Mayday! MayDay!...May Day!...???

*Note: Recent posts are on the right.

Some housekeeping notes
1. I use mozilla not IE primarily which may have affected the browser viewing. I hate IE but I will try to post using it.
2. Spelling/grammer- I'll copy the text into MS Word and copy back for the most part to clean up... as I did here.
3.Note: This article was written on Thursday Night. I made a few minor clarifications/edits on Friday evening but everything else was said before the events of the market on Friday.

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I am seriously considering short instruments here and have protected profits in almost all of my longs (DSCO is an exception... it's movement is not based on the market so much but more on what the FDA does... and I have not added to it just held off of the 1.5 mark where I got in). I always use stop losses in a market like this to protect profit and minimize losses. So here is why I feel this way...

I mentioned on a recent post (see recent posts) that I thought a market correction might be coming heading into Memorial Day. When foundations, such as an institutions and hedgies, know everything is fundamentally souring in the US economy but everybody is short, you are in an election year, and it's traditionally the best time of the year for stocks... it just makes sense for the big boys to have a nice bear market rally. Especially when Uncle Ben seems to be behind you and is even fudging numbers to prevent panic (see time to pretend post). I said I was waiting for the charts to confirm my hunch about the market correction. They have to a tee so far. I mentioned that I would especially be looking for declines in weak sectors (that had rallied of course like everything else) as a potential sign of things to come. The idea here is that it takes time to take money out of the market and in anticipation of the end to this rally the worst sectors might start to sell early. Take a look of this chart of the financial stocks recently.

In the sell off in the fall and beginning of this year the financial charts were an exaggerated version of the rest of the market. I cannot see into the future so I try to look at the evidence of a deeper sell-off to come over the next days/weeks...

Fundamentally I along with many others, such as Greg Ruffin, Trader Mark, Denninger (see blog menu... market ticker) have shown evidence that the market has no business being this high. Now I feel the storm is taking on a meaner tone. Memorial day is approaching. Sell in May and ...etc.... the Fed basically said they are not willing to further reduce interest rates in the near future and that there will be more job losses than previously "thought"... there goes the argument "that everything will be better in 6 mos" stock rally excuse... home prices are going in one direction... the mess is just getting started. And... in an election year... it just makes sense to sell in the summer and then pick stocks off the bottom again going into the last part of the year when the election will be stage center...

These are thoughts but if right the thoughts mean nothing unless the market leads the way. At the bottom are the charts of SPY, QLD, and UWM. What a wicked bounce of the 200 day SMA... almost as if it were planned that way. There is still quite a bit of room to fall to the next moving average support areas in each of these charts and I expect we will re-test these areas soon. However, without the charts continuing to support this theory the shorts remain less than optimal. I didn't wait for the charts enough on DUG and paid for it by just missing with a 2% stop loss... By the way... notice as I said two posts ago that the combination of RSI under 30 and turning up was a good time to buy DUG (but I didn't have time to watch the charts that day so I bought in early)... well those were able to wait for the RSI to turn have had a nice gain so far. If the whole market sells off I think that could be the strongest catalyst to turn the overall trend in DIG down. It has already started. Is this a correction or the beginning of the trend in the other way? I will be watching the charts and conditions closely when I can as I think we may be seeing a turning point for a while. I do certainly advise to protect profits in long positions...

*Before posting the charts I want to say one thing about SDTH: this company is very much in tact.. it's huge sell-off is due to the horrible market, exacerbated by the uncertainty short term of the convertible notes (price, number of shares, etc.) Please don't let he recent stock market rally fool you. We are in a Bear market and have been since October. In a different market this company does not sell of f like this... but like many small cap stocks it is very vulnerable to market swings.

The best time to sell at least some SDTH was when it failed to reach/cross the 100 SMA after a close on the 20th of 9.75 (see exact chart at bottom). or at least a stop should have been put out to protect profits. My stop was hit, albeit lower than I should have set it in this market... This company is a firecracker and I think has the potential to be a phenomenal long-term growth stock. If you are willing to ride out this market it is still a hold or a buy. And short term who knows it might bounce off of 8 but I don't see it going back towards the 100 day any time soon without a catalyst to the upside. I might buy a small amount at 8 if it retests as a hedge with a tight stop... Here is my post on the battle between a great company and a terrible market.

The charts ... I will look for the RSI to below 50, volume ,etc. and may buy QID, TWM, or SDS. I will also be looking at DUG and SKF. Will this sell off happen for sure... I have no idea... but I will be watching for it... as always this is just information designed to help myself and others make informed decisions...




Here is the Chart of SDTH (added to the post Sat morn).



This blog is for informational purposes only. It does not give investment advice.