27.75.

If this corrective period extends it may last up to a couple of weeks and should prove to be a good opportunity for longs to add to positions for a final runup into June and July, but I would be cautious about overdoing it. As today shows, when the selling finally does begin, it won't take long to give back profits. The likely period for a completion of a longer correction is between 5/15 and 5/22, but it will probably not be all down until then.

The UNG closed up nicely today at 16.22. I am long from 13.90 with a half position. The UNG has been wedging down into a low since the beginning of January. It seemed likely that nat gas would catch up to oil at some point. I entered this position by trailing a stop lower just above each successive lower swing high in April. I will be looking to add to the position if given the chance, but if not I will just ride the trend as long as possible. I am also long the DXO.

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