Friday, May 19, 2006

Next Week's Golden Opportunity

What a week this was! But I am hoping next week is even more exciting.

Here's the kind of scenario I think it fairly likely, and if it plays out this way, it represents a one-two punch for bears to make money. Now that the big fall from earlier this week seems to have cooled down, the market has had a chance to stabilize. Both yesterday and today, the market seemed trying hard to compose itself (although the final hour yesterday caused the market to freak out and fall some more).

What I can see happening next week (barring a surprise this weekend) is for the market to get its legs back and start chalking up some gains. The S&P graph below shows how the market is rather oversold at this point, and I could see it scratching its way back to that median line:


The S&P 400 MidCap (MDY, shown below) also shows what appears to be a short-term bottom in the market.


So, moving up from these levels seems quite plasible. Profiting from this rise could be handled by buying calls on SPY, MDY, DIA (I'm less enthused about QQQQ, which seems too dangerous). Another good pick may be AAPL:


If we get a few days to make some green based on the market's upturn (which is when the bulls will come out, relieved that the worst is over), I'd close out those positions for a profit and start shorting. I'd wait until the market had recovered to some pretty obvious resistance levels before doing so. But if we are in a new pattern of lower highs and lower lows, this is a fantastic opportunity to profit in both directions.

2 comments:

John Wheatcroft said...

Tim - don't you think that if there is any appreciable movement to the upside (and Friday wasn't it) that there will be a super short squeeze? What Friday showed was an insane market with high volatility throwing itself this way and that overreacting to every rumor and half baked idea out there. (E.G. a .5 basis point raise in June). I was able to make my daily bread but it meant being very nimble.

What I see on the weekly SPX is simply more pain to come for the bull case. Although the stochrsi suggests an oversold condition it can stay oversold for weeks at a time, the MACD is only just turning down and the RSI is just crossing 50 from above. I think we're going to have to pierce the 50 day in a significant manner before an upturn is possible. That might take another 2 weeks to achieve (unless something bad happens this weekend).

Remember rule 1 is always - Preserve Capital.

John Wheatcroft said...

Anyone who wants a solid lock will wait until ebay prints a white candle above its 10 SMA on the weekly charts. It has a bit of a ways to go.

Short term if it prints a white candle above the 10 SMA on the daily charts. Still a ways to go. Before that happens I don't think I'd touch it. Goog is in pretty much the same condition but it probably will go over its 10 SMA on both charts before ebay does.

I hate Islands In The Sky which is what Bidu is printing right now. It has more potential to implode back to 50 before it goes to the heavens. Keep in mind that Baidu is Goog's competition in China. It isn't much use here in the U.S.

NTRI is another Island In The Sky (oriental reference for "mirage"). They always bother me because "all gaps will be filled."

Anyway, 'Cane, I like your attitude. I'm still buying at 3:45 and selling at 9:45 and scratching out a living. As long as it keeps working I'll keep doing it.