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Plenty of charts, especially in the industrial material/energy complex, are sporting patterns like the two below. They are far from what you would see in the middle-to-advanced stages of an established uptrend, which means the bulls have more heavy lifting to do in the interim. However, make no mistake that shorting charts that are firming up and forming tight bases after a steep downtrend is extremely risky business. After all, take a look at what has happened over the past several weeks, as shorts have been quickly transformed from heroes into goats after Thursday’s sell-off.
Hence, my strategy has been to look for the big short squeeze plays for a bigger bang for my buck in the shortest amount of time. If, and when, we see more evidence of sustained uptrend materializing, then I am going to branch out to longer-term swings, with projected holding periods of weeks and months.
Currently, the market is overbought by many–but not all (RSI)–indicators. An overbought market can stay overbought in a bullish tape. While that point is obvious, a more subtle one is that simply going sideways for a day or two can alleviate the overbought condition as well, without giving shorts anything to cheer about. I am still focusing on individual charts in aggregate more than indicators or sentiment data.
Headed into Tuesday, I am prepared for the idea that some of the super high beta, small-cap names may start to put the hurt on shorts who have thus far been mainly punished by the large or mega cap stocks. In other words, we could see the proverbial “dash for trash.”
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I would like to award you with the “Best random images in a blog” award.
The stock advice is good too. Thanks!
Cemex and some of the other highly leveraged building materials Co’s seem to move around like the banks. For the same reason I guess, exposed to the housing market and to the cost of debt.
you aren’t bearish enough! don’t you know 2012 is around the corner!?
how dare you examine charts so calmly, logically & objectively when global destruction is inevitable
8)
After just a few short months, it looks like we just about “returned to the scene of the crime,” as you had predicted in August.
I like your work Chess. I should have been watching CX much more closely. All the chatter about their gargantuan debt kept me away.
Cheers