Tuesday, January 6, 2009

When everything looks overbought

or has already started to break down, it is time to look for the general market to break down. I think we start heading down within a week and it will be a quick and potentially nasty correction. Everywhere I look I see charts screaming "short me, dude!"

Couldn't resist buying some BHP shorts today as we got close to 49 and have an order in to buy some more. Bought my final shares of SRS near 50 (I'm loaded to the gills with SRS now). I was looking through charts today and found this gem that I plan to short tomorrow: Best Buy (ticker BBY).

The retail sector in general, like most sectors, is oversold as well. I believe gold stocks have broken down and today (and possibly tomorrow) was probably the last day of hovering before the gold mining sector correction begins in earnest. I bought some puts on gold miner AEM today at the highs of the day.

Don't forget, all of these moves should be counter-trend down moves. I don't think the entire correction of the fall panic is over, but it won't go in a straight line and I am trying to squeeze extra pennies of profit out of the bigger twists and turns. Come next month, I'll be starting to look at re-entering the gold miner trade from the long side for a big move up. Rallies need rests, and this one is no exception.

I think people are too bullish right now. Notice the previous bear market in 2000-2003 and our current bear market and the percentage bullish sentiment (black line) versus what happened next in the S&P 500 (blue area chart in the background):

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