Exposing Ideas to the Envelope of Serendipity

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Thursday, May 20, 2010

Ripple Effect

As stock futures tumble, doomsday prophecies escalate, employment data worsen, the Eurozone's problems show little sign of stabilization, and pockets of civil unrest multiply around the globe, it's no secret that we've got serious problems. A feeble intraday bounce in the stock market on Wednesday was yet again welcomed by sellers as an opportunity to dump stocks, driving oscillators to historic oversold readings as investor fear continues to escalate. From a trading standpoint, shorting has become increasingly risky at these levels, at least for the near-term on an overnight basis, while attractive long set-ups have been few and far-between. Technicals and history argue strongly for a tradeable bottom to be close at hand, and as we saw in the rally from the climax low on May 6th, rallies out of sharply oversold levels can be strong. That said, the bearish patterns currently in place in the vast majority of charts along with a marked change in tenor to market and stock action warrant caution on the long side until or unless the technicals improve and we see confirmation that a reversal is underway.

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